Capping Interest Rates Could Hurt Pawn Shops

Los Angeles, CA- Senator Richard Durbin (D-Illinois) proposed a bill (S. 500: "Protecting Consumers from Unreasonable Credit Rates Act of 2009") that will cap consumer interest rates at 36 percent. Sounds great, right? Wrong. This interest rate cap will drive thousands of pawnshops out of business, effectively closing the door on the only credit option currently available to millions of needy consumers.

Does 36% sound like a fair interest rate for pawnshops to charge? Consider this:

Under a 36% rate cap, when someone visits a pawnshop and borrows $100 and then repays the loan two weeks later, the customer will pay $1.38 in interest on the loan. An employee's salary alone for the 30 minutes spent servicing the loan will cost more than $1.38. In business, when costs total more than profit earned, the business ultimately fails and the services it provides are no longer available to consumers.

Millions of people rely on pawnshops to pay for unexpected hospital bills, car breakdowns, and other unforeseen expenses. If you talk to customers of a pawnshop, they will tell you that pawnbrokers are the only lenders willing to loan them money. These pawnshop customers have no place else to go.

With nowhere to turn, people will become desperate and crime will likely increase (petty theft, illegal loan sharking, etc.). In addition, pawnshops will be forced to close, leaving more people without work and more vacant stores, which will further dampen the recession.

The concept of being in a position to need a $50 loan may be hard for elitist, wealthy Senators to understand. But that's not stopping these politicians from saying "tough luck" to millions of Americans who need these small, short-term loans. What these politicians don't realize is that $50 is a lot of money to many Americans.

In the Utopian world of Mr. Durbin, everyone should have savings tucked away or good credit for a loan in times of need. As we all know, that isn't reality. Americans are often faced with unexpected expenses.

Bill S. 500 is trying to prescribe financial medicine to a third of America without understanding their needs.

Pawnshop customers are speaking out against this bill, and their voice must be heard in this debate. You would expect them to be thanking Mr. Durbin for lowering the interest on their pawnshop loans. But instead they are saying "NO THANK YOU!" for putting their local pawnshops out of business.

Who is going to provide these former pawnshop customers with the loans they need? The government (with yet another bailout)? A bank? In these tough times, banks are reluctant to loan money to consumers with good credit.

In response to this badly-drafted, poorly-considered bill, SaveMyPawnshop.com has been launched to give a voice to pawnshop customers. On this website, people can sign a petition against bill S.500 and find information about how to contact their local government officials.