Pawnshops are becoming a go-to place for cash in hand

It's early afternoon at Loan Star Pawn in Irving, and a handful of regulars -- customers, off-duty police officers -- are gathered around a coffee table in the center of the room. Pictures of smiling patrons and friends are stuffed under the table's glass top. A few men are eyeing the nearby jewelry cases and a gun rack on the back wall. A mean-looking semi-automatic .22-caliber rifle is going for $559. One of the men looks interested but doesn't bite. The longer it sits on the shelf, the lower the price will drop.

Platinum and gold glitter from nearby cases. Watches and diamond rings are the hottest items in most pawnshops. So are weapons, guitars and electronics. "Every pawnshop fits with the owner's personality," says Loan Star owner Vincent Santoscoy, who couldn't resist adding a stuffed buffalo head to the eclectic collection of oddities in his shop, which includes tools, a singing Hank Williams Jr. doll, a 6-foot wooden Indian with an American flag carved around its private parts, and even a stuffed rhino head.

As the country struggles to dig out of a devastating recession, a pawnshop renaissance is upon us. What has long been thought of as the just-this-side-of-legal domain of greedy loan sharks and desperate customers keeps pushing into the mainstream. There are now more than 13,500 pawnshops operating in America, and two of the largest corporate pawn chains are headquartered in North Texas -- Cash America International in Fort Worth and First Cash in Arlington. There's even a reality-television series devoted to the phenomenon, the History Channel's Pawn Stars .

The allure of the pawnshop becomes obvious the moment you step inside one -- especially for someone who has hit hard times. While a money manager might balk at the notion of floating debt for small-business owners, for those caught off guard by unemployment, a divorce, or a child's sudden trip to the emergency room, pawnshops are a stopgap. Better than a bank, safer than a loan shark, less creepy than Craigslist, they can be the difference between a little bit of debt and bankruptcy or worse.

Like most local pawn stars, Santoscoy, a married 48-year-old Irving native, is more interested in keeping customers like Mark Carr coming back.

It's Thursday, and the scruffy 53-year-old Irving musician is pawning two gold high-hats, crash cymbals from a drum set, for $20 each. He plays in a classic-rock band with his brother but needs quick cash, "so I can make it to the weekend," he tells Santoscoy. "I'm gonna need them back but not soon." Normally, the loan wouldn't be that high for each cymbal, but Carr's a good guy. He looks trustworthy -- and, after 18 years in the industry, Santoscoy says, you learn to trust your gut when it comes to people.

A new 'solution'

When most of us think of pawnshops, the images conjured up are not especially pleasant. We may think of cigar-chomping men holding a wad of bills, exploiting others' desperation. We may assume that the people pawning their jewelry and electronics are doing it for drug money.

The shops are also not without their share of controversy. Many regard them as a blight on the lower-income neighborhoods in which they are often located. In 2006, the Fort Worth City Council adopted an ordinance restricting pawnshops from operating in residential areas -- an ordinance that pawn industry representatives have been lobbying to have changed.

The reality of these places, though, is at once more ordinary and more fascinating than we might imagine. There's a unique smell that's pure pawnshop funk -- a mixture of burned oil from used tools, metal, sweat from leather jackets and ammonia from glass cleaner used to remove fingerprints from jewelry cases. Bars cover every window. Security cameras record every transaction. There are shelves and shelves of stuff, some of it seemingly worthless, some of it shockingly valuable, like a real Navajo bow and quill set in a fox pelt going for $125. (Santoscoy paid $50 for it.)

At Loan Star Pawn, one of 12 Irving pawnshops in a 20-mile radius, Santoscoy greets every customer who walks through his door with a smile and a hello in English or Spanish. A friendly broker, he's a lean, clean-shaven professional who looks you in the eye when he speaks. A handshake seals a deal in his store. Paperwork makes it legal. He doesn't mind, either, if you're surfing for a better bargain on an item or simply browsing. Customers will come back if there's a connection, if they feel like you're being honest and fair, he says.

As with most pawnbrokers, Santoscoy offers a variety of services: layaway, consignment, buying and pawning. The pawning process is simple: You bring in an item, a pawnbroker appraises its worth, both parties agree on a price and the customer signs a loan agreement specifying the amount of the loan and time frame for repayment.

Pawned items are placed in storage -- you sometimes pay the storage fee, usually $1. When a customer repays the loan plus interest in the specified time frame (30 to 90 days depending on the shop), the item is returned. If the loan is not paid, the item becomes the shop's property and is typically placed on display for resale.

And while pawnshops might have a reputation for operating beyond the law, they are in fact legal and regulated, with limits to how much interest can be charged.

"The pawn business is all about relationships," Santoscoy says. Those relationships are often more important in a transaction than the sale or loan. They're what keep customers like Shannon coming back.

A small-business owner, Shannon is in the shop today to make a loan payment. She had to hock a pair of gold Tiffany earrings to help cover payroll -- gold is better to pawn, as the value is in weight. Entrepreneurs like Shannon have had a hard time getting quick cover loans from banks and have turned to pawnshops for fast money.

"It's a small-business solution," Shannon says as she flips through a stack of receipts filed in sequential order. A short woman dressed in a brown beret, pumpkin-orange sweater and prescription leopard-print sunglasses, Shannon has about a dozen live tickets at two shops. (A sign of the stigma that remains attached to the industry: Despite her enthusiasm for pawning, Shannon preferred that I not use her last name.)

"When I was making a lot of money, I was buying jewelry," she says. "I am a Tiffany freak." Thirty years ago, after a divorce, she turned to pawnshops to help cover bills. She started coming to pawnshops again last year.

In good times, she invested in hard assets, like a $40,000 yellow sapphire ring surrounded by three carats' worth of diamonds. She got a $500 loan on the ring. And in bad times, those assets have come in handy. She has encouraged friends to use the pawnshop, too.

"They get in a tight spot for money and they don't know what to do," Shannon says. "I tell them, 'You got an asset, you got jewelry -- why don't you pawn something?'"

And as long as you make faithful payments -- which Shannon does -- those items come back to you. Shannon floats items around from shop to shop. "You'll get a second loan on your house," she says, so why not get a small, short-term loan on a pair of earrings collecting dust in your jewelry box?

Plus, "It's a great place to shop!" she says.

Indeed, most pawnshops have a wide variety of electronics, musical instruments, jewelry and guns. Most items are a fraction of what you'd pay retail. All that, and you can negotiate the final price.

Service industry

The pawn industry is not without its staunch enemies, who argue that these shops usually cater to low-income customers, most of whom have few other lending options when they find themselves in a pinch.

A pawn is similar to a mortgage on a home. The bank makes more money if you pay the loan plus interest but has an asset -- your house -- in case you default. Some 80 percent of people who pawn an item pay the loan payment in full to reclaim their property. (The average loan at pawnshops is around $80.) If a loan is defaulted and an item goes on sale, shop owners typically look to clear a 30 percent profit, according to Santoscoy.

"People say they provide a much-needed service," Fort Worth City Council member Kathleen Hicks told the Star-Telegram in February. "I beg to differ. They prey on people." Hicks has been a particularly vocal critical against those pawnshops that also offer "payday loans" - short-term, extremely high interest cash loans, usually until a customer's next paycheck. (Whereas pawnshops are regulated by the Office of Consumer Credit Commissioner in Texas, payday loan operations are not.)

The irony is that, as much of a boon as the recession has been for the pawn business, more customers can sometimes actually mean less profit. In the past 18 months, the number of defaults at his store has increased considerably, says Santoscoy. There have been fewer buyers, too, for resale items.

Still, Santoscoy says he sees new customers every week. "I've never been in a pawnshop before," they'll say. "I've never had to."

That's good news for Dana Meinecke, executive director of the Keller-based National Pawnbrokers Association. Her organization is trying to dispel the negative images many associate with pawnshops. "A lot of normal people" frequent pawnshops, says Meinecke, whose association has established to help inform the public about the industry.

People do still try and bring in fake or stolen items. It's a giveaway, Santoscoy says, when they don't know how to use an item, don't know the history of the piece or can't explain how they got it.

The bigger problem that a pawn proprietor faces: Customers who have a hard time accepting the pawn value of an item versus the appraisal price and sentimental value attached to it.

"When they say it's worth at least [a certain dollar amount]," Santoscoy braces himself. "I don't want to hurt their feelings," he says. But an $1,100 watch fresh out of the case just won't be worth that much in 10 years.

But Santoscoy firmly believes in customer service. "Independent shops have an advantage," he says. They treat customers like family. If he has a relationship with a customer -- and if the customer hasn't routinely defaulted on loans -- there's room to negotiate a higher price.

It's a phenomenon both curious and tragic; a development that, just a few years ago, probably would have seemed unfathomable. Businessmen like Santoscoy are banker, broker, buyer and counselor to customers. And when a middle-age musician has to pawn parts of his drum set for spending money, a daughter sells her father's signed pro-football picture or a heartbroken fiance cashes in on his ex-girlfriend's engagement ring, it's just another day at the shop for him.

"People would not believe what happens in a pawnshop," Santoscoy says.