Hard times for pawn shops in the age of cheap and easy credit

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The Independent Online

As East London's leading purveyors of all things "bling", Trotters Jewellers in Bethnal Green has seen brisk trade in the past month or so.

Visits from customers such as the Chelsea footballer Joe Cole and members of So Solid Crew and 5ive have generated four-figure sales of diamond-encrusted chains, bracelets and crucifixes.

Established in the economic slump of the early 1990s as a pawnbroker, Trotters has had to diversify to survive as the "world's second oldest profession" becomes an increasingly niche service.

Yesterday, a survey by the Personal Finance Research Centre (PFRC) revealed that a dwindling number of pawnbrokers are responsible for a mere one per cent of consumer lending nationwide.

Their number has plummeted from around 5,000 during the heyday of the early 20th century to about 800 now. The slump has come about due to a combination of banks, supermarkets and credit card companies lending money at what are deemed to be irresistible rates.

Those that remain are either small independent outlets such as Trotters, catering mainly for people without access to banking services, or pawnbroking chains such as Albemarle & Bond which deal with wealthier customers attracted by the personal service and quick cash under the protection of the Consumer Credit Act.

"When the economy is in good shape, it is very quiet for us. At the moment, you have got very low interest rates and all the other economic conditions are not kind to the pawnbroker," said Brian Dillworth, managing director of Trotters, a small, fortified shop on Bethnal Green Road.

In a bad week, the shop does not deal with a single customer wanting to pawn something and Mr Dillworth has had to limit the range of goods on which he will advance money.

Mobile phones, camcorders and other electrical goods are no longer accepted because, amid rapidly changing trends, they depreciate quickly even over the maximum loan period of six months.

Instead, interest rates from seven to 10 per cent a month - compared to about 7 per cent a year at a bank - are offered on gold jewellery, designer watches such as Rolex and Tag Heuer and diamonds.

On a £200 watch, Mr Dillworth will typically lend £50 over six months, charging £30 in interest plus a £3 administration charge.

If the owner of the watch defaults or disappears, the shop's first priority is to sell quickly to cover the "costs" of £83.

"If you go to the loans company down the road, they may offer you six to eight per cent - but not on the basis of a second-hand watch which is very hard to sell," he said.

"No one is obliged to pay our rates, but we offer a straightforward service - involving a one-page contract and proof of identity - and we won't just dump your goods when the six months is up.

"We appreciate the sentimental value and will write a reminder letter and give a few weeks' leniency," he said.

Yesterday's research, which was commissioned by the National Association of Pawnbrokers, showed that 85 per cent of customers make the repayments and end up recouping the goods they had used as collateral.

The study, which was based on interviews with 30 customers of four pawnbrokers, found that just over half of their customers borrowed for food and other day-to-day expenses.

A smaller number used the loans to meet occasional costs such as school uniforms or car tax, while a third spent the cash on evenings out or non-essential shopping.

Mr Dillworth said: "The punters range from youngsters wanting £50 for a night out to people wanting to raise £10,000 with some serious jewellery. There is no set pattern during the week, but Christmas and the New Year will be busy."

Professor Elaine Kempson, co-author of the report, said: "Pawnbroking is clearly a niche market, which is nevertheless an important part of the financial services industry for some people.

"People who are not familiar with pawnbroking may be surprised both by the extent to which it is regulated and by the steps taken by the industry itself to ensure responsible lending."