Fifteen
Payday, the Sequel
OHIO, FALL 2008
Bill Faith doesn’t walk into an office so much as he bursts through the door. He is a gale-force wind blowing through the corridors. Sitting in the office of one of his staff members while waiting for him to arrive, I heard Faith before I saw him. “We’re going to do it!” a gravelly voice boomed as if amplified by a megaphone. “This is David versus Goliath!” he bellowed, talking to no one in particular. With election day a few weeks away, political junkies across the country were weighing the relative strengths of the Obama versus McCain get-out-the-vote efforts but Faith was preoccupied by Issue 5, the Ohio state referendum sponsored by the payday lenders. Everybody in the office had stopped working, taking in the show. “David is going to beat Goliath,” Faith roared happily. “We’re taking these giants down.”
It seemed an odd day for Faith to be feeling optimistic. That morning, the office of Ohio’s secretary of state released the most recent campaign disclosure forms. In the previous few months, the payday lenders had spent $13.8 million, compared to the $260,000 spent by the “Yes on Issue 5” side. (Confusingly, though Issue 5 was paid for by the payday lenders, a yes vote was a vote in favor of imposing a 28 percent rate cap on the industry.) Worse, Faith and his allies had only $4,000 left in the bank with election day a few weeks away. But to Faith this glaring imbalance represented an occasion to score points—to cast a stone when the media would be paying attention to their down-ballot fight. He repeated his David-versus-Goliath line, tinkering with the phrasing, listening to how it sounded. A few hours later, “Yes on Issue 5” put out a press release telling reporters and editors that they could attribute the following quote to Faith: “This is a David versus Goliath battle. Voters need to know that a ‘yes’ vote on 5 lowers outrageous interest rates. It’s the stone that stops the giant industry.”
Before Faith’s happy entrance, I had been talking with Suzanne Gravette Acker, the communications director for COHHIO, Faith’s advocacy group. Gravette Acker, in contrast to her boss, was feeling jumpy about the payday ballot initiative. “They’ve hired really good lawyers,” she said. “They’ve got really good strategists.” She worried over the wording of the referendum (“it’s so vague and confusing you don’t know if you’re supposed to vote yes or no”), and she fretted over the latest series of pro-payday television ads, which mentioned jobs and raised privacy issues but never mentioned the 391 percent APR. “They’ve done a great job of muddying the water,” Gravette Acker said—and meanwhile the Yes side had spent all of $200,000 on a limited cable TV buy.
But Faith was having none of it. “Suzanne just needs a day off,” Faith said, and then jokingly ordered her home. What more did they need to do, he asked, aside from reminding voters that those who were least able to afford it were paying triple-digit interest rates? “These people, they’re vultures picking on the bones of working people,” Faith said of the payday lenders. “And I don’t see voters saying, ‘Yeah, that’s right, let’s let these vultures continue to prey on hardworking people and seniors living on Social Security. Let them charge them 391 percent.’” He gave his head a shake and grunted out a phlegmy laugh. “Ya know?”
The industry enjoyed the element of surprise, of course. Even before the final vote in the Ohio Senate, those on the payday side were quietly reaching out to the big signature-gathering firms and lawyers and a couple of the state’s better-known political operatives. But payday’s advocates only learned that much sooner how much of an uphill climb they faced.
The lenders’ first task was to gather the 250,000 signatures needed to get their referendum on the ballot. Normally that’s a matter of writing a few big checks, but these were hardly normal circumstances, said CheckSmart CEO Ted Saunders: “Basically we had just been kicked out of the state. The Columbus Dispatch and Plain Dealer for months were telling people we’re loan sharks, we’re scumbags, we’re just these awful people.” Was it any wonder, then, that at least some of the low-wage people who were hired to pass their petitions sometimes resorted to fibbing?
Sandy Theis thought she had died and gone to heaven that day when she was shopping with her teenage son in a mall near Columbus and happened upon a man trying to convince passersby to sign a petition that would put the payday referendum on the ballot. Faith had hired Theis to handle the press for the Yes on 5 campaign and also help run the day-to-day operations. After listening to the petition carrier’s pitch, she rushed home to grab a tape recorder. She captured two petition circulators on tape that day, both of whom utilized the same ready-made argument: We’re here to shut down the payday lenders. The petition passers were being paid by the payday lenders, but they were giving the anti-payday argument. “These guys are legal loan sharks and we want to regulate them,” one told Theis.
“But I thought it’s the payday lenders using the ballot so they can keep charging 391 percent.”
“No, ma’am,” the man answered politely.
Ours is now a world in which taping someone is as simple as hitting the record button on a cell phone. That’s what Robert Hagan did when he encountered a pair of circulators in his hometown of Youngstown. They too were claiming that the proposed initiative, if placed on the ballot, would lower the rates the state’s beleaguered working class would pay for a payday loan, not raise them. Hagan, the state rep who had co-sponsored the original payday bill with Bill Batchelder, certainly knew better. So did his son, a student at Oberlin College, who claimed he had come across a trio of circulators spinning the same fabrications. Others told a similar story, including a city councilman from Toledo and a Columbus-area man named Peder Johanson, who was so incensed at the deception that he launched an “I Want My Name Back” campaign on YouTube.
The payday lenders would turn in more than 400,000 signatures, and after the secretary of state rejected 56 percent of those signatures (including undoubtedly “I’mGoingToF*ckYou,” which is how former Check ’n Go manager Chris Browning signed a petition being passed near her home), they gathered 200,000 more. In its campaign disclosure forms, the payday lenders reported spending $3.4 million to qualify their referendum for the ballot. Presumably that included the costly television ads the industry felt compelled to run asking people to at least keep an open mind and allow the voters of Ohio to decide on the future of payday in the state.
“That’s how out of hand this all got,” the payday trade association’s Steven Schlein said. “We’re spending money on ads just to get people to sign a petition.”
At first, Schlein had been feeling optimistic about payday’s chances with the voters. He had lived in California, and time and again had watched better-funded referendum campaigns swamp the opposition no matter what the issue. If we have the money, Schlein asked at an early campaign strategy meeting, what was there to worry about? He didn’t like the answer he heard. We can run television ads for months. We can do weekly mailings. We can set up phone banks and do robo-calls. But if the other side has the endorsements of the leading politicians and its top newspapers, they can trump our efforts with one or two good television ads in the final week.
Wooing the state’s political establishment was out. The payday lenders were in a bind because they had already failed so miserably on that front. The industry could only watch helplessly as the Yes on 5 campaign trotted out its big political endorsements, starting with the first press event of the campaign, when two of the state’s top Republicans, Jon Husted, the Speaker of the House, and Bill Harris, the Senate president, joined Ted Strickland, the Democratic governor, to endorse a Yes vote on 5. Later in the campaign, Faith and his allies would again show off their bipartisan muscle by convincing the Democratic and Republican candidates for attorney general to call a temporary truce in their campaign and join former AGs who were gathering to condemn the payday lenders and their practices. The payday lenders would win an endorsement from the Congress of Racial Equality, but though they played that up in press releases and in campaign materials, there was some question about the relevance of this once venerable civil rights organization, whose director, Roy Innis, had joined the Libertarian party in 1998 and endorsed fringe candidate Alan Keyes for president in 2000.
The payday lenders tried looking for friends among the state’s newspaper editorial boards, but without much luck. Allan Jones may “still have a lot of hillbilly in him,” Jared Davis told me, but it was Jones whom they sent to the Cleveland Plain Dealer to represent the industry in a sit-down with that paper’s editorial board. Perhaps no one had explained to Jones that by design an editorial endorsement meeting generally means facing a small squad of editors and writers peppering a visitor with pointed questions, because Jones, fed up with what he described as “the most hostile questions I’ve ever heard,” exploded partway through the meeting. “Y’all are the most biased group I’ve ever seen,” he yelled at them, and then added for good measure that he thought the whole lot of them were full of shit. “Those people would not listen to reason, that’s how antibusiness they are,” Jones told me when we met in Cleveland, Tennessee.
In Cincinnati, Jared Davis and Jeff Kursman, Check ’n Go’s spokesman, were no less disappointed in their hometown newspaper. The Cincinnati Enquirer may be the most conservative large daily in the state but the reception they received was hardly warm. “We’ve been a business leader in this city for nearly twenty years, a major employer,” Kursman said.
“Three thousand employees,” Jared Davis interrupted.
“Three thousand employees. And what does the editor of the editorial page tell Mr. Davis? ‘Look, you can show me all the statistics you want, you can show me all the numbers in the world, but we’ve made up our minds.’” The two of them shook their heads ruefully. “The whole experience made me wonder about the future of American journalism,” Davis said.
“Journalism doesn’t exist in the state of Ohio,” Kursman sighed. The one newspaper of any size to endorse the industry’s referendum was in Lima, a town of forty thousand in the state’s northwest corner. “If someone is willing to accept the terms of these loans,” the Lima News wrote archly, “that person ought to be free of government interference to do so.” So inside the No on 5 campaign, they crossed their fingers and hoped that the Yes campaign wouldn’t have enough money in the final weeks to afford even a decent mailer, let alone television money to trumpet their endorsements.
Ted Saunders is no one’s idea of a charismatic speaker. Saunders will tell you that much himself. “I’m a numbers guy,” he said when we met in CheckSmart’s offices. He’s someone who feels more at home poring over a spreadsheet than sitting opposite a foe in a political debate. “I didn’t even run for student council,” he said. “I was a total neophyte.”
But the question was, if not him, who?
The payday ranks were depleted, to say the least. Angry that they had been so soundly defeated in the state legislature, Schlein’s organization fired its longtime lobbyist. The head of the Ohio Association of Financial Service Centers, whom Jared Davis claimed had done more to bring payday to Ohio than anyone else, also dropped out of sight, presumably another casualty of their loss. Jared Davis proved willing to do as many radio shows as they threw at him, but no TV. “I don’t like to do TV because of my Tourette’s,” he confessed. “My wife says get over it, but I don’t like the way it looks so I don’t do it.” And the rest? Like most other business people in the second half of 2008, they were preoccupied navigating the worst economic crisis since the Great Depression. Ohio was important but it was only one of dozens of states where the big chains had a presence. CheckSmart, in contrast, had its headquarters just outside Columbus and half of its stores were in the state.
So it fell to this mild-mannered technocrat who had only recently taken over as chief executive to square off against Bill Faith and his minions.
“Maybe I’m just a glutton for punishment,” Saunders offered with a rueful smile. “I was willing.”
Saunders is a slim man with thinning brown hair and the drab look of an accountant who has already spent twenty years on the job. Surprisingly, he was only thirty-five years of age. He in fact had worked as an accountant before taking a job at Stephens, Inc., the investment bank in Little Rock that had carved out a specialty in subprime businesses. While at Stephens, Saunders started doing work for Diamond Castle, a New York–based private equity firm that had raised $1.9 billion and announced in 2004 its intention to pursue “companies which serve the very large ‘unbanked’ or ‘underbanked’ population of the United States, estimated at approximately 70 million people.” After Diamond Castle paid $268 million for CheckSmart in 2006, Saunders jumped when the new management offered him the job of chief financial officer. “This was going to be our vehicle,” Saunders told me. With the purchase of CheckSmart, Diamond Castle wasn’t just buying 175 payday and check-cashing stores; it was securing a platform on which to build.
“Fundamentally you have an entire sector of the population, whether people like it or not, living outside the American banking system,” Saunders said. “And so long as those people are not welcome in the conventional banking system, and they’re not served by the conventional banking system, there’s going to be alternatives. That’s just what America is.” Using CheckSmart, Diamond Castle would snap up smaller chains as fast as they could, wring out redundancies, and eventually grow into an efficiently run giant of the poverty business. That at least was the theory.
The first challenge Diamond Castle faced in its plan to dominate this corner of the financial universe was that people were generally reluctant to sell because they too saw that there was still big money in the poverty business. “If you went through all our files, you’d see we tried quite diligently to expand this business,” Saunders said. “But it was like the Wild West out there among the payday lenders and check cashers and pawnbrokers. These are people who have no fear and never had any fear.” Saunders and his cohorts tried explaining that the industry was approaching a saturation point and, as a consequence, the better-funded, better-managed companies would crush the smaller players. But pretty much everyone they spoke with saw themselves as playing the role of the alpha company in that scenario. “Getting any of them to the point where they thought it made good economic sense to sell the business was next to impossible,” Saunders said. By the time the global credit crunch put a sudden stop to their expansion plans, CheckSmart had grown to only around 250 stores, and most of those additional seventy-five stores were built rather than bought.
“It would be a fair statement that in retrospect we didn’t have the greatest timing in the world,” he said.
Saunders barely paid any attention when the state legislature was holding hearings about payday lending. “We were heading into this terrible economy, which meant more people were going to need this service, not less,” he said. “I was thinking [the legislature] couldn’t be so clueless as to cut people off just when the need was greatest.” His promotion to CEO came at around the time the governor was signing the payday rate cap into law. So Saunders would need to navigate his company through the choppy waters of both a recession and a new regulatory environment at the same time he would take time to tape a segment for Fox News or argue for the industry’s survival at small forums around the state.
“The combination of good employees who want to deliver a valued service and a customer who appreciates that service ought to be enough to create a business in America,” he said. “But I don’t know what’s happened to our country.” He brought up the new rule that dictated that no Ohioan could take out more than four payday loans in a year. “What if government in their infinite wisdom said you couldn’t swipe your Visa card more than four or six times in a year? Well, that’s what the legislature did to these other people over here,” he said.
Saunders felt he owed it to his investors, his employees, and his customers to take to the stump. “If someone marched in tomorrow and took the company away, I could go do something else,” he said. “I can’t say that about everybody who works for me. I can’t say what would happen to a lot of our customers.” Like Billy Webster, Saunders had spent time working behind the counter before deciding to get into the business. “You spend three or four hours, without any cameras around, really talking to the people, and you become one hundred percent convinced that those people wanted the service and needed the service,” he said. “But when people hear the word ‘payday,’ they immediately shut down. They become instantly closed-minded. They think, ‘That’s toxic, that’s bad, that’s awful.’
“If you’ve never had to use the product, it’s easy to turn your nose up to it. People think, ‘Only a fool. Only an uneducated person.’” And of course the media reinforced those negatives, he said, as did those “supposedly independent consumer organizations.”
Saunders asked me if I knew the name Martin Eakes. I told him I did. “Then you understand what’s really going on here,” he said. I told him I wasn’t sure I did. “You’ve got this group, CRL, which is supposed to be for what it sounds. Consumer protection. But it’s funded by this credit union started by Martin Eakes, who just happens to be the head of the CRL. And it’s this very same credit union that chased payday out of North Carolina in order to increase their fee revenues.”
Saunders was hardly alone in making this argument. I was no more than two minutes into my first conversation with Kim Norris, the woman the payday lenders hired to run the No on 5 campaign, when she brought up the Center for Responsible Lending. “This is an attack on a very young industry that doesn’t have the sophistication against this well-organized lobbying effort promoted by the credit unions and their front organization, the Center for Responsible Lending, which will say anything to get their way,” Norris said. At the Ohioans for Financial Freedom website, sponsored by the No on 5 campaign, there was an entire section dedicated to “credit unions lies,” which concluded: “It’s pretty simple: credit unions see payday lenders as competition, and they have been spending millions on lobbyists to get their way.”
And Bill Faith? To Norris he was “CRL’s proxy in Ohio,” a tool of the “credit unions who are trying to put their competitors out of business.” To Saunders he was a hypocrite who had no right to call himself an advocate for the homeless. “This is a man who spent more money”—$200,000—“on one TV campaign about his pet issue than he’s spent helping the homeless over the last two years,” Saunders said. (According to Faith, COHHIO actually spent a combined $2.7 million in 2007 and 2008 on projects aimed at helping the homeless.) Later in our talk Saunders described Faith as “nothing more than a lobbyist who is very good at his job.”
Payday lending operators might have seen their industry as young and overmatched, but they were certainly not without resources. The No on 5 campaign paid Strategic Public Partners Group, a Columbus-based political consultancy firm, nearly $1 million for its services and it spent tens of thousands more on State Street Consultants, which the Columbus Dispatch would describe as a “high-powered Columbus lobbying firm that…ruled Capitol Square.” They would also pay Fleishman-Hillard, the giant communications consultancy, another $35,000 a month for Kim Norris’s services. Through the end of September, they had already spent $1.6 million on mailings and purchased some $7 million in television ads.
Faith, in contrast, paid Sandy Theis, a former Cleveland Plain Dealer reporter, a flat fee of $7,500 for the campaign, and relied on the pro bono services of his longtime friend and media consultant, Greg Haas. He had the part-time services of the COHHIO staff, just as the payday lenders had their teams, but where the payday lenders spent hundreds of thousands of dollars on polling, Haas had to beg to convince Faith to spend a bit of their limited cash on a focus group.
That single focus group meeting held during the summer would prove critical. For starters they learned that Ohioans had paid extraordinarily close attention to the legislative debate over payday. “We were all basically stunned by how much people knew,” Haas said. But most important, it drove home the polarizing power of the triple-digit APR. Any number of the participants hated this idea that limiting the number of payday loans a person could take out in a year meant maintaining a database that tracked loans by name. “The ‘nanny government’ stuff really bothered people—until you mentioned the 391 percent,” Haas said. “People were suddenly, ‘That’s theft!’” It was after the focus group meeting, Haas said, that the Yes on 5 campaign changed its name to the “Is 391 Percent Too High? Vote YES on 5 Committee” so that the 391 percent would automatically be stamped on anything the campaign produced.
“Bill decided we just have to keep pounding and pounding on that 391 percent,” Haas said.
The payday lenders took more of a scatter shot approach. Sandy Theis saw that as a sign of weakness. “They’re changing topics every few days,” Theis told me a few weeks before election day, “which tells me they’re still searching for a message that has traction.” Alternatively, it also could have indicated that their polling revealed any number of weaknesses in the anti-payday argument. As Greg Haas could have predicted, the payday lenders hammered away at the database issue. As written, the referendum wouldn’t do anything to change what Ted Saunders called the “Big Brother aspect” of the bill: The state would still keep track of the number of loans people took out in a given year even if the “no” side won. But it was also a potent issue, and so the lenders incessantly ran a television commercial reminding viewers of a few of the state’s more infamous data breaches. The industry also played to antigovernment sentiments by slyly making fun of this idea that the law required them to express the terms of a two-week loan as an APR. Imagine, the ad asked, if the authorities required rental car companies to advertise their rates as an annual rate: $10,585 a year for a compact rather than $29 a day. “Maybe they just think we’re all stupid,” the ad’s tag line sneered.
But mainly the payday lenders played to people’s fears. “Our polling shows that seventy percent of people are afraid of losing jobs,” Ted Saunders had told his fellow payday lenders in Las Vegas. “So we’re running a whole lot of ads about jobs.” Set to ominous music, one showed a set of grainy black-and-white photos of what at quick glance looked like a kind of postapocalyptic Ohio. Ohio had lost hundreds of thousands of jobs in recent years, a narrator intones. “Is this the time to shut down an Ohio industry and eliminate another 6,000 jobs?” For a time, the No campaign took to calling Issue 5 the “job killing initiative.”
That 6,000 number was a fabrication. Ohio had roughly 1,500 stores in the fall of 2008. Some had one employee; most of the rest employed two. Even accounting for an extra 150 roving district and regional managers, it didn’t add up to anywhere near 6,000 Ohio jobs. And a restrictive rate cap wouldn’t necessarily mean that every payday employee lost his or her job. By August, the state’s consumer finance department had received nearly 1,100 license applications from existing payday stores looking to offer alternative loan products should Yes on Issue 5 prevail. People would lose jobs, no doubt, but nowhere near 6,000.
Yet that number grew even more elastic as the campaign wore on. “We’re fighting to keep 10,000 good-paying jobs in the state,” Kim Norris told an Associated Press reporter in the final weeks of the campaign. And from that point on, 10,000 became the new 6,000.
It was eleven days before the election, and Bill Faith was sick—he always catches a cold during these big campaigns, people around him told me—and he slurped and sneezed through this first interview. He fiddled with a pen on his desk and also paper clips and random papers. He rocked back and forth in his chair and then bent forward to peek at his BlackBerry. Sometimes he leaned in, it seemed, just to twirl it around. I wanted to hear about the campaign but he was curious to hear from me what it’s like to chat with Allan Jones.
“They’re evil,” he said of the payday lenders. “They’re Orwellian evil people. They are people without principles. They deserve to be beaten and jailed. They’re thieves.” Later he described them as the “new Mafia.” They might not break kneecaps, he said, but they charge a higher vig.
Faith didn’t have much of a rationale for how the executive director of a group called the Coalition on Homelessness and Housing in Ohio came to devote so much of his time—and his organization’s time—to fighting the short-term cash advance business. “People were telling us some seniors were having a hard time paying their rent because they’re taking out payday loans to help their kids make ends meet,” he said. “People were at risk of losing their housing because of these things.” But then he doesn’t need to explain to anyone but his board of directors. COHHIO, a nonprofit, receives state and federal monies to help the homeless but those funds are earmarked for specific programs. It’s the discretionary money he raises from foundations and wealthy individuals that he uses to pay for COHHIO’s crusades, whether it’s the fight against predatory mortgage lending or a two-year battle to cap the rates that a payday lender can charge. Over the years everyone from the IRS and HUD to various state agencies have audited him but he’s never worried about what they may find. “I have an accounting guy to make sure we carefully segregate all our funds,” he said.
In the end, there was no money for a last-minute advertising blitz. The opposition had spent a lot of time talking about Martin Eakes but the Center for Responsible Lending’s presence in the campaign boiled down to the part-time help of a sole Durham-based CRL staffer. He proved an invaluable source for data and intelligence on the various payday companies but he hardly served as the campaign’s mastermind. “None of the credit unions gave us a nickel,” Faith said. “Zero.” In the final days of the campaign, the Yes on 5 campaign had only enough money for a single statewide mailing.
But none of that mattered. NEARLY 2 MILLION OHIOANS STAND UP FOR PAYDAY, read the headline over an Advance America press release posted the day after the election. Unfortunately for the payday lenders, Faith’s side collected more than 3 million votes for a landslide 64 percent.
The Friday after the election the Dayton Daily News ran a recap story quoting a seventy-year-old Social Security recipient named Evelyn Reese who was disheartened to hear that Issue 5 had lost. “This is a terrible mess for people who live from week to week,” Reese said.
Down in Cincinnati, Jared Davis and Jeff Kursman shook their heads over the News article. “The media finally quotes one of our customers talking about the value of our product,” Kursman said.
“Once it’s too late,” Davis interjected.
“We never stood a chance,” Kursman said.