If you think banks, savings and loans, credit unions and finance
companies are the only sources of credit in Oklahoma, think again.
Pawnshops play an important role in consumer finance, especially
for consumers on the lower rungs of the economic ladder, according
to a study published in the Federal Reserve Bank of Kansas City's
Oklahoma, with 369 pawnshops in 1988, had more pawnshops per
million people - 113.1 - than any other state, and the number grew
to 383 pawnshops during 1989, according to Prett Cowley,
administrator of the Oklahoma Department of Consumer Credit.
That dubious honor reflects economic conditions in the state
since oil prices tumbled in 1982, according to John McClure, deputy
administrator of the department.
"It provides a source for people who used to be able to borrow
from Oklahoma's banks and savings and loans and credit unions, but
can't any longer," McClure said. "It allows them, when the need
arises, to come up with small amounts of cash to get them through."
Most pawnshop customers have high credit risk, denying them the
ability to borrow on an unsecured basis, and need small loans - the
average pawnshop loan in Oklahoma was $41 in 1987 - that traditional
lenders don't make, the study said.
"You've got to remember, in most cases, the people who use
pawnshops do not qualify for lenders," McClure said.
Some people have used the same pawnbrokers for years "that's
their lender, their financial source," McClure said, because they
are on a fixed income that wouldn't allow them to borrow from
traditional sources. Between 70 and 80 percent of pawnshop
customers return, the study said.
"They don't have to prove that they don't need the money to get
the loan," McClure said, referring to bank lending procedures.
But customers pay a hefty interest rate for using a pawnshop.
Oklahoma pawnshops charge one of the highest rates in the
country, charging interest rates of 240 percent on a two-month $51
loan, according to the Kansas City Fed study.
Some of the other states studied allow pawnshops to charge up to
$5 in storage and insurance fees, but their overall interest rate on
a two-month $51 loan was less than 95 percent, with New Jersey and
Pennsylvania having overall interest rates of 36 percent. More than
half of the states allow pawnshops to charge overall interest rates
of more than 120 percent, the study said.
While New Jersey and Indiana have a legal monthly interest rate
of 3 percent, Pennsylvania's rate is 0.5 percent and Oregon's rate
is 3.9 percent, Oklahoma's is 20 percent of the first $150 borrowed,
as set by the Oklahoma Legislature.
The rule of thumb in lending is the riskier the borrower, the
higher interest rate they pay on loaned money. Oklahoma's default
rate on the number of pawnshop loans is 22.2 percent, compared to
20.6 percent of the pawnshop loans made in Indiana, where the
interest rate of 71.3 percent is much lower than Oklahoma's 240
percent. Oregon's pawnshop loan default rate was 13.9 percent, and
its interest rate is 94.8 percent. The default rate based on the
value of loans made by Oklahoma pawnshops was 19.6 percent, compared
to 13.8 percent in Indiana and 9.3 percent in Oregon.
The higher interest rate hurts the consumer, Cowley said. When
a pawnshop customer needs money to cover an emergency, they don't
consider the interest rate on a loan, he said. …