Part 9 (1/2)

”We already were up against the entire mortgage industry,” Faith said. ”At that point we didn't need a whole new set of enemies lining up against us.”

Faith had promised Allio he would turn his attention to payday finance as soon as the mortgage fight was over, but months pa.s.sed without Faith making any commitments. ”I was still dragging my feet,” Faith said. ”So now Tom is getting even more p.i.s.sed.” It was no longer a question of what he thought of payday loans. A woman on his staff was getting calls at work because of a sibling who was past due on some loans and he heard from another friend whose sister had also gotten herself into a deep hole using them. ”Once you start looking into this thing, you see it's a really ugly world,” Faith said. But Faith, ever the pragmatist, wanted to see if they stood a chance before jumping into the fight. He checked in with a few friendly legislators and he set up a meeting with the governor-elect, a Democrat named Ted Strickland. Strickland, who would take office at the start of 2007, asked him to wait, but he also made it clear he would sign something if it reached his desk. Faith had similarly encouraging signs from the others, so he informed Allio he was on board.

The group called themselves the Ohio Coalition for Responsible Lending-a self-conscious nod to the Center for Responsible Lending. Jim McCarthy and Dean Lovelace were members, as were a long list of labor leaders, housing activists, community organizers, legal aid attorneys, and those representing faith-based organizations around the state. ”To many of us this wasn't just an economic issue but a moral one,” Allio said. ”The high interest rates they charge is a modern-day form of usury. I don't care what the text, whether it be Jewish or Catholic or mainline Protestant, there's clear statements in each against usury and the need to offer fair interest rates.” The group decided that its aim would be to cap the interest rates that payday lenders could charge and limit the number of loans a person could take in a given year. ”We had people calling the office every day who are like, 'I've got five, six, ten payday loans, I'm trapped,'” said Nick DiNardo, a legal aid attorney in Cincinnati. ”And there was nothing we could really do short of helping them if the collections got too aggressive.” It fell to Faith to find a lead sponsor for their bill.

The new governor was a Democrat but the Republicans still controlled both the Ohio House and Senate. So instead of starting with a good liberal, Faith surprised his allies by first approaching a conservative legislator named Bill Batchelder. With Leonid Brezhnev eyebrows, oversized Mars Blackmon gla.s.ses, and a tendency to quote Adam Smith, Batchelder hardly seemed to fit the bill of consumer champion. But if they could first muster Republican support, Faith reasoned, some of the bipartisans.h.i.+p good feeling they had nourished during the mortgage fight might carry over to payday. Besides, the two got along famously. Unlike most every other lobbyist traipsing through his office, Batchelder told me, he always found Faith a man of conviction ”who was actually looking to engage you in a serious policy debate.” If some of Faith's allies were inclined to describe Batchelder as one of the legislature's ”cavemen conservatives,” that was all right with Batchelder, who reacted to the characterization with a burst of delighted laughter.

Batchelder and Faith might disagree about most everything but he was an easy sell on payday lending. Batchelder told him he was happy to sponsor the Coalition for Responsible Lending's bill, not despite Adam Smith, the first apostle of laissez-faire, but because of him. ”The rates lenders charged were a moral question for Smith,” Batchelder said. ”Smith pointed out that if you charge too much, you damage a society. And he's right. You can't charge people these kinds of interest rates without hurting their situation and society.” In October 2007, Batchelder and Robert Hagan, a liberal Democrat from Youngstown, introduced a bill that would impose a 36 percent rate cap on the interest rates payday lenders could charge.

In Was.h.i.+ngton, D.C., Steven Schlein reacted to the news with an indifferent shrug. After four years with the payday lenders, he had learned not to get too worked up over every dispatch from the hinterlands. ”Every year a bunch of states put payday into play,” Schlein said. ”But then in the end you have few actual fights.” They had lost legislative battles in Oregon and New Hamps.h.i.+re over the previous few years but mainly they ended up with a compromise that the big chains could live with. ”Ohio didn't seem one of the places we should worry about it,” Schlein said.

In Spartanburg, Billy Webster was similarly unconcerned. The market was too important and the industry too strong in Ohio to lose. Check 'n Go was based in Cincinnati and the Davis brothers several years earlier had had the foresight to spend the money necessary to lure away a top Ohio Senate staffer to run its governmental affairs office. There was also CheckSmart, based in Columbus, a chain of 175 payday and check-cas.h.i.+ng stores that had just been sold to a large New Yorkbased private equity fund for $268 million. After writing a check that big and with half of its stores in-state, CheckSmart's investors weren't going to sit idly by. ”We were told time and time again,” Webster said. ”With Check 'n Go and CheckSmart there, there was no way Ohio would be in play.”

The Coalition for Responsible Lending held forums across the state and organized small delegations to meet with individual legislators and with the editorial boards of all the big daily newspapers. A local research group, Policy Matters Ohio, released a report demonstrating that payday had become widespread even in the state's suburban and rural areas. When, in the autumn of 2007, Marc Dann, the state's Democratic attorney general, announced he would be holding hearings investigating the lending practices of the state's 1,600 payday stores, the search was on for customers and employees, or at least former employees, willing to talk about their experiences.

The first of three hearings was held in a large Baptist church on Cleveland's east side. The industry might have been confident about a victory but they were hardly complacent. Its supporters showed up in full force, wearing yellow ”I Support Payday Lending” b.u.t.tons and made sure their perspective was voiced. They pointed to the list of ”best practices” their trade a.s.sociation had developed, including a twenty-four-hour rescission policy and a once-a-year extended payment plan for customers who get themselves into financial trouble with a payday loan. Payday's critics, many of whom sported b.u.t.tons showing a shark's snout biting into a large stash of cash, dismissed these voluntary policies as not worth the paper they were printed on. One of the more moving speakers in Cleveland was a man named Charles Mormino, who told the crowd about a family member with psychiatric problems (he was no more specific than that) who had gotten into trouble with a trio of payday stores. He settled up her debts at all three and then sent a certified letter to each alerting them to the family member's problem. But all three-Advance America, CheckSmart, and ACE Cash Express-continued to do business with her.

A former payday manager named Tom Kirk spoke at the attorney general's hearing in Columbus. On paper, Kirk said, the payday lenders were generally responsible citizens. There were in fact rules at the company where he worked against lending to a customer carrying loans at multiple stores, and there were policies to protect borrowers from overzealous collections. The rub was that employee bonuses were based largely on volume. ”The policy manual of the company I worked for was good,” Kirk said. ”The problem is that the district manager and the store managers and the store personnel don't always follow it.”

Those who supported the Batchelder bill might have felt encouraged by their organizing efforts if not for one failing: They seemed to be getting nowhere in their hunt for legislators willing to join their crusade. Particularly baffling was the reluctance of House Democrats to commit to their cause. ”Several of the legislators were not friendly, verging on hostile,” said Jeff Modzelewski, an organizer for BREAD, a church-based group in the Columbus area, who met with all twelve legislators representing the capital and its suburbs in the statehouse. Even Joyce Beatty, the House minority leader, a black woman representing central Columbus, proved frosty. ”We figured she would be strongly enthusiastic,” Modzelewski said. ”She represents a black, poor urban district with inner-city problems. But meeting with her-she was among the worst. I'm there with twenty church members and she's talking to us like we don't know what we're talking about.”

There are people in the black community, of course, with a favorable view of the poverty industry. In South Carolina, I spent an evening with Willie Green, the former pro football player who had proven brave or foolish enough to appear on 60 Minutes Wednesday 60 Minutes Wednesday. Green, who by this time had gone to work for Advance America, spoke rhapsodically about the critical role these fringe financial inst.i.tutions played in the life of the black community. ”Check-cas.h.i.+ng stores and p.a.w.nshops and payday lending stores, those are the poor man's inst.i.tutions,” Green said. ”You go to any poor black person, and I guarantee you, they've borrowed money from a payday person, a t.i.tle loan person, or a p.a.w.nshop. That's what you do if you don't have the luxury of going into a bank and borrowing money.” Green's father, a janitor at a movie theater in Athens, Georgia, had raised nine kids on $85 a week. ”He used to play golf on Sat.u.r.days and Sundays and then go to the p.a.w.nshop,” Green said. ”He'd p.a.w.n his clubs and he'd pay for my school, or whatever I needed to succeed in life. And then he'd go get his clubs at the end of the week when he got paid.

”He made that sacrifice for us. If my dad had not had the ability to use a p.a.w.nshop, I wouldn't be where I am. I wouldn't have been able to go to college. I wouldn't have been able to play professional sports.”

But Joyce Beatty was another story. The Cleveland Plain Dealer Cleveland Plain Dealer revealed that CheckSmart, the company that had just been sold for more than a quarter of a billion dollars, put Beatty's husband, himself a former legislator (she had taken his seat in the legislature), on the CheckSmart payroll. Even the whiff of controversy was all the motivation many in Beatty's caucus needed to make up their minds about the evils of payday lending. ”A lot of wavering Democrats suddenly had very strong opinions,” said Jim Siegel, who covers the state legislature for the revealed that CheckSmart, the company that had just been sold for more than a quarter of a billion dollars, put Beatty's husband, himself a former legislator (she had taken his seat in the legislature), on the CheckSmart payroll. Even the whiff of controversy was all the motivation many in Beatty's caucus needed to make up their minds about the evils of payday lending. ”A lot of wavering Democrats suddenly had very strong opinions,” said Jim Siegel, who covers the state legislature for the Dispatch Dispatch. Even Beatty came out in support of meaningful payday reform, as if to show that she was not in bed (so to speak) with the industry. Now all they had to do was convince enough Republicans that there was a compelling reason to add to the state's job loss and shutter an industry that employed several thousand people across Ohio.

In the eight years he served in the Ohio House of Representatives, Chris Widener remembers a gavel being used during a committee hearing only a few times-and all of them were in the winter and spring of 2008, when his committee, Financial Inst.i.tutions, was debating payday lending. Widener is an architect by profession, thorough and precise, a thin man with blue eyes, metal-framed gla.s.ses, and a receding hairline. He believed that any person wanting a chance to speak should be given one and so he held four hearings on the issue, one of which lasted nearly seven hours.

The crowds were large and often raucous. What Chris Browning remembers about her time in front of Widener's committee was the hissing and the jeering that accompanied her testimony. She told the committee about the GM pensioner who had borrowed money from her store for 115 consecutive months-and people wearing yellow ”I Support Payday Lending” b.u.t.tons and yellow s.h.i.+rts booed and yelled out things like ”liar” and ”bulls.h.i.+t.” She declared that ”repeat borrowers are the payday loan inst.i.tution's bread and b.u.t.ter,” which prompted more catcalls and cries. ”Widener's banging that gavel of his and telling people they'll be quiet or he'll remove them but it's not making much difference,” Browning recalled.

An unhappy Allan Jones took his turn at the witness table. He had better things to do than try to explain his business to people who didn't understand it, yet suddenly he had been told that he needed to worry about shutting down all his stores in one of his best markets. ”It's like overnight we're hearing we might lose Ohio,” he recalled. With foreclosures starting to spike across the country and the economy starting to teeter, he was worried that payday would end up collateral damage. ”Payday didn't cause any of this but I realized we were being used as an easy scapegoat,” he said. You might not like how I make my money, he told the committee, but the people you'd be hurting if you imposed this cap ”were the ones who without us couldn't pay the electric company or the repair shop if their car breaks down.”

Bill Faith listened in amazement to this heavyset man from Cleveland, Tennessee, who had flown to Columbus in his private jet to lecture the Ohio state legislature about the plight of the working man. ”We provide them an essential service to help them when they're most in need,” Jones said earnestly. Who is is this guy, Faith asked himself-and then quickly realized it was his best friend. ”I just wanted him to talk and talk and talk,” Faith said. ”Because the more he talked, the more he offended everybody.” Faith had the opposite reaction when Lynn DeVault, a Jones underling serving as the president of the payday trade group, took her turn at the microphone. Rather than dismissing the critics as pointy-headed elitists, she acknowledged the payday horror stories but then blamed them on mom-and-pop shops refusing to adopt the industry's best-practices pledge. Our customers like us, she said, and if that wasn't quite true, they certainly didn't dislike them so much that they did something about it. Only about a dozen people a year typically filed a complaint about a payday lender with the state-a small number when compared to those filed against check cashers and others in the poverty business. ”Customers are intelligent people who choose the lowest-cost alternative for themselves at a particular point in time,” DeVault told the committee. They can pay us $15 to borrow $100-or they can pay the bank $35 every time they bounce a check or blow $50 paying a utility company a restore-service fee because they were two payments late on their electricity bill. this guy, Faith asked himself-and then quickly realized it was his best friend. ”I just wanted him to talk and talk and talk,” Faith said. ”Because the more he talked, the more he offended everybody.” Faith had the opposite reaction when Lynn DeVault, a Jones underling serving as the president of the payday trade group, took her turn at the microphone. Rather than dismissing the critics as pointy-headed elitists, she acknowledged the payday horror stories but then blamed them on mom-and-pop shops refusing to adopt the industry's best-practices pledge. Our customers like us, she said, and if that wasn't quite true, they certainly didn't dislike them so much that they did something about it. Only about a dozen people a year typically filed a complaint about a payday lender with the state-a small number when compared to those filed against check cashers and others in the poverty business. ”Customers are intelligent people who choose the lowest-cost alternative for themselves at a particular point in time,” DeVault told the committee. They can pay us $15 to borrow $100-or they can pay the bank $35 every time they bounce a check or blow $50 paying a utility company a restore-service fee because they were two payments late on their electricity bill.

Terrence Jent, who had worked as a regional director for Check 'n Go, offered a very different perspective than Jones or DeVault. Jent had started as a store manager in his last semester of college and quickly worked his way up from district manager to regional manager. What bothered him about his four years in the industry, it seemed, was the aggressiveness with which they pursued someone who was late in paying them back. ”You will receive hara.s.sing phone calls three to four times a day,” he told the committee. ”All of your personal references will receive phone calls each day. You will be visited at work in an attempt to embarra.s.s you into paying your loan. You will be visited at your home so that you understand that the payday lender knows where you live.”

Yet the hearings, while raucous and often dramatic, weren't swaying opinions. Widener regularly polled committee members, as did Jim Siegel over at the Dispatch Dispatch. Both were hearing the same thing. Republican members might be willing to do something about payday but nothing so radical as a rate cap. ”They were telling me, 'We might have to do a bit of tinkering, we might need to put on some kind of limit, but we don't want to shut an industry down,'” Siegel said. Widener was searching for a compromise that set aside the rates the payday lenders charged but limited people to two loans at any given time or perhaps eight loans a year. ”At that point, it didn't look like anyone was pa.s.sing anything,” Siegel said.

Steven Schlein might want to claim the role of underdog but in Ohio the payday lenders were anything but outmanned. Schlein's group, the Community Financial Services a.s.sociation, had six lobbyists on the payroll during those months they were debating a payday cap (including Chuck Blasdel, the former state representative who had done the bidding of the subprime mortgage lenders in 2002 and 2006). A group calling itself the Ohio a.s.sociation of Financial Service Centers had its advocates, as did the individual chains. Cash America, with 139 stores in the state, hired two lobbyists. Rent-A-Center, with fifty-three stores in Ohio offering payday loans, hired four. ”You could see it just sitting there,” Faith said. ”It's like each little delegation sitting in the crowd had their own lobbyist.”

In the end, though, the rival lobbying seem to carry less weight than the gathering economic cataclysm that was threatening to engulf the state. The Republicans had already lost the governors.h.i.+p and they were scrambling to maintain their majorities in the Ohio House and Senate. The Speaker of the House, Jon Husted, wanted the party to be on the side of reform. So one day in early April, with the hearings over, Husted held an impromptu press conference with a small gaggle of Columbus reporters.

”I sense growing support for a rate cap in our caucus,” Husted announced. That of course wasn't what they were hearing or what Widener had been telling them, but the Speaker was sending a message. He wanted to see a rate cap pa.s.sed and he wanted it to happen quickly.

Strickland, the new governor, also turned up the heat after Bill Faith ran into him in the hallways of the capitol. The two had known each other for years, and when Strickland asked Faith how it was going, Faith told him he could use his help on the payday lending bill. That day Strickland's staff penned a letter with Faith's help. ”It is my hope,” the governor wrote, that the legislature would approve a 36 percent rate cap and that ”I would have the opportunity to sign this policy change into law in the near future.”

That weekend Husted called Widener. He was not about to be out-flanked by a popular new Democratic governor on an issue he had already staked out. Perhaps the simplest solution, Widener suggested, was to take away what the legislature had granted the industry back in 1995, when it exempted these short-term loans from the state's 28 percent usury cap. That was a cap even lower than the one Strickland had endorsed, which sounded fine to Husted. Twenty-nine Republicans joined forty Democrats to pa.s.s the bill by a 6926 margin. The bill also limited people to four payday loans in a year.

The industry made a last-ditch stand in the senate. They hired more local lobbyists, flew in more troops from out of state, and held a giant rally in front of the statehouse. About two thousand people, most of them payday employees, gathered to listen to speakers and chant, ”Save our jobs!”

But it was too late. The day after the rally, the state attorney general released his report on Ohio's payday lenders. There was ”compelling evidence of an industry that uses deceptive practices to target some of the state's most vulnerable citizens,” Marc Dann wrote. He dismissed payday loans as ”a deceptively attractive choice for those in need of quick cash.” Widener's bill flew through the senate with only minor changes and Governor Strickland signed the bill into law in early June.

The payday lenders, though, would have the last laugh. ”It's a sad day when the opinions of editorial writers and so-called consumer groups count for more than the opinions of the people,” Lynn DeVault said in a statement released on the day Strickland signed the cap into law. The next day, DeVault and her allies did something about this grave injustice when they filed paperwork with the secretary of state's office indicating their intention to repeal the new rate cap through a statewide referendum. The foes of payday lending would have to win twice, though this time in an expensive statewide ballot fight that seemed well beyond their budget.

”I was,” Bill Faith said, ”more surprised than I want to admit.” At a press conference, he told the a.s.sembled reporters, ”You ain't seen nothing yet,” but in truth he was nervous. ”I had pulled every rabbit out of a hat I could think of,” he said, and his reservoir of clever ideas seemed dry.

Fourteen.

Maximizing Share of Wallet LAS VEGAS, OCTOBER 2008 2008.

Tim Thomas, the owner of Daddy's Money p.a.w.n Shop in Wichita, could not really say why he flew from Kansas to Las Vegas for the twentieth annual check cashers' meeting. Around us the ambitious scurried about, dreaming of new markets to conquer, but Thomas was content with the way things were. ”I've got a good manager so basically my time is mine,” he said. Thomas typically shows up at his shop mid-morning. He inspects the previous day's receipts, does a quick scan of the books, and makes up the day's lunch schedule. Except for tax season, that's his workday, pretty much over just two hours after it starts. Sometimes he goes to the health club to work out but mainly, Thomas said, ”I play a lot of golf.”

Thomas, who was fifty-four when we met in the fall of 2008, didn't choose the poverty business as his path to Easy Street so much as it chose him. He was in his mid-thirties and working a route for a vending machine supplier when a childhood friend asked him to help him open a p.a.w.nshop in Wichita. That didn't quite work out as either had hoped but a new world had been opened to Thomas, and in short order he was managing a rival p.a.w.nshop doing a robust business cas.h.i.+ng people's checks and making payday loans. In 1999, after eight years of working for someone else, he opened Daddy's Money. It too would be a full-service financial center making p.a.w.n loans but also handling a range of low-denomination financial interactions. What started out as a modest-sized, 1,500-square-foot shop is today an 8,000-square-foot superstore employing a staff of ten.

Daddy's Money faces stiff compet.i.tion. A partial list of rivals within the Wichita city limits includes A-OK p.a.w.n, the p.a.w.n Shop, King's p.a.w.n, Cash Inn, Money Town, A Loan at Last, Aces' p.a.w.n, Air Capital p.a.w.n Shop, Cash Inn p.a.w.n, C&C p.a.w.n Shop, Country p.a.w.n, Easy Money p.a.w.n Shop, Mr. p.a.w.n, and Sheldon's p.a.w.nshop. But apparently even in the country's fifty-first most populous city, with 350,000 residents, there's more than enough business to go around. Daddy's Money, Thomas acknowledged, turns a handsome profit.

”I'm making a lot of money,” he said shaking his head, as if he were as astonished as the next guy over his good fortune.

For months I had talked with poverty industry pioneers who had portrayed what they did for a living as n.o.ble. To hear them tell it, it was never about the money but instead about helping people and providing a valuable service. But Thomas didn't reach for the high moral plane when describing how he made a living. That became immediately clear once he started talking about his various businesses, starting with check cas.h.i.+ng. Check cas.h.i.+ng generates only a few thousand dollars in fees per month, accounting for a small sliver of Daddy's Money's revenues, but it's also a lucrative piece.

Kansas is one of seventeen or so states where there's no cap on the fees a check-cas.h.i.+ng establishment can charge. Thomas takes a relatively small portion (2 percent) when a customer presents a payroll check but a high one (10 percent) if it's a handwritten personal check. On the surface that makes sense. Cas.h.i.+ng a handwritten check seems far riskier than cas.h.i.+ng one issued by an established business. But Thomas has removed almost all the risk inherent in the transaction before a clerk slides over any money. By that point, an employee has spoken to both the person who has written the check, to verify that it's good, and to the bank, to make sure the funds are available.

Why, then, does he still take one-tenth of the face value of a check given the improbability that it will bounce?

”Because I can,” Thomas said with an amiable smile. ”Other states have their rules but in Kansas I can charge as much as I want. It's part of the game you play.”

Playing the game means taking whatever nips Thomas can from every check cashed inside his store. People who don't have a bank account must pay their gas and electric and cable bills in person, using cash, or they must pay someone like Thomas to pay the bills for them-at $2 per bill. He has also partnered with Western Union for those customers, immigrants especially, who want to wire money overseas. But Thomas didn't use a word as genteel as ”partner.” Western Union pays him a ”kickback,” Thomas said, every time a customer made a wire transfer, just as he earned a ”kickback” each time he sold one of the prepaid debit cards he peddles for a subsidiary of American Express.

”If I sell a card for $10.95, I get $5,” he said. ”Every time they swipe a card to make a purchase, something like a nickel or a dime or maybe a quarter kicks back to me”-depending on how much one of his customers spends on a transaction.