Street Credit: Dire Need Often Means Assuming Greater Risks
By DAVID GREENBERG
Staff Reporter
Overview: When your credit rating is already shot and you still owe Uncle Al for that previous can’t-miss business loan, there are always the street lenders.
They come in two basic varieties: pawnshops and loan sharks.
Pawnbrokers are state-regulated, tend to be professionals, and often possess institutional knowledge of the products they accept as collateral. They can be a godsend to those who need cash badly but can’t meet a bank’s requirement for credit ratings, paperwork and decision-making timeframes.
To guard against thieves trying to unload stolen merchandise, L.A. pawnbrokers are required to obtain a driver’s license or passport, fingerprint and copy of signature. For the past eight years, pawnshops have been voluntarily sending inventory lists and customer names to police for comparison with theft reports.
Nationwide, less than 1 percent of merchandise accepted by pawnshops turns out to be stolen. State law requires pawnbrokers keep the products a minimum of four months, to allow customers a chance to redeem their merchandise. Between 80 percent and 85 percent of all clients do reclaim their goods.
Loan sharks, of course, work outside the law. They typically don’t operate out of an office for obvious reasons and if they keep records, they are not easily found. They also don’t fit any particular stereotype: some have a pool of cash and operate independently; others are tied organized criminal gangs that bankroll the operations.
While no one has a count on loan sharking in L.A., police claim they are not as prevalent here as in New York and Chicago. Regardless of numbers, the modus operandi remains the same: make the payments with excessive interest rates or endure physical threats, possibly violence or at least the loss of collateral.
Lenders: There are 94 pawnshops in the city of Los Angeles. King’s Jewelry & Loan Co. is the only multi-store operation and deals solely in jewelry. Founded in 1946, it claims to be the largest pawnbroker in the state and the largest all-jewelry operation in the nation. Of its 62 employees, 12 have graduated from the Gemological Institute of America. The company makes 320,000 loans per year. Another large operation is Reseda-based Trader’s Loan & Jewelry Inc., which makes 40,000 loans per year.
As for the loan sharks, only their clients know their identities and, as could be expected, they usually keep their mouths shut. Dick Honaker, chief of security at the Santa Anita Race Track in Arcadia, said his unit has not detained a loan shark in the 15 years he has been on the job.
Borrowers: There are higher-end pawnbrokers whose clientele includes those needing an advance until the next royalty or trust fund check. But the business still caters largely to low-income customers down on their luck. Many have no relationship with a bank or have exceeded their credit card limit.
Loan sharks often target gamblers who have lost all their money and businesspeople over their heads in bills. Loan sharks generally try to stay away from drug addicts because they are unlikely to pay back their loans.
Like their clients, loan sharks have been known to overextend themselves by borrowing from their more cash-rich colleagues in order to make a loan they otherwise could not handle. This puts them in a risky situation, because if the borrower can’t pay the debt, the middleman loan shark is not only out of money, but in potential danger from the top lender.
Rates: Pawnbrokers charge a 2.5 percent interest rate per month on loans from 1 cent to $225 (a 30 percent annual rate, not compounded), with the rate dropping to 1 percent per month on loans of $1,650 to $2,499 under state law. They may negotiate any interest rate for loans of more than $2,500. Clients are loaned 10 percent to 25 percent of the value of the collateral, with the average loan being under $200.
Loan sharks will lend anywhere from a few thousand dollars to $100,000 at any interest rate agreed upon with the borrower. Those rates range from 10 percent per month to 10 percent per day, according to police who have dealt with them.
Collateral: Jewelry, consumer electronics, antiques, art, computers, cameras and household appliances are commonly found in pawnshops. Special licenses from the city and state are required to accept automobiles, boats, motorcycles or gas-powered scooters. Since Sept. 11, 2001 pawnshops have been issuing checks or money orders for loans of $10,000 or more, making it easier for law enforcement authorities to trace.
Loan sharks will accept items worth far more than the loan and will keep the items if the debt is not paid off.
Voices
Sam Shocket
Owner
King’s Jewelry & Loan Co.
“A customer comes in and we appraise the merchandise, determine whether they are the rightful owner, and if the offer that we make is satisfactory, there is a contract written. We hold merchandise for up to one year. We focus on jewelry because it always has a value to it, whether it is new or old. If it is damaged, the gold and the precious stones can always be remanufactured into new merchandise.
“If we need to, we ask for receipts. Obviously if an 18 year old walks in with an 18-carat diamond ring, we’re going to be a little suspicious. We make loans of $5 all the way up to $500,000. If a customer is a regular, we would tend to lend them a little more.
“We want the customer to pick up their merchandise. Ninety-six percent of all our customers redeem their merchandise. Statewide, it’s between 85 percent and 90 percent.”
Lt. Mike Felix
Officer in Charge of Gaming Section
Los Angeles Police Department
“We know there are loan sharks that hang out at restaurants around casinos. There are some restaurants that are owned by unscrupulous people that are tied to organized crime.
“When loan sharks see a person wagering a lot of money and losing and they need a quick infusion of cash, the loan shark will approach that person or somebody else will approach that person on behalf of the loan shark.
“(Gamblers) have this feeling that with the next hand or the next coin they insert, they are going to win. A lot of times loan sharks don’t have to be violent. It’s just the threat of violence that gets these people to pay.
“(Rates) depend on the amount of money you are loaned, the time period you have to pay it back and how credible you are. Most customers are gamblers or businessmen with poor credit at a bank.”
