There's a market for small bits of money check cashing, payday loans, pawn loans.
The pawnbroking industry, traditionally the source of small loans, owned the market for years but is now playing second-fiddle to a new interloper payday loans.
The collision between payday loans and pawnshops in recent years is threatening to change the ages-old pawnbroking business "or even put us out of business," says Erminiah Drobkin, president of the Collateral Loan Association of Nevada, the pawnbrokers' professional organization in Nevada.
Payday loans, formally known as unsecured cash advances or deferred deposits, have proved to be both high-profit centers and a fast-growing industry.
"They moved into Nevada and spread like weeds," says Drobkin Payday
loans exploded onto the scene five to six years ago, adds Neil Duxbury, co-owner with Mark D.
Bell of Metropawn, a five-store pawn chain based in Reno.
That's when he and Bell took notice late in the game after the payday loan business was already robust throughout the state.
One of the biggest payday loan companies,Advance America, Cash Advance Centers, Inc., a New York Stock Exchange company that operates two outlets in Reno/Sparks, does payday loans only.
In a recent filing with the Securities and Exchange Commission, it says it operated 2,290 payday cash advance centers in 34 states as of Sept.
30.
For the first three quarters of last year, it had made upwards of $2.7 billion in loans, averaging $327 each.And profitable? Advance America reports a net income of $68.7 million for the period.
Profits are built in for the business, which charges a fee of $7.50 on a one-week loan of $100.
Easy to sell a $7.50 charge to consumers seeking quick cash.
It's when the charges of 7.5 percent are calculated annually, though, that the profit center shows its true interest rate 392 percent annually.
It's a frustrating situation for pawnbrokers, who are regulated by the state to a limit of 10 percent per month interest rate.
More frustrating, too, says Drobkin, "because pawnshops have never been seen as legitimate in the public eye." Yet, payday loan companies have waltzed into the market, charged high fees, and been accepted as legitimate, if not desirable.
The public felt, says Drobkin, that the payday loan businesses were more legitimate than pawnshops.
"And yet they charge 30 to 60 percent," she says.
"It's almost impossible to educate the public on this issue."
And why should the pawnbrokers try? "Pawnshops have lost a lot of business," she says.
The small loan business $100 to $200 was the territory of pawnshops for years, she adds.
The loans,made on small collateral, such as jewelry, stereo equipment, and other portable items, met the needs of a customer caught between a pile of bills and a week's wait for a paycheck.
That's the market that payday loans has pre-empted.
When the payday companies first hit the market, says Darren Mack, president of the Reno-based Palace Jewelry and Loan Company and a former president of the collateral association, he and other pawnbrokers held off from jumping into the market.
It was unregulated, he said.
Still is,mostly.
"But the interest rates were exorbitant," he says.
Since then, increased competition in the marketplace has brought those rates down to their current level in the range of 400 percent annually.
Adds Duxbury: The Collateral Loan Association of Nevada also did not see the profitability of the payday loans at first.
The Community Financial Services Association of America, an association
of payday loan firms, did not respond to requests for data on national or local trends.
But it publicly positions the more than 15,000 payday advance locations nationally (and $25 billion in shortterm credit) against the banking industry, not the pawnshop business.
It's pawnbrokers who noticed the conflict.
"We (pawnbrokers) all thought we'd be competing against ourselves," says Duxbury.
"And we'd be converting our own secured loans to loans against bad checks."
(Typically, a payday loan procedure includes accepting a postdated check for the amount of the loan plus interest, regardless of whether funds are available in the bank account.) It took a few years of watching the payday loan shops nibble away at traditional pawn business to begin to see the possibilities of joining the new trend.
"Now we can see that it's not mutually exclusive," says Duxbury."And that it gives the customer another option."
Duxbury just started offering payday loans at Metropawn this winter.Mack is working on adding it soon to his mix at the Palace Jewelry and Loan Company.
Drobkin offers them at Pioneer Pawn Shops.
Superpawn, another major player,with 41 stores in the Las Vegas area,was purchased in December 2004 by Cash America International, Inc., a national public corporation that provides a broad range of services, including payday loans.
As of February, upwards of 650 checkcashing and deferred deposit outlets were listed by the state of Nevada's Business and Industry Division of Financial Institutions.
The Collateral Loan Association of Nevada went to the Nevada Legislature two sessions ago, says Drobkin, to try to fight the influx of payday loan businesses.
"But they are so strong," she says.
Just this month, the Federal Deposit Insurance Corporation issued revised guidance for FDIC-supervised institutions that offer payday loans essentially pinpointing the banks that lend money to payday loan operations.
The guidance limits payday loans to a customer to three months out of a12-month period.
This legislative session, the pawnbrokers' association is supporting a database that would provide pawnbroker and payday lenders with a customer loan list, helping them identify customers seeking multiple loans out of multiple centers.
But the association does not support a usury law that's been talked about by Assemblywoman Chris Giunchigliani, D-Clark County No.
9.
"It's a matter of survival now," says Drobkin.
The value of a check While payday loan companies find big profits in small loans, their check-cashing services thrive, too.
More than 180 million checks, totaling $55 billion, flow through the check-cashing industry annually, says a study by the Federal Reserve Bank of Chicago.
The 2000 study found check-cashing establishments typically charged a few percentage points of the face value of the check.
In Nevada, paychecks are usually easy to cash through a casino.
Still, a quick look into local check cashing outlets found charges from 2.8 to 3 percent on payroll checks and 5.9 percent on twoparty checks.
