Boomerang Lending isn't a typical pawnshop.
There are no flashing fluorescent lights enticing someone down on his luck to hock grandma's gold-plated necklace in return for a quick $100, no surly proprietor sitting behind bulletproof glass.
On the contrary, the online pawn service prides itself on catering to more affluent consumers who may be in a pinch and need a short-term loan. It lets them sell their Rolex watches and Prada purses discreetly and anonymously from their own home, and later buy the goods back for principal plus accrued interest.
That there is demand for such a service shows that the economic downturn has left even the more well-to-do with reduced access to credit. With the service, wealthy people whose credit scores may have been wrecked by the financial crisis can access short-term cash without having to walk into a pawnshop or go through a credit check.
"Consumers across all segments continue to be stressed," said Ali Raza, executive vice president at the consulting firm Speer & Associates Inc. "Generally speaking banks are not lending, so the supply of credit is obviously way down from the heyday of easy credit."
Established a little over a year ago in Centennial, Colo., Boomerang Lending has written more than 750 loans, and its average loan is about $4,000. Clients have offered items ranging from a solid-gold purse and high-end jewelry to motorcycles and Picassos. Boomerang plans eventually to lend against real estate, as long as the customer owns it outright.
Scott Valentin, an analyst at FBR Capital Markets who follows the credit card industry, said it's easy to see how the service would appeal to "house-rich, cash-poor" people who may have purchased expensive things with their credit cards before the recession but have since fallen on hard times.
"If you're affluent and your FICO score is still healthy, you can access credit," Valentin said. But "if you're 'fallen' affluent, maybe you might use that service. … For the affluent, the anonymous nature of being online would be a positive, versus going to pawnshops that are often not in the best parts of town."
However, Boomerang co-founder and chief executive Todd Hills, a 25-year veteran of the pawn industry, said that not all of his clients have bad credit (though it would be difficult to say for sure since Boomerang doesn't run credit checks on its clients).
"The type of products our consumers are using to get these loans leads us to believe they are very affluent," said Hills, who before starting Boomerang founded the pawn company Jumping Jack Cash, which grew to a 20-store chain in Colorado and Utah before he sold the Colorado stores to EZCorp Inc. in 2007.
"They're just businesspeople and entrepreneurs and commissioned salespeople, people whose cash flow has slowed down and in the past have been able to access lines of credit and they don't have those tools available to them anymore," Hills said.
The anonymity of the service is just part of its appeal, Hills said. "It's great to be able to borrow $50,000 or $100,000 from the privacy of your own home without any credit checks or obligation to repay," he said.
Here's how the service works: A potential client fills out a loan application online or over the phone and receives a provisional offer based on the description of the item being pledged as collateral. Clients then print a shipping label or schedule a pickup of the item, which is shipped overnight through FedEx free of charge. Transport of the item, which is stored in a secure vault at Boomerang's headquarters, is fully insured by a Lloyd's of London syndicate.
Items are evaluated by Boomerang's network of appraisers and valued at current market prices. Boomerang then makes a final loan offer at 50% of the item's appraised value; proceeds are directly deposited into the borrower's bank account. (Customers can decline the offer and get their items back if they wish.)
Boomerang has received loan requests for upward of half a million dollars, but so far all the loans that have been made have ranged between $2,000 and $250,000, Hills said.
All loans are six months in duration. Customers don't have to pay anything over the term of the loan, but at the end of six months they must pay back all of the principal plus accrued interest, which varies depending on the size of the loan.
For loans between $3,000 and $5,999, for example, the service charge is 5% of the loan amount per month, equivalent to a 60% annual percentage rate. So on a $3,000 loan, a customer would pay $3,900 at the end of six months to get an item back. APRs on Boomerang loans range from 48% to 84%.
"Our transaction is much different than a traditional bank loan," Hills said. "We're classified as a collateral lender, but what we're actually doing is buying the item outright and then giving them the option to repurchase that item in six months at a predetermined price."
Customers can also choose to pay down the loan each month or pay just the service charges as they accrue. Many of them pay back the loan and accrued interest before the six months are even up, Hills said. Customers can choose to extend the loan for another six months if they pay the service charges that have accrued up to that point.
However, if at the end of six months the client cannot pay back the loan and the service charges, Boomerang keeps the item and sells it through its network of dealers. If Boomerang nets more than was owed, it will give the difference back to the borrower, and it promises not to report the delinquency to the rating agency.
Very few customers end up leaving their items behind, though. About 90% of customers get their items back, Hills said.
"These are people who are just in a tight spot for a short period of time and they just need a little bit of relief," he said. "Most people get their items back in 90 days."
John Ulzheimer, founder of 2StepCredit.com, a credit education website, called it "idiot-proof lending."
"They have people that are very, very well trained and then lending essentially half of what the appraised value is," Ulzheimer said of Boomerang. "It's immensely more legitimate than a payday lender. There's a lot of disclosure. They have aligned themselves with very reputable partners."
Plus, "their prospects have grown immensely over the past three years, so it's a good time."
Boomerang is a licensed lender in Colorado but operates in all 50 states. Its bank partner is Wells Fargo & Co., which Boomerang uses to deposit funds and lend them out to customers through wire transfers.
The pawn company has been marketing its services primarily on the Internet, on the websites of high-end real estate brokers and jewelry stores, among others. Boomerang is also doing a radio campaign in five states.
"The service was needed out there," Hills said. "The banks … are not servicing this type of customer. You've never been able to walk into a bank and get a loan against your watch or a piece of jewelry. Even in the best of times there's a fair amount of paperwork and processes you've got to go through to obtain a loan from a bank. Our loan is completely based on the collateral. It's private, it's discreet."