Part 2 (1/2)
The HOEPA legislation wasn't without its influence. Kathleen Keest uses its pa.s.sage to mark the start of subprime's second wave, or what she calls the ”HOEPA evasion model.” In Boston, Keest shook her head as she watched the big lenders react to HOEPA. If a high-cost loan was one carrying an interest rate of 17.5 percent, they would loan money at a rate of 17.2 percent and charge 7.9 percent in up-front costs to avoid the 8 percent trigger. To the extent even these small concessions ate into profits, the lenders more than made up the difference pus.h.i.+ng overpriced products such as credit life insurance, which pays off a loan in the event of a death.
Fleet exited the subprime mortgage business in Georgia, but the company sold its portfolio to a rival named a.s.sociates, so Brennan found himself doing combat with a giant based in Dallas and owned primarily by the Ford Motor Company rather than one based in Providence. If anything, Brennan and Keest said, a.s.sociates was more insidious than Fleet. ”They just packed loans with credit insurance and other junk, and then flipped people over and over and over,” Keest said. Brennan saw the same thing. Whenever he met a new client coming to him because of a.s.sociates, they were invariably on their third or fourth refinancing.
In 1998, Brennan would travel to Was.h.i.+ngton, D.C., to testify about predatory lending at the Senate's Special Committee on Aging. He would fly to the nation's capital again two years later to talk about the same issue, though this time the invitation came from the House. In April 2000, when Andrew Cuomo, then the HUD secretary, was holding hearings to investigate subprime lending, Atlanta was the first stop on his five-city tour and Brennan was one of the featured speakers. ”Finally, it's our day in the sun,” he told a reporter for the Atlanta Journal-Const.i.tution Atlanta Journal-Const.i.tution.
It wasn't to be. Instead the dawning of the twenty-first century marked the start of Keest's third wave. By this time, a wide cast of players had joined the consumer finance companies, including a new crop of nonbank lenders such as Ameriquest and New Century. Increasingly, mainstream banks were revving up profits by purchasing or starting a subprime subsidiary. Unlike during waves one or two, the lenders were offering first mortgages as well as refinancings. Rather than holding the loans they wrote, they began selling off the mortgages to third parties that would in turn bundle and sell them on Wall Street. They were still frequently selling people loans more expensive than their incomes could handle, but they gambled that home prices would continue to rise at a brisk rate. The homeowner wanting a new mortgage could easily refinance as the home appreciated in worth and, in the event of a foreclosure, the bank would have repossessed a property that had grown in value. Of course, the gamble would prove disastrous if housing values were to fall. Brennan's message remained consistent throughout: The Fed must aggressively crack down on lending that bears no relation to a borrower's ability to repay. In particular it galled him that Fannie Mae and Freddie Mac, both created by the government explicitly to foster home owners.h.i.+p by buying and selling home mortgages, acted as a guarantor of some of these alternative subprime products. These twin giants of the mortgage world lent credibility to the subprime field and could cost the government untold billions if everything came cras.h.i.+ng down. ”Fannie and Freddie, as government-sponsored ent.i.ties, might very well turn to Congress for a financial bailout similar to the bailout of the savings and loan industry in the 1980s,” Brennan warned when he testified before Congress in 2000. His words were prophetic but seemed to fall on deaf ears.
Brennan works out of a satellite bureau that Atlanta Legal Aid maintains in Decatur, just east of Atlanta. The bookshelves in his office are crammed with books on race, and the pictures on the wall include shots of John F. Kennedy and King. Most striking, though, are the souvenirs of his fights, including the many awards he has collected over the years. He has been honored by his fellow legal aid attorneys, the state bar of Georgia, and various national consumer groups. Black groups have honored him for his work, as have religious groups, women's groups, and groups representing the elderly. He has so many plaques and awards that he has room only for a small portion in his modest-sized office. The rest sit in a pile in one corner of the room.
In the fall of 2008, the board of Atlanta Legal Aid honored Brennan with a resolution acknowledging his forty years of service to the poor and working poor. He felt pride that day, but the moment mainly made him feel glum. ”I find all the awards discouraging,” he said. For Brennan they served as periodic reminders of how hard they had all worked and how little things had changed. ”You work on something for twenty years,” he said, shaking his head, ”and it's been worse than it's ever been.”
Three.
Going Big CLEVELAND, TENNESSEE, IN THE 1990s 1990s Allan Jones wasn't seeking to launch an industry in the spring of 1993 as he sat in the c.o.c.kpit of his single-engine Piper Saratoga on his way to Johnson City, Tennessee. He only wanted to convince a man to come to work for him.
Jones was still in his early twenties when he took over his father's small collection agency and built it into a multi-city behemoth-”the largest in Tennessee,” he'll tell you-but it gnawed at him that he had no presence in the northeast corner of the state. ”My final plug on the map,” Jones recalled in a marbly Tennessee drawl. So when he heard that an old friend of his father's who lived up that way had been let go after years in the business, Jones jumped on the opportunity. He lives in Cleveland, Tennessee, a rural outpost thirty miles north of Chattanooga. He told Steve Hixson, a childhood friend whom he calls ”Doughball,” to meet him at the small airport where he kept his plane. ”We're gonna see ol' James Eaton and see if we can't get him to come work for us,” he told Hixson.
Hixson and Jones told me the story after work one day. We were at the bar of the Bald Headed Bistro, a restaurant that Jones opened a one-minute walk from his office. Jones, who has made a couple hundred million from the payday business, was sipping what he calls a ”Scotch slus.h.i.+e”-the single malt he drinks over crushed ice in a red plastic cup his bartender stocks especially for the boss-and Hixson was on his feet next to Jones, the better to narrate the story. A small crew of regulars, Jones underlings who seem only too happy to drink his alcohol, laugh at his jokes, and listen attentively as the boss runs through a familiar repertoire of old tales, had joined us. The James Eaton story is apparently a favorite for no other reason than that it offers a chance to showcase the imitations of Eaton that Jones and Hixson have lovingly honed over the years. One or the other will raise his voice one or two octaves and then, adopting a kind of mezzo-soprano hillbilly tw.a.n.g, proceed to make the other laugh.
”Ale-ann. Ale-ann, I sh.o.r.e do i-pree-shy-ate y'all comin' on up he-ya.”
Jones had always admired James Eaton. He was a ”real stately” fellow, he said, a bespectacled man who smoked a pipe. ”He looked to me kind of like Sherlock Holmes,” Jones said. That made it all the sadder when they found Eaton working in a shack so shabby the paint was peeling off the walls. It was the office of a dilapidated gas station where Eaton had set up a business he called Check Cas.h.i.+ng, Inc. ”I guess I've found myself my man in northeast Tennessee,” Jones told himself.
Jones was not deep into his pitch that day when Eaton excused himself to deal with a customer. A baffled Jones asked Eaton what he was up to and he explained. ”Ale-ann, Ale-ann, I'll tell you what.” It turned out he was loaning cash to people who needed a bridge loan until the next payday. The school janitor who needed $100 today would pay him back $120 when he received his next paycheck.
At that point Jones was a successful businessman with around 250 employees. He was wealthy enough to own his own plane but he was also in the debt collection business, which meant he spent his days dealing with unhappy people. The people behind the businesses who paid his bills were constantly bellyaching that his collection agents weren't aggressive enough and he was forever hearing complaints from the debtors that they were too gung-ho. After an hour or so of watching Eaton deal with his customers, he was struck by how friendly it all was. ”People would thank him,” Jones recalled. ”They would thank him and thank him and thank him.” The other thing that stuck in his mind was that these were working folk, not poor people. They drove decent cars. They dressed in good clothes.
Jones wondered about the fee Eaton was charging. Wasn't 20 percent too steep for a short-term loan of maybe a week or two? ”Ale-ann. Ale-ann,” Eaton drawled, and then pointed out that his customers' banks would charge them at least that much on a bounced check.
”That's when the lightbulb went off in my head,” Jones said.
Eaton, of course, said no to Jones's job offer. ”I sure do appreciate you coming on up here,” Eaton told him, ”but this is the happiest business I've ever been in. I'm happy, my clients are happy. They just love me.”
On the plane ride home, Hixson recalled, Jones was there but not there. ”I couldn't hardly say a word to him,” Hixson said.
They're happy, I'm happy.
Collections is a tough business. All those hospitals and department stores and credit card companies always on your back.
They just love me.
All those deadbeats demanding to talk with him because his people were rough with them over the phone.
Cheaper than a bounced check.
Jones thought of the grateful look on people's faces when Eaton handed over the money. And Eaton? How could he help feeling anything but ecstatic making 20 percent on his money? He kept thinking about that steep fee and how his customers saw it as a bargain. Jones sat on the board of a local bank; he saw the money they were making on bounced checks. Collections is a low-overhead business but Eaton was essentially running his operation out of a shack.
Jones was pus.h.i.+ng forty at the time. He would be getting in on the ground floor of a potential new business. He would be siphoning off money from the banks and make a tidy profit in the process. What was there not to like?
He went over the numbers in his mind. Ten grand, he concluded. He would set aside $10,000 and give it a shot.
The early evening gathering at the Bald Headed Bistro was actually the second time I heard the story of Jones's trip to Johnson City. The first was the day before, when Jones and I were barreling down the interstate in the cab of his s.h.i.+ny new white Ford 4x4 with gleaming mag wheels, heading to Chattanooga for a wrestling match he wanted to see. ”I think about that day and all I've accomplished,” he said somberly, shaking his head. This version Jones delivered in almost hushed tones, as if sharing something precious, and it ended up making him feel nostalgic and sad. ”You work so hard to build something from out of nothing and then watch a bunch of people who don't know anything about business try and take it apart,” he said. Payday may have rendered him a very wealthy man but it has also made Jones, the industry's most prominent pioneer and its most outspoken defender, a favorite punching bag of consumer advocates around the United States. ”Sixteen years-and all of a sudden what I do has become evil,” he says. ”I don't know what's changed that suddenly I'm evil.” And not for the first time, and also not for the last, he launched into a small tirade about a man named Martin Eakes, the founder of the Center for Responsible Lending.
Jones is bald with a round face and a full beard-Rob Reiner, but more dyspeptic and bulkier and without the liberal politics. He stands about five feet, eight inches tall and has the round shoulders of a former fullback. On our first day together, he wore scuffed cowboy boots and a monogrammed white dress s.h.i.+rt and his large belly hung over frayed jeans. He was likable enough, friendly and self-deprecating; noticing my pages of interview questions, he cracked, ”You've done more homework on me than I did at Cleveland High in four years.” But mainly he was a man looking for an argument. Where payday's critics such as Eakes live in the realm of theory, he said, his customers live in the real world, where a quick cash advance can mean the difference between the kids going to bed fed or hungry.
”They try and stop check-cas.h.i.+ng operations,” Jones said of the consumer advocates he's battled over the past few years. ”They try and stop the tax refund business. They try and stop the rent-to-own industry. They try and stop the auto t.i.tle loan industry. I guess as far as Martin Eakes is concerned, it doesn't make a difference if regular people have access to cash when they need it.”
In our initial phone conversation, Jones had practically insisted I travel to Cleveland to let him expound on the magnificence of the payday loan. ”If you're a'gonna write about payday, you gotta get down here and see me,” Jones said. ”I created the industry and the rest of 'em just copied me.” I was convinced, but then, after dozens of emails and phone conversations with the a.s.sistant in charge of his schedule, I received a curt email message from the company's communications director informing me that Jones had changed his mind. I decided to go to Cleveland anyway to see for myself this improbable birthplace of the modern-day cash advance business, a town of thirty-five thousand that had given rise to payday's first two big chains, Jones's and a local who copied his business. A few days before my arrival, I sent Jones an email informing him that I'd be coming to town to talk with people who knew him. An hour later Jones phoned. He'd be happy to make time to see me while I was in town, he told me-and that weekend Allan Jones and I became BFFs.
We attended a wrestling match on the campus of the University of Tennessee, in Chattanooga an hour's drive away, and then had lunch. Back in Cleveland, he showed me the hospital where he was born and drove me by the house where a childhood friend lived who would talk with him late into the night over their CB radios. He pointed out where one of his sisters lived and confided in me that his weight had grown so out of control that he had recently had gastric bypa.s.s surgery. He drove me up the hill to show me his house and invited me to watch the Super Bowl with him and his sons, but I declined because we had already spent more than five hours together and had plans to meet the next morning so I could see his operations and then talk again over lunch. Even best friends need time apart.
Destiny, as Allan Jones sees it, was awaiting him even as he exited the womb. The big news in Cleveland in the fall of 1952 was the opening of a new hospital and he was the first baby delivered there. ”The day I'm born and I'm already in the newspaper,” Jones said shaking his head in amazement. Is it any wonder, he asked me, that he had accomplished ”great things” in his life? A few years back he had the idea of building a ”First Mother's Garden” on the grounds of the hospital in honor of his mother. ”There was all this attention on me,” Jones reasoned, ”but it was her who gave labor.”
Jones figures he was no older than ten when he started collecting dried-out Christmas trees for a giant community bonfire. It became an annual post-holiday tradition in Cleveland, and in time he required kids to be at his house by 8 A.M A.M. sharp if they wanted to partic.i.p.ate. He was goal oriented even then, eager to beat his number from the previous year. ”I'd get furious at a kid if he didn't show up,” he said. He admits to harboring a visceral dislike all these years later for a kid whose mother wouldn't let him start collecting trees until 10 A.M A.M.
”Looking back, there were a lot of firsts in my life,” Jones said. ”I was the first person to collect all the Christmas trees. I was the first person to buy a fax machine in Cleveland. I was the first to have a cell phone. I was the first in Cleveland to have a Segway.”
Jones was never much of a student. He always remembered being kept back in sixth grade but after his mother died he found paperwork reminding him that he had been held back a second time. In high school, his accounting teacher told him he would fail her cla.s.s if he didn't buckle down. ”It doesn't matter,” he remembers telling her. ”What you can't do yourself, you can hire to get done.” He described his family as ”regular middle cla.s.s” but also mentioned a housekeeper who refused to enter his room because of the snakes and other small animals he kept there. By his account, he was a boy's boy, into sports and outdoorsy things. His teacher would describe a fungus or a species of plant-and the next day he would show up with a sample.
”I always wanted to be a biological teacher-or a wrestling coach,” Jones said.
Wrestling was his life in high school except during football season. To a certain extent wrestling is still his life. ”I was a great high school wrestler,” he boasted, second in the state in his weight cla.s.s by his senior year. He had been a pretty good football player as well, he told me, starting fullback, but then the school was integrated and after that he did nothing but block for a much speedier tailback who was black. He wasn't resentful, Jones said-but he was also sure to mention that his former teammate is on skid row. In high school, he and his girlfriend were named ”best-looking couple” but he was disappointed. ”I wanted 'most likely to succeed,'” he said.
Jones spent a year at Middle Tennessee State University in Murfreesboro before dropping out to work at his father's credit agency. By then, his father, increasingly incapacitated by emphysema, was only able to work a few hours each day, and a rival credit agency had recently opened in town. ”Come home and save the business,” his mother asked him, ”so we can afford to send your two sisters to college.” Jones didn't need much convincing. He had married his high school sweetheart, who was pregnant with their first child. They were living in a trailer near school. Even before his mother's call, he had taken a summer job with a nearby collection agency. That firm had five offices, compared to his father's one-and Jones was already looking ahead to the possibility of going into the family business. ”I copied every form,” he said. ”I got copies of their collection letters. I studied how they hired their lawyers. I studied how they did everything.” He was eager to prove to people back home, he said, that he was more than just a star wrestler.
In Cleveland, people know Jones's name if for no other reason than that they see it everywhere. The local high school is home to a million-dollar Jones Wrestling Center and there's an Allan Jones Intercollegiate Aquatic Center on the campus of the University of Tennessee. He seems to own half of downtown, and when one is driving the main highway that cuts through town, it's hard to miss the giant, department-store-sized lettering spelling out JONES MANAGEMENT JONES MANAGEMENT on the side of his headquarters. Then there are all the smaller reminders, such as the granite marker that stands prominently in the plaza in the center of Cleveland with an inscription: ”These Courthouse Trees Are Planted in Memory of W. A. 'Bill' Jones By His Son W. A. 'Allan' Jones, Jr., and Dedicated to All Citizens of Bradley County.” The joke in Cleveland is that W. Allan Jones, Jr., has never planted so much as a tree in town without simultaneously issuing a press release and striking a bronze commemorative. on the side of his headquarters. Then there are all the smaller reminders, such as the granite marker that stands prominently in the plaza in the center of Cleveland with an inscription: ”These Courthouse Trees Are Planted in Memory of W. A. 'Bill' Jones By His Son W. A. 'Allan' Jones, Jr., and Dedicated to All Citizens of Bradley County.” The joke in Cleveland is that W. Allan Jones, Jr., has never planted so much as a tree in town without simultaneously issuing a press release and striking a bronze commemorative.
Jones doesn't seem very well liked in his hometown, at least if the sampling of people I met with is any indication. In recent years, Jones has donated property to the city for the expansion of the local public library and he built an attractive white bandstand on the town square to replace the old one. But the city councilman I spoke with didn't seem to care for Jones, nor did the retired publisher with whom I met while in town. Even Jones's generosity served as a target of their derision. Sure, he rebuilt the old bandstand but then he seems to have spent nearly as much money throwing a big party in his honor, flying in Tony Dow, Ken Osmond, and Jerry Mathers (Wally, Eddie Haskell, and the Beav) for the occasion. A woman who has known Jones since grade school brought up that same party when describing Jones as a man ”who lives totally and completely in the past.”