The other lender of last resort

Pawn Shop Storefront

By Alyk Russell Kenlan
Medill Reports

COVID-19 has caused a role reversal in pawnshop borrowers.

During the first four weeks of Illinois’ stay-at-home order, some pawnshops in lower-income areas of Chicago saw fewer new loans taken out and old loans being paid back early. Pawnshops in wealthier parts of the city, however, faced a rush of new loans as people scrambled for cash.

Federal government relief has not come equally to all. For some middle-income earners, the overnight disappearance of jobs a month ago cast many into financial turmoil, despite stimulus payments and unemployment benefits. For those who were already struggling financially, however, government aid provided more income than before the pandemic employment.

“I’m completely baffled at what happened,” said Daniel Lebovitz, owner of Chicago Pawners & Jewelers located on Chicago’s west side. “People trying to get money is down 50%.”

Pawnshops are primarily financial services that give out cash loans in exchange for physical collateral, often electronics or jewelry. The borrower can then pay back the loan plus interest to get their item back. Or, if the loan is never repaid, the pawnbroker can sell the item in a storefront to recoup losses.

In addition to the decrease of new borrowing, Lebovitz has noticed an uptick in sales and repayment of old loans. He thinks decreased spending is one reason loan business has slowed. “People aren’t going out, and if they’re not spending any money, then they don’t need money,” he said.

Conversely, Royal Pawn Chicago, located in the Loop, saw a surge in new loans in April.

“I’ve never seen anything like this. It’s like a recession,” said Randy Cohen, who has been a pawnbroker for over 43 years. By May, he expects to see more business owners pawning valuables as people give up on their ventures and need pawn loans to pay off other debts.

The Bureau of Labor Statistics reported that full-time workers had median weekly earnings of $957 in the first quarter of this year. The $1,200 in direct payment stimulus and additional weekly unemployment benefits of $600 means that unemployed workers received a total of $3,600, or $900 per week, during April.

In East Garfield Park, near Lebovitz’s store, however, the median household income before the pandemic was $445 per week, according to the Chicago Metropolitan Agency for Planning, a regional planning organization for northeastern Illinois. With government benefits providing over twice as much money, on average, Lebovitz said it was another reason fewer people were taking out loans. “The unemployment is better than actually working for certain people,” he said.

Pawn borrowers are often low-income individuals, according to Professor Paige Marta Skiba at Vanderbilt University. In an upcoming book about high-interest credit, she found that pawn borrowers have an income of 80% that of the average income for their community.

Pawn loans are usually small amounts, just enough to bridge a financial emergency, said Cohen. Both pawnbrokers usually give out loans between $100 to $200 during a normal economic climate, says who. However, Cohen has been expecting bigger loans with larger collateral as the Illinois stay-at-home order drags on and small businesses start to run out of money. “Business owners are going to start bringing in Rolexes,” he said.

Since the order began, Kelly Swisher, the president of the Illinois Pawnbroker Association, has also seen an increase in new loans for his store, Arlington Jewelry and Loan. According to the U.S. Census, Arlington Heights, where Swisher is located, had a pre-pandemic weekly household median income of $1,747.

“[Before COVID-19],” Swisher said, “people needed $50 for gas to make it to work. We’re not getting that now. People need money for medication. Or their wife lost their job and can’t help pay the mortgage.”

Although the pandemic has led to difficult financial situations for individuals, some of the family-owned pawnshops have made efforts to help their community. At Royal Pawn Chicago, Cohen expanded his hours and the size of loans he offers.

Arlington Jewelry and Loan has provided $500 interest-free loans for new customers and isn’t defaulting any loans during April. Everyone in the Illinois Pawnbroker Association is primarily trying to help their customers, Swisher said. “I just feel it’s the right thing to do,” he said.

Photo at top: Pawn loans are a source of quick cash. (Osman Rana/Unsplash)
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