Since the start of the Great Recession in 2007, the number of pawn shops in the United States has surged from 6,400 to more than 10,000. Over the same period, the Federal Deposit Insurance Corp. says the percentage of underbanked households jumped to 20 percent.
In Tennessee, fewer than half of all households have used payday lenders or pawnbrokers, but the state leads the pack with more than 93 percent of underbanked households having used pawnbrokers or other alternative financial services. Moreover, 24 percent of black households in the state, compared to just 9.7 percent of white non-Hispanics, have visited payday lenders or pawnbrokers in the past 30 days. Many individuals who depend on pawnbrokers to meet their needs pawn and redeem the same items over and over, and there is no limit on how many times they can do this.
Some experts attribute the increased use of pawnbrokers to tighter banking rules and compliance costs that have prompted traditional banks to concentrate lending on wealthier customers and businesses. However, it is difficult for lower-income individuals to take advantage of payday loan-type products from banks, as customers need to open an account. Additionally, these products face increased scrutiny from the Consumer Financial Protection Bureau, the Center for Responsible Lending, and other watchdogs.