Pawnbrokers strike gold as economy stutters

Credit charities are increasingly concerned at the rapid growth of the stock market's pawnbroking chains. James Moore reports
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The Independent Online

It's boom time for the pawnbrokers.

Yesterday the gold price hit a three-week high of $1,208.65 an ounce – its strongest since 16 July. And recent predictions that it has reached a plateau, and could be due for a fall in the medium term, probably won't be enough to bother what has quietly become one of Britain's fastest growing industries during the current troubled economic times.

Pawnbrokers have never had it so good and they're rapidly becoming an established and fast-growing sub-sector of the London Stock Exchange's junior AIM market.

Gone are the days of the scruffy looking shopkeeper, the image of the pawnbroker offered by Hollywood in the Eddie Murphy comedy Trading Places. Now the people who run these operations wear pinstripes and spend their time not with customers but with City analysts and institutional investors. And given the way pawnbroking businesses (and share prices) have grown in recent years, they are very interested in the product they are selling.

H&T Group, for example, now boasts 128 pawnbroking stores and 60 Gold Bar retail merchandising units, set up to capitalise on the recent craze for selling unwanted jewellery sparked by the precious metal's sky-high price. If there's not a branch on a high street near you, there will be soon. A further 40 store openings are planned for the next two years.

Rival Albemarle & Bond is similarly motoring. It currently boasts 123 stores and plans to open a further 15 stores in the current financial year with more planned for next year. Analysts positively gush about the sector, arguing that it is increasingly becoming far more than a proxy for the gold price and actually demonstrates the hallmarks of a powerful mainstream retail offering

As such, A&B recently hired the former Marks & Spencer director Barry Stevenson to be its chief executive. Pawnbroking it seems, is going mainstream. But is this a good thing given that, ultimately, the core of the business is in offering small, very high interest loans, to low-income groups who are required to put up treasured heirlooms as collateral.

Steve Fenerty, commercial director at H&T, defends the industry's record: "H&T's success is down to more than just the gold price. We operate in a regulated market, and provide a service that is valued by our customers, and is appropriate for them in their specific circumstances – i.e. low-value short-term loans."

Mr Stevenson, also argues that his company is simply providing a service to clients. "Pawnbroking has played an important role in local communities for centuries, and our business has been serving customers for over 170 years. We offer a fair and competitively priced service, with a typical loan being for £90 secured by gold jewellery for up to six months," he said. "Independent surveys confirm that the speed, flexibility, customer service and convenience are major factors contributing to the high levels of loyalty that customers have for companies such as Albemarle & Bond.

"Managing gold price movements is part of our day-to-day business model and we are experienced in mitigating the impact of these regular fluctuations on profitability."

But charities dealing with debt and its impact are concerned. And given the industry's advertising (Albemarle's website features an attractive blonde model holding a handful of twenty pound notes, presumably supplied by a loan from the company), perhaps that isn't any wonder.

They have noticed that the credit crunch has led to certain groups in society finding it extremely difficult to get credit, pushing them into the arms of door-to-door lenders – or pawnbrokers. And while they agree that the latter might be preferable to, say, dealing with loan sharks, it is still a highly expensive way to borrow.

Una Farrell, from the Consumer Credit Counselling Service, explains: "The increase in numbers of pawnbrokers is possibly a symptom of the difficulty people are having in getting credit but we would really urge them to consider all their options and make an informed decision before taking such a step.

"If, for example, they are using money from pawnbrokers to pay for day-to-day expenses, are they really claiming all the benefits they are entitled to? The chances are that they are not. Then you have to look at this type of credit. To get it you might have to give up a really valued family heirloom and people really have to ask themselves whether they are going to be able to repay their loans and so get that heirloom back." She urges people to seek advice from the CCCS or a Citizens Advice Bureau.

Damon Gibbons, chief executive of the Centre for Responsible Credit, is also concerned. "The difficulty with pawnbrokers is they require you to deposit something that can often have great sentimental value to get a loan. And it's often the case that people end up doing that repeatedly so the heirloom becomes more like something they rent from the pawnbroker."

Mr Gibbons points out that the loans offered can prove to be highly expensive. Typically, charges can hit £6 for each month that the item is in the pawnbroker's keeping for each £100 borrowed. Agreements are for six months but the item can be bought back at any time by paying the charges accrued up to the date of redemption. Equally, items can be re-pawned several times over the course of the year. As a result it is only possible to say that the charges are somewhere between £6 and £72 per £100 borrowed. Which is extremely expensive.

What is pushing people into the arms of the pawnbrokers, of course, is that banks are now highly wary of lending to anyone who's credit rating is not classified as "prime".

Mr Gibbons would like the Government to trial a similar scheme to one in the US that saw banks agreeing to advance small dollar loans to people backed by the Federal Deposit Insurance Scheme. Or at least to press state-aided lenders to pay more towards supporting services such as credit unions. Unless ministers look at measures like this, pawnbrokers will continue to make hay. And not just as a result of the high gold price.