by Gary Rivlin
Jones didn’t waste any time once he had decided to jump into the cash advance business. He leased an empty storefront on a busy corner and spent two days fixing it up before he opened its doors. Let MBAs with their fancy degrees waste months writing business plans and modeling alternative scenarios. Three weeks after visiting James Eaton in Johnson City, on the first day of summer 1993, Jones opened a store he called Check Into Cash. His first customer, he said, was a military man who needed $100 to buy a bicycle for his daughter’s birthday.
Not long after opening that first store, he opened a second one in a town thirty miles away. As a sort of experiment, he put a childhood chum he was inclined to describe as a “lump on the log” in charge of that operation. It didn’t seem to make a difference. That store made money just as rapidly as the first. He consulted with a big firm in Chattanooga whose lawyers advised him that there was nothing in Tennessee law expressly forbidding him from making these high-rate, short-term loans, and he opened another seven stores around the state in 1994. He collected nearly $1 million in fees that year and yet the stores, including salaries and bad debt, cost him only $486,000. That left him with half a million dollars in profits.
He was preoccupied running a statewide collection agency so he hired Steve Scoggins, a man he had known since they were both kids, to help him oversee the payday portion of his business. He gave Scoggins a budget of $1 million and told him to scout for new locations. After doing some research, Scoggins asked him, do you want twenty good-looking stores or sixty that don’t look so nice? Jones chose the sixty. In 1995, Check Into Cash generated nearly $1 million in pretax profits on $3.7 million in fees, operating stores in Tennessee, Kentucky, and Indiana, where a quirk in the law exempted small loans from the state’s usury provisions. Neither James Eaton or Allan Jones invented the payday loan. Moneytree, a check-cashing firm on the West Coast, had been offering cash advances to its customers since the late 1980s, as had QC Holdings, a check casher that started in Kansas City, Missouri. But Jones was the first to pursue the cash advance as a stand-alone business with blue-sky potential. “It was like we was filling this giant void out there,” Jones said.
Jones wouldn’t have to look far to find his first big competitor. It was a local man named Steve McKenzie, who was a few years ahead of Jones in high school. McKenzie, who everyone called Toby, had grown up poor in a family whose woes were serious enough to draw the attention of the local authorities. He cut a high profile in town even as a teenager, when, to help support his family, he took a job delivering newspapers in a smashed-up Volvo he had bought for $150. A social worker named Joe Kirkpatrick used to look in on the family and especially McKenzie’s younger brother, who had a penchant for getting into scrapes. Kirkpatrick had a theory that people in public housing have no dreams unless they invent a different dream every week. McKenzie was different. “Toby was rough around the edges,” Kirkpatrick said, but likable and also a hard worker. Kirkpatrick made sure to keep an eye out for McKenzie because he struck him as one kid whose dreams seemed attainable.
Jones and McKenzie first met in the late 1970s, when both were still in their twenties and McKenzie was looking to rent space for a new business he had recently gotten into called rent-to-own. “You know how stores rent TVs to people?” McKenzie said in explaining the business to Jones. “I’m going to rent them everything. Living room sets. Bedroom sets. TVs. Everything.”
“Nobody’s going to rent their bed,” a skeptical Jones responded.
“Man, you don’t know. You just don’t know.” But even if Jones doubted the business, he recognized McKenzie as his kind of businessman. Buy a television in a store, Jones remembered him explaining, and you might pay a 20 or 30 percent markup over the proprietor’s price. But rent out that same TV by the week and you make several times what you paid for it.
Competition was inevitable in a business that lucrative, and down the interstate, just south of Cleveland, a rival had seemingly opened directly across the street from one of McKenzie’s stores. The warring between them seemed particularly fierce, with banners that said things like “Don’t be ripped off across the street!” Joe Kirkpatrick remembers expressing his sympathies to McKenzie when they ran into one another in town.
“He looks at me with this big ol’ grin on his face,” Kirkpatrick remembered, “and he says, ‘Joe, I own ’em both. The type of person who goes to a store like mine, they get all pissed off because you repossess, they get back at you by crossing the street. I’m just givin’ ’em a place to go!’”
McKenzie’s rent-to-own empire was up to eighty stores when he hired a CPA named Jerry Robinson to put his books in shape for an initial public offering, or IPO. Robinson worked in what he describes as “the bare-knuckles side of banking,” lending money to businesses like McKenzie’s while working for a subsidiary of Transamerica, the San Francisco insurance giant, called Transamerica Commercial Finance, which specialized in businesses catering to the subprime market. Robinson, who had grown up poor, thought he had found his meal ticket when McKenzie asked him to join him in Cleveland. “There was the potential to make a lot of money doing this,” Robinson said of rent-to-own. “There were millions of people without a checking account and without any kind of credit who needed some way of financing these small transactions.” The only hitch, he discovered, but only once he had moved to Tennessee, was his new boss. Robinson’s eyes began to open during a trip the two made to Chicago to meet with a banker Robinson knew there. The banker made a seemingly reasonable recommendation when he suggested that McKenzie consider slowing down his expansion plans, at least until he got some of his numbers in order. “Toby says to the guy, ‘You’re a fucking order taker; you’re lucky I don’t beat the shit out of you right here,’” Robinson said. Maybe more frightening was the question McKenzie asked him after the meeting: “How do you think it went?”
“I worked for Toby for two years, four months, nine days…,” Robinson said.
In the end, though, the problem wasn’t McKenzie but bad timing. Robinson still remembers the exact day in September 1993 that he and McKenzie were staying in a hotel outside Nashville to meet with people from J. C. Bradford & Company, the middle-market investment banking firm they were hoping would take the company public. Robinson was reasonably certain Bradford would green light the offering, until he took a glance at that morning’s Wall Street Journal. “Left hand column, above the fold”—a page-one article casting the industry as one ripe for reform if not legal sanctions. With Jones, McKenzie had used the example of a television set; the Journal focused on the Sanyo VCR that would cost $289.98 if a customer bought it at a retail outlet—or $1,003.56 over eighteen months if it were purchased through weekly installments at Rent-A-Center, the industry’s leading company. That worked out to an annual rate of 220 percent. More damning was the new term the Journal taught its readers: the “couch payment.” That was when the repo man accepts sex in lieu of a payment. Of the twenty-eight former Rent-A-Center managers interviewed for the article, six admitted that couch payments had occurred in their territory. The banker passed on the deal.
At that point, McKenzie was making $3–4 million a year in profits. He would have grown faster if they had raised $15 million in an IPO, but he had plenty of cash to plow back into the business. Yet once his boss had been denied the glamour of a public offering, Robinson saw that McKenzie’s interest in the rent-to-own business was fading. That’s when he asked Robinson to take a closer look at what Allan Jones was up to.
Robinson had already flirted with payday back when he was with Transamerica. On the lookout for entrepreneurs seeking to strike it rich operating on the fringes of the economy, Robinson and his colleagues had flown to Kansas City to talk with the people at QC Holdings, a check-cashing company experimenting with payday loans. They liked the idea of charging a 20 percent fee, of course, but Robinson couldn’t understand the logic of offering loans to people with nothing in the way of collateral except their word that they would pay back a loan
on payday. “We told them that was the dumbest thing we ever heard and flew home,” Robinson said.
Robinson’s mind began to change after he spent a few hours doing reconnaissance work outside one of Allan Jones’s Check Into Cash stores. He was still nervous even when they opened their first payday lending store. They handed out $10,000 in forty-eight hours and he wondered if he and McKenzie weren’t “the two stupidest people on the planet.” An ad of theirs would run on the radio station and he would watch the phones light up—but were they simply reaching a whole new set of people who might be happy to take their money but less eager to pay it back? McKenzie, however, harbored no doubts. He sold his rent-to-own chain for $15 million and, like Jones, hired people to scour the country looking for fresh business locations. For the two local Cleveland boys, the race was on.
Jones and I were heading up the hill to his home when we passed through a new development of pricey homes and high hedges on the northern edge of town where some of Cleveland’s wealthiest residents live. Many of the homes have been built in a style a writer for Harper’s would memorably describe as “Plantation Revival: columned white monstrosities like something out of Gone with the Wind.” Jones pointed out one such monstrosity in the making, a half-built multistory brick edifice. That was to be Toby McKenzie’s new place, Jones said. There was more than a hint of satisfaction in Jones’s choice of tenses. McKenzie had declared bankruptcy a few weeks before I showed up in Cleveland, and the speculation around town was that his home would never be finished. Jones argued that McKenzie’s financial woes demonstrate that payday isn’t as lucrative as its critics think but in reality it only proved that the business didn’t render you so rich that you’re inoculated against bad financial decisions. The immediate source of McKenzie’s problems, the local media had reported, was the many millions he had committed to real estate deals and especially his investment in a high-end golf development that was an early casualty of the global credit crunch.
The loan shark, who has been a chat-in-the-street friend of McKenzie since both were young men, reached the opposite conclusion as Jones. McKenzie’s mistake, he said, is that he got out of a proven market. “You can make more money off the rich but it carries a much bigger risk,” he said. In contrast, there’s what he calls the “poor people’s economy.” “The thing about the poor people’s economy,” he said, “is that basically it’s recession-proof. You’re always going to have people who need $100 or $200 real quick.”
For many, jumping into the payday business would seem barely more plausible than joining Tony Soprano’s crew. Yet for people like Jared Davis, a twenty-six-year-old rich kid from Cincinnati casting about for something to do, the lowly cash advance business proved the opportunity he had been waiting for. One year after Allan Jones opened his first store, a friend told Davis about the store his sister was running in Louisville, Kentucky, and Davis, who was working for his father, Allen Davis, the CEO and president of Provident Bank, Cincinnati’s second largest, went down for a look. The place had a distinctly backroom feel to it but Davis saw potential. “Loaning people small amounts of money against their next paycheck?” Davis said. “I liked the business. I liked it a lot.” His father agreed to stake him money so he could open a store just across the river from Cincinnati, in Covington, Kentucky. He chose the name Check ’n Go.
Davis ran that first store for a few months to get a feeling for the customer and to design a system before hiring a manager and taking to the road. “I was thinking twelve, thirteen, maybe fourteen stores,” Davis said. That was before he met Jones and McKenzie in Puerto Rico at his first meeting of the National Check Cashers Association and realized payday lending was bigger than Kentucky. David Davis, his older brother, had recently joined the business, which meant they had the advantage of each other’s labor—and a father with deep pockets. “After Puerto Rico, we decided to go big,” Davis said.
With each new state Davis would buy a map and book that listed its cities by population. He figured he visited just about every city in Kentucky with at least twenty thousand people before he aimed his Jeep Cherokee toward Indiana and repeated the same routine. “My job was to find the stores,” Davis said. “Once I was ready to open one, I would hand the keys over and David would run it.”
“I’m not very disciplined,” Davis confessed. “I’m not the kind to make eight or nine A.M. meetings. But basically after we built out Kentucky and heard Indiana was available, I started driving and didn’t stop.”
The more ambitious payday companies had lawyers researching the usury laws of every state. Illinois! Illinois had no cap on the rates a lender could charge. Wisconsin! Oregon! New Mexico! And when they worked their way through this scattering of available states, they explored new frontiers with the help of the lobbyists they put on retainer. “It was necessary to explain to governors and to legislators, ‘Here’s what we do and here’s why it’s necessary,’” Jared Davis said. A usury cap that prevented a working stiff from borrowing a few hundred dollars till payday, they argued, was the worst kind of government paternalism. And to reinforce that point of view, these entrepreneurs with a newfound interest in policy debates gave generously to the political campaigns of the right state legislators. “We were very successful in educating them about the usefulness of our product and getting laws passed,” Davis said.
Jones parked his truck on a side street a few minutes from the front entrance to his home, which he has given the name “Creekridge.” He seemed ready to tell me something meaningful but he only wanted to share with me his vision of a home that would last a thousand years. “I never wanted to live in some subdivision house,” Jones told me. “What I was looking for was a big piece of real estate that would let me build a really big house.” He paid $1 million for the first two hundred acres and at least $3 million for the next 450 acres. He shaved off the top of the hill and paid for two lakes to be built on the property. He imagined himself fishing with his sons, and his sons fishing with their friends, so he paid a woman $7,000 to drain her lake so he could take her bass. For his kids he had built a regulation-sized football field complete with lights, bleachers, and a fieldhouse and also a three-story tree house. The property is so sprawling that there are little wooden signs pointing visitors in the right direction: “beach,” “stadium,” “stables,” “greenhouse.” The property also has an aviary, where he raises birds.
The house itself is modeled on the Biltmore, the stunning 250-room, French Renaissance–style vacation home that George Vanderbilt built for himself during the Gilded Age in the North Carolina mountains. Like the famous Vanderbilt estate, Jones’s home is built from stone and stucco and stands several stories high. It has a slate blue roof and a copper dome that had to be flown to the property by helicopter and installed by a crane operator.
“Everyone was laughing when I started buying property up here,” Jones told me as we stood in the marble entranceway to his home, a high-ceilinged room with a sweeping staircase. He felt vindicated, he continued, when in recent years Cleveland’s moneyed set started building in the new development down the hill, where Toby McKenzie had been constructing his home. “That’s where I’m a visionary,” he said. “Now everyone wants to be in this part of town.” He invited them to see his home shortly after it was built. “They saw the estate that I was capable of building,” he said and, as he imagines it at least, “no one is laughing at me anymore.”
They were certainly chuckling back in March 1996, though, when the big news in town was Jimmy Logan’s revenge. Tennessee might not have expressly outlawed these high-rate short-term loans but state law didn’t permit them, either, and Logan filed a class-action suit on behalf of several clients challenging their legality. At that point, Jones, in addition to the several dozen Check Into Cash outlets he had in Tennessee, was operating stores in Kentucky, Indiana, Illinois, and Wisconsin. His pretax profits for the year would exceed $2.3 million. Yet he faced a formidable foe in Logan, an ambitious lawyer with a nose for notoriety who wa
s starting to appear on lists of Tennessee’s top attorneys. Jones opened forty-five stores in 1995, but he would open just seventeen in 1996. “Here’s this lawyer everyone is telling me is so powerful,” Jones said, “telling me he’s going to put me out of business. I was scared.”
Jones saw the suit as an act of revenge. When we met in Cleveland, however, Logan would claim he sued Jones and several other big payday chains as a matter of principle. He felt they were operating in violation of the state’s usury and consumer protection laws and he was intent on seeing them stop making these “loans that were destroying lives.” Jones, the former wrestler, wanted to “drive Logan into the ground,” he said, to “prove to him that I wasn’t as dumb as he thought.” But after months of distractions, Jones agreed to a $2.2 million settlement that included a $600,000 payout to Logan and the lawyers he had enlisted to work with him. That was on top of the $500,000 Jones had already squandered fighting the claim and the untold sum he then had to spend convincing the Tennessee legislature to explicitly legalize payday lending, which it did in 1997. “They hired a Noah’s Ark of lobbyists,” a state senator told a reporter for the Associated Press. “They hired a black lobbyist to get the black votes. If we’d have had a transsexual, they would have hired a transsexual lobbyist.” Campaign finance records show that Jones and his family donated more than $29,000 to local officials in Tennessee in the months leading up to the vote.