Pawn Shops, Payday Lenders Benefit From Gov’t Shutdown
The partial government shutdown, which is now in its fourth week with no sign of ending, is helping out at least two industries: pawn shops and payday lenders.
The Financial Times reported that pawnshop chains and payday lenders are seeing a huge jump in their business thanks to the government shutdown that has left 800,000 unpaid or furloughed. Without income coming in, some of the hundreds of thousands of government workers are turning to pawns shops and payday lenders to help them get by. The Financial Times pointed to South Carolina-based World Acceptance for one example. Since the shutdown the stock is up 22 percent. Chad Prashad, chief executive of World Acceptance, told The Financial Times that the company is seeing increased demand in Texas and the Southeast, two areas where airports employ government workers. To address the shutdown, World Acceptance is offering deferrals on loans without interest or fee penalties. New customers are allowed to borrow up to $1,250 in a ten month loan with zero interest and no fees, reported the FT. “Because we lend in our communities, face to face, we see the concerns first hand and have decided to help directly,” Prashad said, noting after natural disasters such as hurricanes and tornadoes it offered the same promotions to victims.
Meanwhile EZ Corp., which operates a pawnshop in Austin, Texas, has seen its stock climb 20 percent since the closure of the government. Investors appearing to be betting on an increase in demand for their services as the government shutdown continues, becoming the longest in modern day history. “Many people . . . are reaching into savings and looking for short-term liquidity if they need to pay the mortgage or something else,” said Michael Underhill, chief investment officer at Capital Innovations, in an interview with the FT. “Alternative lending platforms have likely stepped into the void.”
Payday lenders have been on the receiving end of increased scrutiny on the part of Democrats in recent years, with critics of the industry contending that the terms of the short term loans are predatory, creating cycles of debt for the borrowers. But with around 78 percent of U.S. workers living paycheck to paycheck — including government workers— some may have no choice but to work with a payday lender until the government reopens.