Broke, USA

by Gary Rivlin

  Eakes is intense when he’s angry but he’s not the demonstrative kind. The signs that he is steeling for a fight are more subtle. His normally ruddy complexion turns a darker, more splotchy red. His jaw gets a fierce set to it and his jaw muscles start working. Those who have been at his side for a long time notice that his language changes as well. The more pragmatic Eakes, the physics major turned lawyer and banker, is replaced by the philosophy major who orates about right and wrong and the moral imperative everyone at Self-Help should feel to confront injustice when they see it. When Eakes is in that mode, Thad Moore, who has worked with Eakes for more than twenty-five years, hears a lapsed Baptist channeling the sermons of his youth. “He gets in this preaching mode about why we do what we do and why it’s important and how we’re taking on these pressing issues in our society that demand to be dealt with,” Moore said. “When I hear him power up and get going, I feel like I’m hearing the Baptist within.”

  The Self-Help way is to meet, analyze, and dissect, and then meet some more. Every time Self-Help contemplated venturing into a new area, whether it was loaning money to charter schools and day-care centers or the move into the refinance business, their modus operandi was to gather in small groups and as an organization debate the new initiative. Eakes might have been hell-bent on action but they were a credit union, not a public interest advocacy organization. With everything else going on, were they going to devote the money and the energy that would be required to see them through a fight that would invariably land them in Raleigh, the state capital, if not Washington—all because the boss had lost his temper during a phone conversation with another lender? Mark Pearce, who had started at Self-Help in 1996, was among those arguing forcefully for them to take the fight to Associates. But Pearce, who would serve as the Center for Responsible Lending’s first president before leaving in 2006 to take a posting as North Carolina’s deputy commissioner of banks, also saw why some, especially those working in the business loan department, might disagree. “It was a real challenge to our mission,” Pearce said. “Self-Help was working so hard to get people into homes, and it’s not like we were anywhere near to meeting our goals on that front.”

  In the end, though, the sheer size of Associates left the Self-Help executive team feeling they had no choice. Associates had started its life nearly a century earlier as an auto finance company aimed at helping people buy a Model T. Where Self-Help had a half dozen offices around the state and had made around five hundred home loans in North Carolina in 1998, Associates had eighty storefronts scattered around North Carolina making or buying thousands of home loans each year. Self-Help relied largely on word of mouth and a network of nonprofits; Associates had Terry Bradshaw, the former football great, pitching its loans on television and booming, “We make loans that make life better!” At Self-Help they felt like they were really something when in the late 1990s they were making more than $25 million in home loans each year. When, in 1998, Ford spun off Associates First Capital, as its subprime lending unit was called, through an initial public offering, it was generating nearly $1 billion a year in profits.

  “It really hit us in the face,” Mike Calhoun said. “We recognized that if we don’t do something about predatory lending, we’re kidding ourselves that we’re really achieving something by putting people in homes.” This organization that had always viewed its core mission as helping families build wealth had come to the conclusion that it was equally as important to help families protect the wealth they had already attained. The solution, as they saw it, was for North Carolina to become the first state in the country to pass an anti–predatory lending bill aimed at reining in the most audacious practices of its subprime lenders.

  In downtown Durham, an activist named Peter Skillern heard from Martin Eakes and told himself that it was about time. For years, Skillern, the executive director of the Community Reinvestment Association of North Carolina, or CRA-NC, had been organizing protests against subprime lenders at home and in Washington. He had even been known to don a rubber shark’s nose to underscore his point that these lenders were a dangerous breed to avoid. Skillern admired Eakes and all that he had accomplished but Self-Help had declined to take part in CRA-NC’s actions. “Martin is a remarkably effective leader,” Skillern told me when I visited with him in Durham—but that only made Eakes’s lack of engagement in the fight that much more maddening.

  Skillern’s bête noire wasn’t Associates but a lender much closer to home, NationsBank, based in Charlotte. To him, NationsBank, one of the country’s largest, offered a stark example of what he saw as the country’s “parallel banking system.” “It’s like NationsBank has two doors, side by side,” Skillern told me. If you were white, middle class, and had good credit, you were ushered into one door. If you were low-income and had imperfect credit, you were shuffled into the door for either NationsCredit or EquiCredit, Nation’s two subprime subsidiaries. And if you were black your economic class or FICO score didn’t seem to matter; according to studies, you were far more likely to end up with one of the subprime lenders and one of their high-interest loans just by virtue of the color of your skin. The subprime lenders claimed they needed to charge higher interest rates and steeper fees to offset the increased risk they were taking with subprime borrowers but Skillern thought that was bunk. The big consumer finance companies, Forbes reported in 1997, were enjoying returns as much as six times greater than those of the best-managed banks. Neither NationsCredit nor EquiCredit was nearly as large as Associates, but by the late 1990s the two units were generating around $400 million in profits each year.

  Skillern would prove to be one important Eakes ally against Associates, Bill Brennan in Atlanta another. Eakes could rely on Rogers to help put a human face on predatory lending and there were others from among the fifty people who had complained about Associates to the state authorities over the previous year. Brennan, however, provided video, much of it starring Bill Brennan and all of it powerful. Brennan had played a key role in the making of the Primetime Live episode, providing some of the piece’s rhetorical fire (he described Ford Motor as “the worst predatory lender in the country”) and also its heart. It was Brennan who pointed a producer to the couple who would give the exposé its emotional anchor, the Iveys of Atlanta, who almost lost their home of twenty-five years after a broker with Associates talked them into consolidating some credit card bills in a preposterously expensive home equity loan that included 24 percent in up-front charges and a payment schedule this couple of modest means couldn’t possibly afford.

  Then there were all those television pieces Brennan was able to orchestrate in the Atlanta area using his local contacts. Abusive and predatory loans weren’t necessarily illegal, and so when he was getting nowhere with a case, he would give a heads-up to a friendly TV reporter. In short order, a story would air about an elderly black woman living on meager means who had been ruined by Associates, or the short-order cook with diabetes who struggled to stand on his feet all day, or the hardworking couple with two young children, and there would be Brennan, eyes moist, bathing the viewer in sincerity, decrying the terrible injustice that had been done. With the heat turned up high, negotiations would commence and an accord would be reached contingent upon everyone’s future silence. Brennan’s friends dubbed it the “media-induced settlement.” Brennan copied several of these local broadcasts onto a video and, along with the Primetime Live piece and a few other choice offerings (including snippets of depositions with two former Associates employees, who spoke of the lengths they would go to lard deals with expensive extras), sent it along to Self-Help.

  In the hands of most advocates, Brennan’s tape would have been a useful tool. In the hands of Martin Eakes it took on a life of its own. Inside Self-Help they made jokes about what they called Eakes’s “teletubby”—the stout combination TV-VCR that the boss brought with him everywhere during the months they were lobbying for an anti–predatory lending law in Raleigh. There were fifty state senators in North Carolina
and 120 members of the state assembly and Eakes, intent on showing the tape to every last one of them, rolled his teletubby door-to-door in the manner of an old-fashioned vacuum cleaner salesman. If a receptionist or some other staffer was reluctant to allow him inside to see a legislator, he would show it to that person, hoping after viewing it he or she would feel compelled to pass the tape he left behind on to their boss. One news account had Self-Help distributing seven thousand copies of the videotape around the state. By that time, Eakes had testified no fewer than eight times in favor of an anti–predatory lending bill. “People say I work hard,” Mike Calhoun said, “but he put me to shame in that fight.” The initiative was supported by a group calling itself the Coalition for Responsible Lending. The coalition included such mainstream advocacy groups as the NAACP and AARP but the political establishment in Raleigh could be forgiven for thinking this legislative battle was brought to them and sponsored by Martin Eakes and the people of Self-Help.

  Calhoun, whom Bill Brennan described as “the smartest lawyer I’ve ever worked with,” was the resident expert on consumer law within Self-Help, so it fell to him to type out a draft of the legislation. (“You’re not going to see a lot of clerical staff at Self-Help,” Calhoun sighed.) The aim of the bill was to impose limits on what a subprime lender could charge its customers. Roy Cooper, the senate majority leader and a Democrat, agreed to sponsor the bill. “We were beginning to see complaints filed by consumers and we began to hear concerns voiced by lawyers seeing these unfair terms at closings,” said Cooper, who had been elected to his second term as North Carolina attorney general by the time I visited him in the fall of 2008. “So we realized we needed to put some bright-line limits on the amount of charges associated with the loans.” Years later Cooper still remembered Freddie Rogers—not just his name but also his exact hourly wage and other details of his case.

  Initially a long list of senators joined Cooper as co-sponsors, but after the lobbyists weighed in, Cooper ended up as its sole sponsor in the Senate. “North Carolina is the second-largest banking state in the country, so the banking industry is a significant economic engine here,” Cooper said. “They had a significant influence over the legislature and government process.” The key was to bring the banks around, or at least convince them to remain on the sidelines. That would be no easy task given the hundreds of millions in profits a local giant like NationsBank was booking selling subprime loans.

  A year after the predatory lending fight was over, Eakes asked Keith Corbett, an executive at North Carolina Mutual, the nation’s oldest black-owned insurance company, to join them at Self-Help. “We don’t pay a lot in salary,” Eakes told Corbett. “But if we see someone who’s been mistreated, we’re willing to spend two to three million dollars to right that wrong.” Corbett was sold.

  That’s exactly what happened in the case of Freddie Rogers. Mike Calhoun was among those working out an out-of-court settlement with Associates that allowed Rogers to refinance with Self-Help under terms he could afford. A few years later, a developer seeking to gentrify Rogers’s neighborhood paid him a substantial bounty for his home. By that time he had remarried.

  Over the years Eakes had made his share of political enemies in Raleigh. “Imam” or “ayatollah” were among the less flattering nicknames given to him inside the state capitol by those resenting his sermonizing and righteousness, but there was also no denying his effectiveness. “He got along with a lot of my Republican colleagues, maybe better than I did,” Wib Gulley said. To his activist allies he might have been the accidental banker who was still one of their own, but for political purposes he was a subprime mortgage banker horrified by the lending practices of some of his more unscrupulous rivals. He was also a man on a first-name basis with the CEOs of some of the state’s largest lending institutions. He made the same pitch to each: The bad practices of the worst subprime lenders hurt the reputations of all in the mortgage business. Eventually even the North Carolina Bankers Association supported the reform bill. “That was Martin,” Roy Cooper said. “Working and working and working to bring the industry into the fold.”

  The political fighting over the anti–predatory lending bill raged for the better part of a year. The bill was modified, for instance, to allow a lender to charge a borrower as much as 5 percent in up-front fees. “If your parents paid five points on a loan, you wouldn’t be very happy,” Calhoun said. But the legislation banned prepayment penalties on any mortgage less than $150,000 and made it illegal to roll into a loan the cost of credit insurance (credit insurance itself, with separate monthly payments, was still legal). Lenders could charge interest rates well above the rates enjoyed by prime customers but anyone wanting to sign a deal that would have them pay rates more than ten percentage points higher than a Treasury bill would be required to meet with a credit counselor. The bill was signed into law in July 1999.

  Even with its limitations, consumer advocates hailed the law as a significant breakthrough. Inside Self-Help’s offices, the phone was now ringing with activists from places such as New Jersey, Chicago, and Dayton eager to pass something similar in their locale. “Initially we thought we passed this predatory lending bill, okay, good, we’re done, now we can go back to our day jobs,” said Mark Pearce. “But people wanted to know how we did it, especially as North Carolina wasn’t exactly seen as the most liberal, consumer-friendly state in the country.”

  Six

  The Great Payday Land Rush

  SPARTANBURG, SOUTH CAROLINA, THE LATE 1990s

  Allan Jones parks in front of his old office building and a sly smile appears on his face, like someone anticipating the punch line of a favorite joke. He points his chin at a drab, low-slung cement bunker of a structure sitting in the corner of a shopping center parking lot. This is where he played host, he tells me, when all those investment bankers flew south to see him in the late 1990s to talk about taking Check Into Cash public. They would arrive dressed in Bill Blass and Brooks Brothers and Armani. He would be wearing an off-the-rack suit he bought at a discount place in town. He would then usher them into his “conference room”—maybe ten metal chairs around a banged-up, folding banquet table—where he would make his presentation. Check Into Cash’s revenues were on pace to more than double in 1998; its profit margins were well above 20 percent. At that point, Jones said, they could have cared less had he been naked and standing in a cave: “Them numbers are all they ever noticed,” he said.

  CIBC Oppenheimer agreed to serve as the lead underwriter on Check Into Cash’s IPO. CIBC wasn’t Goldman or Morgan but it was a large bank, respectable and legitimate. He even got to New York and rode the subway, where he saw a man with a hairdo he later learned was called a Mohawk. For months he entertained Doughball and the rest of the boys with stories about life up north. I must have arrived, he would say mockingly, because now I have me a real-life lawyer with a Park Avenue address.

  Jones claims to have been relieved rather than disappointed when CIBC put the IPO on hold. They told him it was temporary, a short-term setback while the market recovered from a financial crisis everyone was calling the Asian flu, but the competition was heating up and he was anxious for his money. In Cleveland (Ohio), an old-time bank called National City was awakening to the profit potential of subprime and he convinced officials there to loan him the $50 million he had planned to raise through a public offering. The IPO would have meant $50 million in the bank while borrowing from NatCity meant paying back the loan with interest, but remaining private had its own rewards. He was not a man who liked answering to anyone but himself.

  “We have board meetings at Check Into Cash,” Jones likes to joke, “but I win every vote one to nothing.” He mentioned a competitor named Billy Webster, whose company, Advance America, has traded shares on the New York Stock Exchange since 2004. “How much of his company does Billy own?” Jones asked. “How much of my company do I own? Go ask Billy and I’ll bet he’ll tell you: His shareholder meetings are a lot longer than mine.”


  William M. Webster II lost everything during the Depression. His son, William M. Webster III, started from scratch, turning a single gas station in Greenville, South Carolina, into a modest-sized empire of twenty stations that he would sell to Marathon Oil in the 1970s at a handsome profit. Yet in the eyes of his son, William M. Webster IV, whom everyone called Billy, his father could have accomplished so much more. Billy Webster spent a good part of his teen years working for his old man, pumping gas and thinking how he would be different. His father had inherited his grandfather’s skittishness and worry about taking risks. He vowed that would never be him.

  While he was still in college Billy Webster bought a laundry and charged other students a fee to wash their clothes. A Fulbright scholarship took him to Germany to spend a year studying Romantic poetry, but it was while he was studying law at the University of Virginia that his father started talking about the long lines of people queuing up at the Bojangles chicken shack near one of his old gas stations. That spelled the end of his legal career. “I graduated law school on a Saturday and Monday night I’m in the back of a Bojangles, learning how to fry chicken, being taught by a sixteen-year-old black guy from Frogmore, South Carolina,” Webster said. Ten years later, Webster and his father sold their holdings back to Bojangles; the pair were operating two dozen stores generating a combined $24 million in annual sales. By almost any standard, though not his own, Billy Webster was a rich man.