Pawn Shop Prosperity

ARLINGTON, Texas, April 21, 2008— -- At the Cash America pawn shop in Arlington, Texas, you could outfit, repair and protect your house with all that's on the shelves — the cast-offs of other people's lives.

With the economy near recession, pawn shops are overflowing. People are using their valuables as collateral for loans, most hoping that in a month or two they'll have enough money to pay back the loans plus interest. Otherwise, their valuables belong to the pawnbroker.

Sandra O'Neil wants to buy back her grandma's ring one day.

"My grandmother would haunt me from her grave if I didn't come get this," she said.

Cash America's CEO Daniel Feehan is reluctant to admit it, but hard times are good times for the pawn industry.

"During the early stages of a downturn in the economy we're gonna get a temporary boost as people use our lending services to try to adjust to the changing financial services they find themselves in. And they'll use our retail services to find bargain purchases on merchandise that stretches their dollar a lot further than it would otherwise go," he said.

Craig West said he comes in now a couple of times a week. Now he's selling tools for $15. He's sad to leave them behind, but said, "you do what you gotta do."

The extra cash will end up in his gas tank.

"It's tough, it's real tough," he said.

Doing Well in Good Times and Bad

Customers are selling either because they have things they no longer need, or because they need something else more. Herbert Bailey got $90 for an old gold chain he's not planning to redeem. Essentially, he's trading gold for gas.

"Gas is $3.50 a gallon in some places, $3.25, $3.00, a little extra money helps me out right now so I'm happy with that," he said.

That's a typical refrain here: the high cost of gas and food has led customers to empty their drawers and storage sheds.

"We do pretty well in good times as well as bad times," Feehan said. "We have a very steady customer base. We deal with a segment of the population that is typically referred to as unbanked or underbanked. That represents about a third of the working-age Americans in this country."

And Cash America is in position to reach them. With 500 pawn shops in 22 states, more than 300 payday advance outlets around the country, and online it's one of the leaders in the industry.

"My dad was a union printer. My mom managed an insurance agency when I was growing up in the '50s and '60s. I remember watching them struggle to make ends meet month to month and try to stick away enough extra cash to help pay for college for their three sons and things," Feehan said. "And that's the kind of person that's still out there today and still has the same struggles trying to get from payday to payday."

About 75 percent of their customers will later reclaim their valuables. What you see for sale represents the 25 percent who can't or don't.

A Bittersweet Experience

"People use us typically for short-term emergency needs or unexpected bills that they have and they're glad we're here to help," Feehan said. "If they've got a unexpected medical bill, extra high utility bill in a particular month, or their car, their transmission's out, they need some help just to get from there to the next payday."

If that's true, Linda Crook and her son Jeremy are the exception. They came in to sell stereo headphones now that she's lost her job. She's trying to keep their home.

"I've never been in a pawn shop, never," Crook said. "I've been bawling all morning because we didn't have any money. I got laid off from my job in a homebuilder after all these years."

Cash America says its average pawn customer comes in two to three times a year and gets $100 each time. For payday customers the average is $300 and they'll pay about $15 or $20 for every $100 borrowed for 30 days.

Feehan says that's equivalent to an annual percentage rate of 240 percent.

Stephen Chaplin, who wanted to refinance a loan by using Cash America Payday Advance, says he's read the fine print, and knows what he signed up for.

"I'm very lucky to have this place," he said.

"Sometimes if you have several checks that are going to bounce and you're trying to get $500 spread around town, you have the option of bouncing those checks or coming here and getting a $45 fee on a $300 loan," said the vice president of Cash America, Mary Jackson.

Lani Jones, who says she buys, quote, "everything" at the Cash America pawn shop, admits it's a bittersweet experience.

"I have sold before, back in the old days. But now I pretty much buy. But I see a lot of people selling. And it's pretty sad. The price of gas is high, groceries is high. Everything's going up. It's sad seeing these people," she said. "And it's sad when I buy sold things, like mothers' rings. You know those type of things meant something to somebody."

As much as bad news makes good business, Feehan worries about the market slumping even further.

"You gotta remember we are a lending business and ultimately our business works best when people are paying us back. And if a recession is very steep and very extended, it will not be good for our business," he said. "It's a balance that we have to continually monitor and continually keep."

And a careful balance for those seeking alternative credit as well.