What's out: Payday lenders. What's in: Pawn shops.


November was a tough month for the payday lender business, as Arizona and Ohio joined a host of other states imposing caps on its fees that will effectively drive them out of business. As a result, the unbanked, it need of quick cash, are being forced back to an ancient alternative, the pawnbroker.

The main difference between payday lenders and pawnbrokers is collateral. Pawnshops require you to give them some of your personal property, often jewelry, musical instruments, or electronics, which they hold until you pay back the loan. Payday lenders loaned without collateral, except the promise you'd make good, much like loan sharks of old, without the threat of arm-breaking.

Payday lenders drew public distain for charging interest rates upward of 400% annually, although the industry argued that, given the usual short-term nature of the loan, this is an unfair description. Both payday and pawn shops would prefer to compare their rates to the late fee on a credit card ($39 on some), or a utility, or the cost of a bounced check.