Jack Derica, opened his first pawnshop in Texas in the early 1970s and was so successful he moved into the oil business. When that industry went bust, he returned to pawnshops, founding the company in 1983, and incorporating it the following year as Cash America Investments, Inc. Daugherty took the company public in 1987, making it the first pawnshop company to be publicly owned. The initial offering raised $14.5 million, with five million shares sold. The company continued to grow, primarily through acquisitions. In 1988, five years after its founding, the chain opened its 100th location.
The stores in the Cash America chain did not fit the dark, dingy image of a storefront pawnshop. Daugherty’s strategy was to provide big, well-lit stores, to computerize the inventory, and to centralize management. The company established a threemonth training program for new employees that included classroom and on-the-job training in loans, layaways, merchandise, and general administration of store operations. More experienced workers received training in the fundamentals of management, and managers went through a year-long program that dealt with recruitment, merchandise control, income maximization, and cost efficiency. Each store had a unit manager who reported to a market manager responsible for about ten locations. The market manager in turn reported to a division vice-president.
“Cash America is bringing modern management to a backward industry,” Prudential analyst John D. Morris told Ellen Stark of the Wall Street Journal. Investors, including some of the nation’s largest banks according to Michael Hudson of the Nation, appeared to like it. In 1988, the company sold an additional 4.92 million shares, raising $24 million to finance its expansion.
Cash America used the term “non-traditional borrowers” to refer to its customers. These were people not willing or unable to use a credit card or get a bank loan to cover the cost of repairing their car, paying a utility bill, or other short-term need for cash. Many did not have a checking account and usually conducted their business on a cash basis.
Using sources such as catalogues, blue books, newspapers, previous similar pawn loan transactions, and his or her own experience, the Cash America employee determined the estimated value of the item and the amount to be financed
The Cash America customer received a computerized pawn ticket that gave a detailed description of the collateral, amount loaned, and identifying information about the customer (address, age, driver’s license number). The average Cash America loan was for less than $100 and was outstanding for less than two months. The customer redeemed the item by paying the loan amount and service charge. About 70 percent of the company’s loans were repaid. For those that were not, the collateral became the property of Cash America and could be sold.
The company’s gross revenue was calculated by adding the amount received from the sales of unredeemed items plus the amount earned from service charges. Sales were generally around 70 percent of the gross revenue. But when the cost of the sales was subtracted, service charges accounted for at least half the net revenue each year.
Customers brought in items of personal value – wedding rings, silver tea sets, televisions, firearms, bicycles, radar detectors, weed whackers – to use as collateral for an immediate loan of money
The pawnshop industry has long been an extensively regulated activity. States determined the process to be followed in applying for a pawnshop license, what records had to be maintained and whether the local police could inspect them or whether transactions had to be reported to local law enforcement officials, how old a customer must be to be served, and what hours the business could be open. States also established the range of loan amounts and the maximum annual service charge for each range. In Texas, for example, in 1997, the most a pawnshop could charge was 240 percent per annum, and that only for loans of $1 – $132. No pawn loan continue reading this could be more than $11,000, for which the maximum annual rate was 12 percent. Oklahoma also had 240 percent as the maximum annual rate, but for loans of $1 to $150. Loans in that state could not exceed $25,000, with a maximum annual rate for that amount of 36 percent. Other states, including Florida and Georgia, allowed a maximum of 25 percent of the loan for each 30-day period of the transaction, with no breakdown by loan amount.
