February 18 2007
VALUE PAWN & JEWELRY POLISHED IMAGE, BUT STILL PRICEY

Polished image, but still pricey
Value Pawn and Amscot Financial lend to individuals who don't have access to banks.

Richard Burnett | Sentinel Staff Writer
Contributing Writer
Posted January 29, 2007

On a recent weekday afternoon, business was brisk at the Value Pawn and Amscot locations on South Semoran Boulevard. The stores just happen to be next door to each other in a generally middle-class section of southeast Orlando.

Customers flowed into Value Pawn, some pawning jewelry and electronics. Others shopped for table saws and hand drills. At Amscot, a half-dozen people stood at the teller windows seeking payday loans, money orders or other transactions.

Although the customers are a diverse lot, they share a common trait: They want cash and they want it quickly, often to pay the mortgage, rent, medical bills or grocery bills. And they can't get -- or won't take -- the money from a conventional bank.

"We're providing a service to customers that the banks just can't serve," said John Thedford, the founder and president of Value Pawn. "Many of our customers can't open a checking account because of their bad credit. They're not profitable customers for banks. But they are honest, hard-working people. Our average customer makes about $40,000 a year."

Borrowers pay a price

As in most pawnshops, the borrowers in Value Pawn can expect to get only a fraction of what they hoped for the item they're pawning. And after 30 days, they'll pay a 25 percent fee to get it back, which translates to a triple-digit annual lending rate.

That's a bit unnerving, even for people who routinely shop for good deals at pawnshops.

"It's kinda tough when you see people who are in dire straits and need the money, and they end up getting maybe $100 for something that's worth $1,000," said Jim Clemons of Rockledge, a Value Pawn customer who resells pawned items on eBay.

"The Value Pawn shops are nice, clean shops. It's a respectable business, and the employees are usually well-trained," he said. "But a pawnshop is always going to be a pawnshop -- they charge a high interest rate. But it is a business, after all. They're in it to make money."

On the payday side, Amscot portrays itself as a lower-cost provider in a business it acknowledges can be a pricey proposition for consumers. For example, borrowers pay $51 to get a $500 payday advance loan. That works out to 10 percent interest for a two-week loan -- or 265 percent on an annual basis -- plus a $1 administrative fee.

Serving the 'unbanked'

Both the finance charge and the loan amount are capped by Florida law. But Amscot does not charge an optional, $5 verification fee allowed by the state. The company also offers free money orders and claims to have among the lowest rates around for check cashing, automated-teller machine use and other financial services.

"I think we have developed a somewhat unique retail model in the multiple financial services that we offer," said Ian MacKechnie, Amscot's president. "Like a convenience store, we're trying to provide people convenience and access to services they may otherwise not have access to in the banks."

Both Value Pawn and Amscot appear to have gained some traction in recent years among some sectors of the general public, especially among what the banking industry calls "unbanked" consumers, many of whom don't have bank accounts because of previous financial problems.

Both chains have been growing at double-digit percentage rates. Value Pawn now has 62 stores in three states, including more than a dozen in Central Florida, and projects revenue of $100 million this year. Amscot has 145 locations along the state's Interstate 4 corridor, including 37 in Metro Orlando. Revenue this year is expected to top $130 million.

Both chains' stores feature open designs and clean interiors, with trendy decor and colors. Employees are generally youthful. Managers wear ties. Salespeople wear polo shirts bearing the company name.

Neat interiors

Value Pawn fashions itself as a discount-retail alternative. Its outlets resemble a small version of Sears, with hand tools, computers, jewelry and other items, all packed onto one display floor. Want to risk $50 on a used color television or $100 on a second-hand gold necklace? This may be the place.

Inside Amscot, you might imagine you were in a bank lobby, except for the prevalence of window signs advertising payday loans, check cashing, money orders and tax-preparation services.

There's also the sign on the wall spelling out the annual percentage rates of the company's payday loans -- ranging from 264 percent to 312 percent.

Pawn and payday lenders, with their triple-digit interest rates, have always drawn the ire of consumer advocates, who describe the industry as greedy at best and predatory at worst.

"A lot of this business is based on the desperation of consumers, not on informing them about the consequences of what they're doing," said Matthew Lee, founder of Fair Finance Watch, a consumer-advocacy research group in New York.

'Good citizens'

But Value Pawn and Amscot officials dispute any suggestion that they are taking advantage of people. They acknowledge the existence of "bad apples" in the business but argue that critics exaggerate the extent of the problem.

"Those who would deny credit to our customers would be doing a great disservice, rest assured," said Amscot's MacKechnie. "They would not be helping people -- quite the reverse. Someone has to help these folks. We believe free enterprise knows how to price that risk."

State regulators say Value Pawn and Amscot are among the "good citizens" in their respective businesses.

Value Pawn has a good record of keeping tabs on potentially stolen merchandise being pawned, long a concern in the business, according to the Florida Division of Consumer Services.

The chain has been growing even as the industry overall has been slipping, noted Tom Steckler, the division's assistant director.

"The number of outlets in the business has declined in recent years," he said. "It appears the rise of eBay online auctions has probably been one of the reasons for the decline and will continue to be a factor as they become more popular."

Amscot also has a good track record with the Florida Office of Financial Regulation -- unlike some of its competitors. Texas-based EZ Financial Corp., for example, the owner of EZPawn and EZMoney, claims it is exempt from Florida's payday-lending laws and has sued the state.

Triple-digit grumbles

Critics are not impressed, however, by Amscot's compliance with a state law that continues to allow triple-digit annual interest rates on payday loans.

"I don't know that I see this as anything other than a payday lender who is saying that, because we follow the law, that makes our product a better product," said Lynn Drysdale, a legal-aid lawyer in Jacksonville and predatory-lending expert. "If it were better, that would mean it offered customers better terms, better rates than the typical payday lender. I don't see that here."

As in most retail shops, the merchandise here is neatly arranged in sections -- TVs here, computers there, stereos over there. But this is not Target or Best Buy. This is Value Pawn, one of the self-described newer faces among the nation's pawnshop businesses.

Next door in the same shopping center, money tellers will welcome you and process your loan, just as they would in a bank. But this is not SunTrust or Wachovia. It's Amscot, a self-described new face among the nation's payday lenders.

Orlando-based Value Pawn & Jewelry and Tampa-based Amscot Financial each say they are trying to build a new image for the so-called alternative financial-services business, an industry that historically has had a dubious reputation for its varied forms of high-cost lending.

Richard Burnett can be reached at rburnett@orlandosentinel.com or 407-420-5256.