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According to 69 percent of U.S. residents, the nation's economy – buoyed by the highest stock market gains in six years before the Coronavirus outbreak arrived – is helping the wealthy while hurting the poor, a 2019 Pew Research Center survey found.

People barely making ends meet find themselves trapped in a cycle of poverty, relying on a fringe credit industry that includes check-cashing companies, rent-to-own centers, payday loan organizations and pawn shops. 

“In the big scheme of things, pawn shops are doing an economic disservice to their clients,” said Rhode Island College Assistant Professor of Sociology Geoff Harkness, because pawn shops are notorious for tacking on high interest rates on small collateral loans they negotiate with customers. 

A 2018 survey by PawnGuru revealed that those pawn shop customers are mostly either unemployed or underemployed. Fewer than half had full-time jobs.
During graduate study at the University of Kansas, Harkness examined the disparities between the interest rates on loans at pawn shops located on the state line between Missouri and Kansas.

“On the Missouri side, the interest rate on loans was 20 percent a month at the time, 240 percent a year,” he said. “On the Kansas side, I found that loans were regulated at 10 percent a month, 120 percent a year. Consumers don’t necessarily know that because pawn shops don’t want consumers to know. If you tell someone it’s only going to cost them three or five dollars in interest a month, that doesn’t sound like a lot of money to most people. But when you do the math, you realize that it starts to really add up.”

Harkness, whose current scholarship focuses on micro practices of group behavior and the role of inequality in shaping culture, said pawn shops are a necessary evil for people who can’t acquire traditional credit and need quick funds to afford basic household goods.   

“A pawn shop’s favorite thing in the world is for a customer to come in and give five dollars more in interest to hold merchandise for another month,” Harkness said. “They aren’t really interested in reselling the merchandise.”

Harkness added that pawn shops are also aware that they are serving a segment of the population for which banks aren’t interested.

“Banks want to do business with people who are seeking $300,000 loans,” he said. “A bank doesn’t want to issue a $10 loan, but a pawn shop is happy to do that. Banks should not be allowed to cherry pick. The fire department can’t say we only put out fires at nice houses.”

Harkness said that in the years since his research on pawn shops, he’s seen little change in their practices.

“If anything, the need for pawn shops and fringe credit has increased,” he said. “We live in a society where the poor pay more for all sorts of goods and services, including credit. Meanwhile the gap between the wealthy and poor continues to grow.”