‘Once they max out, they come to us’: Pawnbrokers buoyed by cost of living

Pawnbrokers say customers with nowhere to turn are pawning their personal items to cover household bills amid spiralling costs, as advocates say greater industry regulation is needed to protect vulnerable consumers.

Rob Herron, a pawn shop owner in Crows Nest in Sydney for 35 years, said while he had fewer buyers of pawned items since COVID, interest rate rises and high inflation meant there was no shortage of people looking to pawn their valuables, or to take out short-term high-interest loans against their valuables to cover mortgage payments or other household bills.

Rob Herron has owned and operated a pawn shop in Crows Nest for 35 years. He says he often sees people come in who are struggling to pay their household bills.Credit: Edwina Pickles

“You can tell with some that it’s a mortgage problem,” he said. “Sometimes they tell you a story. I remember a woman who sold some nice jewellery a few months ago, and she said, ‘Look, I’m separated from my husband. He’s in trouble, so I’ve got to pay it to cover the kids’ school fees’.”

Ash, (who declined to give his surname), an employee of more than 25 years at chain Happy Hockers, said the current economic cycle had prompted more people to come in to take out loans against their possessions.

“You can’t just go to a bank and say, ‘I need $168 to pay my electricity bill’,” he said. “They’re going to say, ‘well, minimum loan is $5000. Fill out this paperwork. We’ll get back to you within 48 hours’, do a credit check.”

“There’s none of that involved with us. It’s just ‘do you have goods that are worth the money that we’re lending you? So if you don’t come back for it, we can sell it and get our money back that way’.”

Cash Converters, which operates more than 150 stores in Australia, has acknowledged the contribution of cost of living pressures towards higher revenues. Credit: Dominic Lorrimer

Unlike other lenders, pawnbrokers are not fully covered by federal consumer credit laws, and data on the industry’s growth is scarce. But the ASX-listed Cash Converters, which has more than 150 franchises in Australia offering both pawnbroking and short-term loans, last month posted revenues of $382.6 million for the 2024 financial year, up 26 per cent on 2023.

Its earnings report acknowledged the 780,000 loan applications it received in Australia were driven by “cost of living pressures at a time when mainstream finance continues to become more difficult to access”.

Claire Tacon, assistant financial counselling director at the Consumer Action Law Centre in Victoria, said the volume of calls it received in the first half of 2024 had increased by 64 per cent. A third of them now related to mortgage arrears, formerly an unusual topic. She said bank repayment figures did not account for borrowers doing “anything to keep the roof over their head” and clients in the most desperate situations were often resorting to pawnbroking.

“I had a client who was struggling to escape a family violence situation,” she said. “She was going through court, and had to keep moving her kids to different properties to hide from the perpetrator.

“She was surviving by pawning her grandmother’s jewellery and, you know, everything she had that was valuable.”

The client was able to get her possessions back because the pawnbroker was signed up to the ombudsman, the Australian Financial Complaints Authority. Tacon is among those calling for more uniform laws around pawnbroking, amid concerns that recent regulation of buy now, pay later and payday loans may push the most vulnerable consumers back towards what is sometimes called the world’s “second-oldest profession”.

Lucinda O’Brien, a post-doctoral researcher at the University of Melbourne Law School, who has led a survey of the industry, said as a minimum, the federal government should require all pawnbrokers to register with AFCA, so dispute resolution doesn’t have to take place through the courts. Last year, CALC filed a class action against a pawnbroker where customers allegedly could no longer access their goods because the business shut down.

She called for greater data collection to understand “who’s using [pawnbroking], how much they’re borrowing, how much interest they’re paying”. A 2019 survey conducted by O’Brien and colleagues, and funded by the Australian Research Council, found those taking out pawn loans were more likely to earn less than $25,000 and to rely on social security than buy now, pay later or payday loan users.

Herron says he doesn’t think more legal protection is needed for his customers, most of whom are repeat clients. Credit: Edwina Pickles

O’Brien said they often paid some of the highest interest rates of any loans (in the case of one Cash Converters loan from a class action in 2016, an effective annual interest rate of 420 per cent), but she added she was not suggesting the industry “needs to be regulated out of existence.”

“We need to ask people who are using it, and we need to think carefully about what regulations we put in place so that it doesn’t have unintended consequences that would be harmful to the vulnerable people already using the product,” said O’Brien.

Herron, who charges a monthly interest rate of 25 per cent for a three-month loan, said he didn’t think customers, most of whom were repeat clients, needed more protection, adding he told them about upcoming payments, and gave a week’s extension if they couldn’t find the money. He said he provided an essential line of credit to people who could not get one elsewhere.

“Our interest rates are a lot higher than a credit card but once they max out their credit cards, they come and see us,” he said.

Tacon said for those considering pawning an item to cover bills, there were other options, including the No Interest Loans scheme, Centrelink advances, and grants for energy bills.

“For anyone who is struggling and thinking that, you know, they just need to borrow a bit more money and that’s going to fix their problems, I would urge them to speak to a financial counsellor,” she said.

National Debt Helpline 1800 007 007.

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