Pawn Shops Boom as Consumer Retail Banking Retreats

Well, its not like I didn’t predict that a boom time for pawn shops would be coming in the wake of the Durbin Amendment, Credit Card Act, restrictions on overdraft protection, CFPB, etc.  And now the New York Times reports that the past few years have in fact boomed as an increasing number of consumers, including higher-income consumers, have been pushed out of the mainstream financial system:

How fast the pawnshop industry is growing is unclear, but the industry association estimates there were 10,000 pawnshops in early 2012, the latest figures available, compared with about 6,400 in 2007. That expansion is, in part, fed by the rising number of Americans whose tarnished credit effectively bars them from the mainstream financial system. The growth has attracted the attention of the Consumer Financial Protection Bureau, a recently formed regulator that has been scrutinizing pawnshops, along with other nonbank lenders like payday loan operators.

EZCorp, a publicly traded operator of pawnshops, reported that total loan balances swelled 22 percent to $44 million in its most recent quarter.

Another publicly traded lender, Cash America International, told investors in June that the company’s fortunes were growing as more “traditional consumer lenders are exiting the market.”

This being the Times, of course no mention is made of the Durbin Amendment or these other regulations that have taken away higher-quality options for many consumers.

One idiosyncratic factor that is not mentioned in the Times article that has also contributed to pawnshop growth specifically has been the consistently high gold prices over the past few years.   Of course, recognizing the role of high gold prices also would implicitly require the Times to believe that consumers who use alternative financial services act in a somewhat rational manner given their constraints, so it may have simply not occurred to the reporters given their worldview.

It was also interesting to read how entrepreneurial these shops have become in offering a wider array of financial services to consumers.  For those who have become unbanked post-Durbin (because of higher fees and branch closings) this robust competition is an interesting development.

(Thanks to Josh Blackman for the pointer).