ROB SABO/Northern Nevada Business WeeklyDan McCassie, owner of Main Street Pawn in Fernley, says cash-strapped residents of hard-hit Lyon County have helped increase business at the store.
Strapped Nevadans once again are turning to their local pawnshop rather than a payday lender for an infusion of ready cash.
As payday-lending institutions cropped up throughout the state over the past decade, they siphoned off a great deal of business from Northern Nevada pawnbrokers, pawnshop owners say. But regional pawnshops once again are seeing an upturn in pawn transactions - mostly because unemployed borrowers lack the means to get loans at paycheck advance businesses.
Bill Burnbaugh, 62, owner of Capitol City Loans at 5951 Highway 50 East in Carson City, says he'd have a lot more business if he didn't have to compete with payday lenders, but changing your business model is part of running any successful business.
"We probably would be doing a larger volume, but that is the way things go in business," he says. "There is no guarantee in any business that it is going to last."
Burnbaugh has seen a dramatic dip in clientele seeking auto pawn loans since payday lenders entered the cash advance market. Burnbaugh says the number of auto loans written at Capitol City has declined by 80 percent in recent years as the cash-needy turn to loans at payday lenders since they don't have to put up any collateral.
Burnbaugh has been in business in Carson City since 1977 and has moved four times for bigger operating space. He's currently in a 20,000-square-foot building on 1.5 acres.
Dion Draper, partner for the past three years at Premier Pawnbrokers in Fallon, says many Fallon-area residents have exhausted their options at the town's paycheck advance stores and have come into his establishment to pawn their hard goods. They like the idea of pawning, he says, because there is no threat of legal action if they default on a loan.
"If they walk away from a loan, they simply walk away," Draper says.
Though business has spiked at Premier Pawnbrokers, Draper says he's also seen a higher default rate, and retail sales have lagged.
Dan McCassie, owner of Main Street Pawn in Fernley, says the town's three payday lenders once drew off some of his clientele, but residents returned to his store to pawn items as the recession deepened in recent years in Lyon County.
Many people, McCassie says, already had borrowed money at Fernley payday lenders and found themselves buried under interest rates that sometimes ran higher than 500 percent on an annualized basis.
"They can only afford to do that so long before it completely breaks the bank," McCassie says. "It is easy for them to write a check and get money, but it is so hard for them to pay the loan off.
"Some people no longer can get a cash advance," he adds. "They have gotten one at all three places, and they are left with no choice but to pawn their hard goods."
But pawnbrokers are getting more selective on items for which they'll loan money. McCassie says electronics more than one year old are out. Jewelry and guns are the most-pawned items among Fernley residents.
"Guns and gold are always safe loans," McCassie says.
Erminia Drobkin is the Nevada state representative for the National Pawnbrokers Association and owns Pioneer Loan and Jewelry in Las Vegas, the oldest pawnshop in Las Vegas - it was founded in 1931. She says the average pawn transaction in the state is about the same as what a payday lender would give, but payday lenders remain a popular alternative to pawn shops because customers don't have to part with their valuables.
Payday loans were legalized in Nevada in 1997, and Nevada is one of the few states in the country that doesn't cap fees or interest rates. In 2007 Nevada lawmakers tried to curb some of the business practices of unscrupulous payday lenders, which charge interest rates as high as 300 to 500 percent a year. Loan limits now are capped at 25 percent of a borrower's expected monthly income.
In 2007 there were more than 1,200 people directly employed at nearly 400 payday lending institutions in the state, a study by IHS Global Insight of Lexington, Mass., found. The industry generated nearly $42 million in tax revenues for Nevada.
Drobkin says most people in the state who pawn jewelry usually pay off their loans because of a sentimental attachment to the piece - and because they can re-pawn it later if necessary.
Pawnbrokers also say they have seen an increase in foot traffic at their stores due to the hit television show "Pawn Stars" on the History Channel. The reality show chronicles the daily ebb and flow of business at a busy Las Vegas pawnshop - and has gone a long way to remove the image of seediness and desperation that has plagued the industry.
"We have become more popular because of 'Pawn Stars,'" McCassie admits. "At first I thought it was kind of goofy, but it really promoted and pushed the pawn industry."
Adds Burnbaugh: "Some people turn their nose down at pawnbrokers, but pawnshops have changed dramatically."
Drobkin says pawnbrokers throughout the U.S. are enjoying a rise in business from the exposure the show has brought the industry.
"It gives people an idea of what they can pawn or sell and where to go to borrow money," she says.