Pawnshops in Auburn and across the country are seeing an increase in traffic spurred by high unemployment and a recession.

Some say pawnshops and payday lenders are taking advantage of citizens facing hard times and needing a loan.

Others argue that these businesses are the only ones willing and able to lend a hand to those in need with nowhere else to turn.

What’s clear, is that if a new Senate bill passes, businesses like Auburn Jewelry and Loan may be forced to close their doors forever.

U.S. Sen. Richard Durbin, D-Illinois, introduced SB 500: “Protecting Consumers from Unreasonable Credit Rates Act of 2009,” which would cap consumer interest rates at 36 percent.

“Within blocks of my home in Springfield, Ill., there are payday lenders charging interest rates of 200 and 300 percent of the value of the loan,” Durbin said in a released statement. “These excessive rates are often hidden and can have crippling effects on those individuals who can afford it least. Congress must enact protections against predatory lending. America’s working families depend on it.”

Some Auburn business owners vehemently disagree.

“The bill would literally cut interest in half if not more,” said Ron Solomon, owner of a Lincoln Way pawnshop. “On a $100 loan, I’d make $3 a month.”

And he said that’s not enough for him to turn a profit.

“I’d have to lay people off,” Solomon said. “I would be put out of business.”

The bill states that cash-strapped consumers pay on average “400 percent annual interest for payday loans, 300 percent annual interest for car title loans, up to 3,500 percent for bank overdraft loans.”

Going after large institutions that charge exorbitant fees appears on the surface to be a good idea.

But Solomon said pawnshops are considered lending institutions and are already regulated by the state. The amount of interest they can charge is capped, currently with an APR not to exceed 60 percent.

Many customers bring in used tools, guitars, amplifiers, firearms and treasured jewelry in order to secure a four-month loan.

“You bring in collateral, something of value, and I determine what its pawn value is,” Solomon said.

For example, a guitar that costs $400 new, might only be worth $200 used. Solomon said he would most likely loan 50 percent of the pawn value.

“You get four months to pay it back, along with the interest,” he said. “On the $100 loan there would be $17.50 in interest if the loan is paid in the first 30 days. It goes up 2.5 percent after 90 days.”

Solomon said his business is up. He has more customers coming in to pawn items and more shopping for used items. His forfeiture rate is on the increase as well.

“Even in a good economy we have 85 to 90 percent redemption,” he said. “Right now we are probably at 70 to 75 percent, which is still good.”

Michelle DeRobertis of Lincoln said she has a long history of visiting pawnshops — usually to make purchases.

“My first experience with pawnshops was way back in Austin, Texas,” she said recently outside the Auburn Jewelry and Loan on Lincoln Way. “I ended up buying an anniversary band and had my beautiful marquis diamond added to the band.”

Unfortunately, DeRobertis wasn’t at the pawnshop to buy anything this time.

“I had to pawn my two-carat ring,” she said “I’m broke and need the money. I’m going to school now, but things are tough.”

She doesn’t plan on losing the ring and said she’d be back to pay back her undisclosed monetary loan.

There are safeguards in place to ensure that the items being placed on hold as collateral are not stolen property. Solomon said a valid state or military identification is required, as well as a thumbprint. That information, along with any identifying numbers, such as serial numbers, of any item being pawned, is sent to the Auburn Police Department to ensure it is not stolen.

Solomon voiced his concern with the bill, and not just for himself. If SB500 were to pass, many who pawn items to hold them over to their next paycheck, would be out of luck.

“You can’t get a $100 loan from a bank to pay for groceries until payday,” he said.

Penne Usher can be reached at penne.usher@gmail.com or comment at Auburnjournal.com.