OPEN LETTER
Reference:       Senate Bill 500 and H.R. 1608
 
Dear Senator Durbin:
 
I am writing  this letter on behalf of the 13,500+  Pawn/Retail businesses in our Country who supply small loans to the communities. (1)
 
Having spent 30 years building our pawn business, I feel qualified to speak with authority on this subject.  My stockholders and I own four pawn/retail businesses, two in Georgia, one under construction in Warner Robins, GA, and two in Alabama.  Our Directors have over 100 years combined experience in the small loan business. Pawn Brokers are the only true micro finance lenders.  We provide small, 30 day loans averaging $80.00.  We make loans to those whose needs are greatest.  The government accounting office established that 56 million (28%) American adults do not have money service relations with checking accounts nor established credit to secure loans. (2)   We never require a credit check, application or prior requirements.  The loan stands on it’s own.  If for any reason the borrower defaults there is no effort to collect, no negative credit report;  it is a mute issue; no harm done.
 
Who are these 56 million customers?  An article that appeared in the May 2009 issue of AARP Bulletin, entitled “Pawn Shop” touting the value of pawn loans to the elderly population.  Quote:  “The bank of only resort”. (3)   We make loans to the people that banks have long ago written off as “high risk” and “no profit” customers.  Each day we meet customers whose story would break the hardest heart.  Recently we made a $50 loan to an elderly man on Social Security who had unexpected expense to his home and needed the money to pay his co-pay on prescription drugs.  Being able to help people who need help the most keeps me going to work each day at 67 years of age.
 
What is the definition and anatomy of a Pawn Broker, i.e., Micro financial lender?  The majority do not make pay day, cash advance or car title loans.  We are well regulated on a state by state basis.  State laws are currently written to protect the public from unfair and deceptive practices and ensure the cost of pawn loans are fair and affordable.  Our business is simple:  We are in the loan and storage business.  The cost of making a $100 loan can best be explained by using current Georgia pawn laws in effect.  We currently charge 2% interest and 23% storage fee or $25.00 total.  The following is an analysis of what it costs to  make the $100.00 loan:    To meet the State of Georgia and City, County requirements we must execute a full disclosure loan contract, then we must describe the content in full detail, including serial numbers, etc; then the customer must submit a fingerprint and affix it to the contract; then the information must be transferred in full detail to a list that is furnished each day to the local and state law enforcement.   A small percentage of the loans are lost to claims by law enforcement or others who have legal ownership of the item used as collateral for the loan.  In most cases this is a total loss to the pawn shop owner.  Pawn shops are required by law and  3000 years of history to keep the item in storage that we make loans on.  A good example is a $300 loan recently made on a riding lawn mower for a customer who has a small yard service business to repair his truck.  We were his only hope to keep his business going.  Now a 400+ pound lawn mower has to be stored.  To understand the cost, if you as an individual stored this large lawn mower at a mini warehouse complex, it would cost $42.00 per month for a 5’ x 10’.  (4)    One of our largest expenses is the safe and secure storage of all items that are used for collateral.  We also have insurance to cover the value of the items against fire, theft or loss.  Our 26 employees who average over 12 years each as employees at a cost average off $21.00 per hour each for whom we furnish health insurance (included is a copy of June 2009 bill in the amount of  $3740.99.) (Exhibit A)     Add rent, utilities, all related expenses, federal payroll taxes, State taxes and occupation tax and out of the $25.00 charged on the $100.00 loan we showed a taxable profit of $6.79 +/-. (5)     Our statistics show that 79% of our 30 day loans are repaid on or before the 30 days.   The remaining 21% include outright purchases that customers wanted to sell, however, under State law must be shown as pawn loans so reports, fingerprints, police reports are properly executed, etc.  Less than 10% of our loans are extended over the original 30 day period.  The idea of someone making a thirty-day $100 loan for $3.00 (36% APR) is a noble idea but an impossible reality.
 
As you have stated in your bill, S500 Section 2, Findings Section (8), Quote: “Alternatives to Predatory Lending that encourages small dollar loans should be encouraged.”    Pawn Brokers are the only answer to micro finance.  This fact was recognized by the Department of Defense in implementing regulations for the 2006 Talent Amendment which imposed a 36% APR loan cap to active duty military personnel and their dependents, which exempts Pawn Brokers.   Each day we step up and make the only no qualifying, no credit, non discriminating loans that banks and lending institutions have no interest in.  The best example of how large a part we play in the economics of our County is the check cashing service we offer along with pawn loans.  In our 3 stores in 2008 we cashed $5,410,916.00 in checks for our customers. (6)  Our charge is from 1 to 3 percent with an average of 2.10%.  Under current Federal law, to offer money service business the Pawn Broker must fully comply with the U S Treasury Department regulations and the U S Patriot Act.  Detailed records of each transaction must be kept and ready for on-site inspection for a period of five years.  Each suspicious  transaction must be reported to the government in a timely manner.  We can still offer this service for a rate that will be under the 36% APR cap.  The reason is because we are not burdened with storage and insurance of collateral as required on pawn loans.  We never refuse to cash a check if we can verify the maker is legitimate. Half of the checks cashed are Social Security or Federal tax refund checks.  The banks refuse or discourage the cashing of checks, including U S Government checks if the customer does not have an account with the institution.  In a majority of the cases where the party cashing the check has a low average monthly balance the institution in many cases will require a 7 day holding period on large checks  before they are released to marginal, low income customers.  That is a way that banks can economically discriminate or weed out the customers they feel will not be profitable.  Here, once more, these 56,000,000 Americans are our customer base.
 
The World Bank recognized in it’s report, “Key Principles of Microfinance”, that it costs much more to make small loans unless Microfinance Lenders can charge interest rate and fees that are well above banks.  “When governments regulate interest rates they usually set them at levels too low to permit sustainable Microfinance loans” (7)   Senate Bill 500/HR 1608, as written, will in effect close the doors on 13,500 pawn/ retail businesses – that means another loss of 100,000 good paying jobs gone forever.  The worst effect, it will close the only door 56,000,000 Americans will ever have to make small loans.
 
Under Senate Bill 500 , Section 141.(2) tolerances should define pawn shop owners as micro finance lenders and allow for storage expense of pawned items.  Every American has in some way benefited from pawn brokers, whether it was when Queen Isabella of Spain was turned down by her treasury to finance Christopher Columbus’ voyage to the new world and had to pawn her royal jewelry (8)  or when we made a $300.00 loan to keep a small lawn service business in operation and off the rolls of the unemployed.  Many Americans have never known the need for a $20.00 loan to buy a tank of gas or put food on the table so you can make it to the next payday.  We have always had an important role in our country’s micro finance.  Pawn brokers as a whole recognize the need for financial reforms, however as the Bill is written it will close down the good along with the greedy.

I respectfully request that I be a witness if the Senate Banking Committee holds public hearings on your bill.
 
Respectfully submitted,
 
 
 
Robert G. Whitten, II                                                                           Robert G. Whitten, III
Chairman of the Board                                                                        President        
and letter author                                                                                  Northside Pawn -  GA
                                                                                                            Money Mizer Pawn - AL
                                                                                                            Money Mizer Pawn - GA

(1)  Statement of Dave Adelman, President National Pawn Brokers Ref Us Senate Bill 500 and HR 1608
(2)  The Role of Technology in serving the unbanked.  www.ccc.UNC.edu/documents/ccRoleTechnologyserving unbanked.pdf
(3)   Pawnshops, page 2, AARP Bulletin, May 2009
(4)  Warehouse World Inc Mini Storage, Veterans Parkway, Columbus, GA, Phone 706 324-2410
(5)  Bill Amons, CPA  for business
(6)  Bill Amons, CPA for business
(7)  CGAP   www.cgap.org
(8)  Pawn Life  pawnlife.bogspot.com/2008/03/queen-elizabeth.hmt
/>
To learn more about the pawn industry, please visit:
www.PawnShopsToday.com