Furloughed Employees Used Pawn Shops to Get By During Shutdown
Inside Subprime: Jan 31, 2019
By Lindsay Frankel
During the longest partial government shutdown in U.S. history, thousands of furloughed workers >a href=”https://www.nytimes.com/2019/01/17/us/shutdown-unemployment-states.html?module=inline”>filed for unemployment, and many took advantage of special programs offered by financial institutions. Others were forced to pawn belongings they had worked hard to earn, from electronics to jewelry, receiving a mere fraction of what they originally paid for these items. For those strapped for cash, pawn shops provided much-needed relief. But even with back pay, it’s possible these workers won’t be able to pay off their loans and reclaim all the belongings they pawned.
Blaine Fortner, a pawn shop owner in Billings, Montana, saw an uptick of government employees coming into the store during the shutdown. The increase was small, often only a few people each day, but pawn shops around the country saw federal workers turning up with their most valuable belongings.
“They’re just bringing more and more in because they’re getting behind,” Mr. Fortner told The New York Times. And while some of these customers have pawned items at his shop before, Fortner also saw new faces impacted by the shutdown. Recently, a furloughed employee pawned some Pendleton blankets, which would have cost several hundred dollars new, and received only $50 for them.
When a customer pawns an item, like the blankets, the pawnbroker uses the item as collateral and loans the borrower money based on the item’s value. The term of the loan is typically a few months, and interest rates vary. Mr. Fortner’s shop charges borrowers 20 percent interest per month and retains the pawned items for two months. If the customer is able to repay the loan with interest, the item is returned to the borrower. But sometimes, the loan is too costly, and the pawnbroker then keeps the item to sell to another customer.
Pawn shop loans are less risky than other types of predatory loans, such as >payday loans, which have average annual interest rates reaching almost 400 percent. Some states regulate what rates pawn shops can charge, but in states with limited protections, pawnbrokers can charge up to 240 percent APR or more.
According to the National Pawnbrokers Association, 85 percent of borrowers pay off their loans and reclaim their items. But Mr. Fortner reported getting calls about six times per day from federal workers who were concerned about repayment.
One pawnshop operator in Las Vegas, Nevada, also saw an increase in furloughed employees coming to his shop, and offered to waive interest on his four-month loans for federal workers impacted by the shutdown.
“We’re dealing with people that are affected by cash flow problems all the time,” Mr. Mack said. “These are people that didn’t plan on it at all.”
Richard Andrews, a Virginia pawnbroker, had similar stories to share. One family affected by the shutdown brought in a 60” high-definition flat screen TV, hoping to receive a few hundred dollars for it. But Mr. Andrews could only offer them $75.
“Everybody is just complaining, they don’t know what they are going to do,” Mr. Andrews said. “Now they are having to give up the stuff they did work hard for.”