How to Clean Up the Pawn Shop System

Recently, I was walking in downtown London, Ontario in the Adelaide and Dundas area. If you’re not familiar with London, Adelaide and Dundas is one of the rougher parts of town. Homeless dot the streets, countless people chain-smoke and stand around on the sidewalks, and pawn shops populate the stretch from Adelaide and Dundas two blocks east to English St.

Pawn shops are most numerous in areas of lower income and high crime, as they have provided an outlet for stolen goods for over a century. The most frequent pawners are highly likely to have a criminal record as well. For example, a Ft. Lauderdale newspaper conducted a survey of pawn slips from all major pawn shops in the city. A pawn slip is the receipt of a transaction at a pawn shop that keeps track of the pawner’s name and contact information. Of all of the pawn slips counted and categorized, it was determined that 39 out of the top 50 most frequent pawners had a criminal record, specifically relating to crimes such as burglary, theft, or other related offences.

In the past decade, both Canadian and American authorities have enforced stricter regulations on pawnbrokers to help raise security in the interest of reducing crime by supporting repeat offenders. The problem with this system is that it also puts a great deal of pressure on the pawnbrokers, because this cuts into their business, and many brokers may look the other way at a known repeat offender if it means staying afloat.

A recent article in Metro London details that a city councillor is seeking to change bylaws currently enforced on local pawnbrokers and scarp yards. While I agree that stricter bylaws do need to be put in place, recall what I mentioned before pawnbrokers looking the other way if it meant keeping their business afloat. There has yet to be a link determined between enforcing stricter regulations on pawnbrokers and a reduction in crime. This is in the same vein of thought that hiring more police officers will reduce the crime rate in a city, which is an inconclusive hypothesis. Some countries experienced lower crime rate with a rise in the number of police officers, while some experienced rising crime rates with similar increases. Crime is a complex system, and no one factor can hope to govern it.

The pawn shop industry has continued to soar because it provides individuals with something a bank simply cannot do: small loans for short amounts of time, or instant cash for goods. Pawn shops have often been tied not only to crime, but also to the drug trade, as many pawners use the money gained from pawning items to finance their drug habit. More police officers or stricter regulations on pawn shop owners will not deter the level of crime in London, and likely not in other cities where theft is such a rampant issue.

If you tell your child that for every A they get on their report card, you will give them five dollars, they will likely work harder in school. After a few years of high achievement and your wallet thinning, you decide that you will lower the reward to one dollar per A. This still provides incentive, but makes it less appealing. While your child may not work as hard, there is still a reward available, so they continue to achieve high grades, albeit a few less A’s. Eventually, you continue your crude experiment and tell your child that you are no longer giving them a reward for their high grades. The child, although no longer financially motivated to achieve high grades, is still likely to achieve high grades because that is the life and routine they are used to.

Initially, the reward had to be high to provide enough motivation to get them to buy into your system, but over time, you lessened the reward as their mind got used to the benefits of achieving high grades in a sort of Pavlovian response. This same analogy can be applied to the criminals who are frequent pawners. Because they have lived their life accustomed to a system of theft and reward in the form of cash from pawnbrokers, enforcing stricter penalties (analogous to lowering the reward from $5 to $1), will not deter behaviour significantly. What needs to be done is stop the reward process right from the start, so that criminals are not enticed to steal in the first place.

The reward for most of these individuals is drugs purchased via cash obtained from a pawn shop, but at the very least, the reward for their efforts is cash. What if pawn shops changed their model completely, and instead of providing cash to would-be pawners, they instead provided social assistance vouchers that could provide groceries, housing subsidies, or that could be directly redeemed for other products that contribute to a healthier life? Yes, there would be still be an incentive to steal, as exchanging copper pipes for groceries to feed your family is reason enough for theft, but at least with this system the vicious cycle of theft and drug use could be interrupted.

Recall the scene in Aladdin where he steals bread simply because he is hungry. Aladdin wasn’t stealing bread to sell at a pawn shop and use the cash to buy meth later; he was simply trying to sustain himself, and we felt sympathy for him as a result. I believe that by eliminating the reward of cash and eventually drugs from the pawn shop system, cities will help to improve their overall community structure and health even if theft still persists. This new system will no doubt reduce the incidence of theft, as many individuals who can still provide the basics for themselves will have no desire to steal because they cannot acquire cash or drugs as the end result.

Pawn shops would still be able to generate income, as exchanging goods for vouchers will provide them with a resale inventory influx, and the vouchers can purchased with this income. Partnerships with grocery stores, housing co-ops, and even municipal governments can form. For example, lets say a pawnbroker sells a gold ring for $100. The pawn shop would normally purchase that gold ring from the pawner for $50. The remaining cash is used to pay bills related to the store. Instead of paying the pawner $50, the pawnbroker uses that $50 and purchases a $50 gift card from Loblaws or similar beneficial program.

Additionally, many pawnshops have gone high-tech. In 2009, Todd Hills created Pawngo, an online pawn service. It has recently acquired 13 million dollars in venture capitalist-backed funding, and revenue grew from $1.3 million in 2011 to $6 million in 2012. Online pawn shops provide a simple online estimate, and then the pawned good is sent to the shop via post, and a cheque arrives in the mail for the pawner a few days later. Converting to a more online-focused model will allow more pawn shops to heighten security, as it requires a fixed address and access to the internet. Individuals who possess a low income and resort to theft or burglary are less likely to have access to these amenities, so an online-based model will act as an initial screening process.

Theft has been around as long as their has been people. We have all stolen something at one point or another, whether it was a car or a few fries from your friend at a restaurant. It is something that we simply cannot cure by enforcing a few bylaws or hiring more police officers. What we can do is attack the source of theft related to pawn shops, which is drug addiction and financial needs. Pawn brokers can seek to do some good in the world by partnering with local municipalities and other involved stakeholders and stop “rewarding” criminals with cash that can be used for the very things causing crime. We need to interrupt this cycle and work to providing rewards that can actually improve the lives of those breaking the law, so that it will reduce the likelihood they will do so in the future.

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