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Facing few options, Americans turn to pawn shops when savings run out

By Ronnie Polidoro
Rock Center

When Aimee Mattera and her fiancé Lenny Maker’s multimillion-dollar cable installation business closed, the couple quickly found themselves short on cash and decided to take loans from a pawn shop.  Instead of heading to your typical pawn shop, they headed online to Pawngo, a digital pawn shop.

Maker says he heard about Pawngo while listening to an ad on the radio.  “I never thought we'd use it,” he told Rock Center’s Kate Snow in an interview scheduled to air Wednesday night.

Mattera and Maker used to live in Maryland, where Maker owned a cable installation business with 150 employees. However, when the economy took a downturn in 2008 and as Americans cut back on non-essentials, fewer new cable subscribers meant fewer installations.

“As the customers went away, so did our business,” Maker said.

Mattera and Maker’s business fell on rough times.  They sold off everything that they could live without and moved with their 5-year-old son to Maker’s hometown in Maine. 

The couple decided to start over and open a day care business, but Maker says with no savings and no job, no bank would give them a loan for their start-up costs. The couple had already cut up their credit cards. That's when they turned to the online pawn shop.

Pawngo, headquartered in a small business park in Denver, Colorado, is backed by Daylight Partners, Access Venture Partners, and Lightbank, the $100 million fund started by the founders of Groupon.  The online pawn shop gives loans ranging from $500 to $1 million based on the value of high-end, luxury collateral, including everything from rings to bottles of champagne to Olympic torches.

Customers overnight their valuables to be appraised by Pawngo’s certified gemologist. Pawngo then keeps the item as collateral while lending out anywhere from 50 to 75% of its value to its owners. 

The broker running Pawngo is Todd Hills, who’s been in the business for 25 years.  With the current economic conditions, Hills says he wants to help people who are in a financial bind.  However, getting his cash comes at a steep price: he provides cash loans and charges up to 6% a month in interest.  On average his loans are for three months.  That’s 18%, a rate which could make some credit card annual percentage rates seem like a blowout sale. 

“It's really cool to have a nice $10,000 watch on your wrist, but it'd be cooler if I could take that $10,000 and pay my daughter's tuition to college, or make the house payment,” Hills said.

Most people who send in items don’t want to part with their possessions forever, they want to use them as collateral for a loan and hope to get them back once the loan is paid off.

That’s what Mattera and Maker did: they sent in a pearl necklace and Mattera’s diamond engagement ring.  Pawngo assessed its value and provided a loan of $13,800 with an interest rate of 6% per month.  The fast cash allowed them to start the day care and  covered the cost of permits, renovations and toys.  When the day care opened last fall, Mattera had three kids signed up and hoped she would soon have enough children enrolled to pay back the loan by spring.

Three months later, with still only three kids enrolled in their day care, Mattera and Maker defaulted on their loan and lost both the ring and the necklace. 

When asked if Pawngo is taking advantage of vulnerable people, Hills replied, “Absolutely not.”

“I'm going to write you a loan against your asset and you have the option whether or not you want pay it back or not.  It's as simple as that,” Hills said. 

In the case of Mattera and Maker, Hills will sell their assets to pay back the loan. However, unlike a bank, Pawngo is happy to accept repeat customers, whether they’ve defaulted or not.

Hills says life throws a lot of curve balls, but “if you walk through the doors of my Pawngo bank again, I'm going to shake your hand, put my arm around you and say, ‘What can I do for you today?’”

Editor’s Note:  Kate Snow’s full report, “Taking Credit,” airs tonight, March 28 at 10/9c on NBC’s Rock Center with Brian Williams