Despite the massive controversy surrounding the Payday lending industry,, or short term loan industry, millions of people are taking out short term loans in lieu of their next pay check. The massive outcry against the so-called unethical practices of trapping hundreds of thousands of unsuspecting people into paying extortionate interest rates and keeping them slaves to loans that they can’t pay back leads to several decisive questions. Why do so many people feel that there is no other alternative than a Payday loan? Why does the Payday loan fill such a vast gap in the market for credit? And mostly what did we do for a quick loan before the Payday people rode into town?
One very old institution and one that seems to be tolerated, is the Pawn Broker. Whereas a Payday loan is most often unsecured and the collateral consisting mainly of next month’s paycheck, pawn brokers basically lend money in exchange for items of value. Pawn brokers are centuries old. The first brokers originated in China, almost 3000 years ago. Both the Ancient Roman and Greek empires supported the pawn broking trade and the Roman Empire brought the service with them as they spread throughout most of what is now modern Europe.
Some of the greatest dignitaries of European history made use of pawn broking services. Isabella, the warrior Queen of Spain actually pawned her personal jewels to fund Christopher Columbus’ voyage to the Americas. Several wars were financed by pawn brokerage. Edward the third of Britain also sold jewels to go to war with France. King Henry the fifth pawned precious stones in 1415, also in the name of war. The crusaders pawned their lands to the Church and paid off the debt with crops over several years.
Interestingly, although the Roman Catholic Church originally banned putting any interest on pawn loans, pawn brokers have also been seen throughout history acting as charitable institutions. In 1450 the Monte di Pieta movement was begun in Perugia, Italy. A Franciscan Monk called Barnaba Manassei began a movement that was to spread throughout Italy, Spain and South America. The institution basically offered loans against valuables without any interest. Instead it was strongly suggested that a donation to the church would be much appreciated. This movement has endured and in Mexico, for example, there are over 150 branches all over the country and the institution was declared a national charity by the government in 1927.
Even today the industry is regulated largely according to the original Roman jurisprudence, and this seems to apply to Pawn Brokers across Europe. Apart from the conventional Pawn shops that are found on the High Street, Pawn shops have also moved onto the Internet. Items are evaluated online and then shipped to the Pawn shop by courier or post before the money is sent to the client’s account.
The fact is, Pawn brokers have been around for thousands of years offering short term loans to the public. These loans are secured against valuable items, and the loan itself is invariably a fraction of the real value of the item. Are Pawn brokers taking advantage of their clients? If so, they have been doing it for eons. Why are Payday lenders any different?