Hard times for some prompt comeback for once disreputable pawnbrokers

New forms of lending help Albemarle & Bond achieve 51 per cent surge in profits

Times have rarely been so good in the pawnbroking industry. New businesses are springing up and the world's second oldest profession is apparently finding modern-day consumers are very willing to part with their gold or jewellery in return for a loan that is not exactly competitive.

Theprofession was in the limelight yesterday, when Albemarle & Bond, Britain's second largest pawnbroker after Harvey & Thompson, unveiled a 51 per cent increase in pre-tax profits to £3.7m, and a 50 per cent hike in its dividend.

Investors in the company – the largest quoted pawnbroker in the UK – had clearly not been expecting such an impressive performance, as its shares jumped 13 per cent to 67p.

The fact that pawnbrokers have been staging a resurgence in the past few years will probably have escaped most people's notice. It is not the kind of business that relies on advertising and those who run Britain's expanding pawnbroking chains are wary about celebrating their success too publicly because of the industry's not entirely respectable image. This was even true for people who use pawnbrokers, who traditionally preferred the commonly used code that a pawned item was "at your uncle's" to the more straightforward explanation.

Charles Nicolson, the chairman of Albemarle, is uncomfortable with the pawnbroking label, which he describes as "an emotive word". He says his business is really a "poor person's bank" as many of his customers do not have a bank account and instead use Albemarle for a whole range of financial services, from loans to cheque cashing.

Nathan Finch, assistant secretary general of the National Prawnbrokers' Association, said the "Dickensian image that all pawnbrokers are miserly" is very much out of date, but conceded that pawnbrokers do well when times are tough. The last recession of the early 1990s marked a resurgence in the industry which had almost dwindled to nothing in the post-Second World War years of fast growth and high inflation.

Albemarle's record results might provide a key indicator for market watchers now, suggesting that contrary to their own claims, banks have quietly been crunching back on credit to people seen as more likely to default on loans.

In common with most pawnbrokers, Albemarle argues its fortunes are not counter to the fortunes of the economy at large. It said the number of customers forfeiting their possessions because they could not repay their loans remained steady at 15 per cent.

Nonetheless, the company's sharp rise in profits reflects the fact that there has been a sharp increase in the number of people visiting its 50 shops around the country – which was due in part to customers not being able to get credit from a more mainstream lender.

But Mr Nicolson argues that the upturn among pawnbrokers is to do with the fact that far from being parasites on the poor, they are increasingly filling a gap in the financial services market for those on low incomes.

"We offer a simple service for people who do not want to use a bank. Banks make charges. For example, for our customers, a bank's unauthorised overdraft fee of £30 is a tremendous charge," Mr Nicolson said.

He and his pawnbroker brethren – known as pledgers for the goods a customers hands over, which is known as the pledge – can argue with persuasion that they are some of the few catering for the very poor.

Pawnbrokers' own rates are hardly good value – annual premium rates on loans are often more than 100 per cent, compared with a standard bank loan in the region of about 20 per cent. But even for those who want to use a bank, many rural branches have been closed down and banks, whose profits have been hit by the falling markets of the past two and a half years, do not spend money advertising for the business of low income new customers.

There are still 15 million adults in the UK without access to financial services, despite the Government trying to counter this by forcing all of the major banks to open simple accounts for this group of people.

Paul Jones, an academic and author of a report called Access to Credit on a Low Income, said: "It is all very well criticising pawnbrokers, but they offer people a service when they have got no choice."

Pawnbrokers historically stuck to lending money against a customer's gold jewellery. The industry's distinctive sign of three gold balls originated in the Medici dynasty's family crest of three gilded pills, used because the Italian family ruled the Lombard region where many goldsmiths started to run a sideline in pawnbroking.

In the UK, pawnbrokers were once almost exclusively family-owned small businesses, but the few that have been expanding into chains are also boosting the amount of business they are doing by diversifying their offerings.

A few now sell new and second-hand jewellery in their shops and they have branched out into other forms of credit, such as cashing cheques and making advances against people's monthly pay packets.

Yet pawnbrokers still have a long way to go before they shed many of the negative conceptions about them. This is partly because the quid pro quo for offering quick and easy credit to the less well off is that rates are very high. It is also because not all pawnbrokers adhere to the Consumer Credit Act, which regulates them. According to Mr Finch of the pawnbrokers' trade association, his members practice the "highest standards".

But Mr Jones and other experts who have studied financial exclusion point out that while pawnbrokers are meant to publish their rates clearly, many do not. Despite the fact that pawnbrokers whose customers have defaulted are meant to return some proceeds of a sale to that customer, in practice many do not do this either.

But the Department of Trade and Industry has made it clear that for these errant pawnbrokers, regulators are set to crack down through a new Consumer Credit Act due next year, which is likely to make it easier for individuals to claim they have been the victims of extortion.