by Gary Rivlin
Or sooner. In 2006, Jackson Hewitt started offering something it called the pay-stub loan. These are loans made in December based on the promise of next year’s refunds after an examination of a person’s pay stubs. “It was a bad idea,” John Hewitt said, but the paystub loans were proving popular with Jackson Hewitt’s customers and he felt he has no choice but to follow suit. “Jackson Hewitt had a one-year monopoly on paystub loans but the next year the banks let us and Block and the mom and pops do it.” The consumer advocates were apoplectic about this new product costing the working poor even more money, but it was a moot point. “The banks lost tens of millions of dollars doing these things,” Hewitt said. “They all basically said, ‘Never again.’”
There have been other controversies. Mainly the authorities have been concerned with nomenclature rather than the nature of these loans. Over the years the attorneys general in several states, including California and New York, have rebuked the tax preparers over the language they use to advertise the service. “You can’t say you’ll get your refund back in a day or two,” Ogbazion said. “They’re very big on that: ‘It’s not a refund; it’s a loan.’” These cases have cost the Big Three millions in fines as they’ve stretched the boundaries of what’s permissible but Ogbazion finds the whole thing ridiculous. “Our customers know exactly what’s going on,” he said. “They know it’s a loan.” To him the authorities fine them over wording because they can’t do anything about what really troubles them, which is that his customers choose to use his product. Over the years, Ogbazion watches H&R Block and learns from them. “We basically follow their lead,” he says.
Ogbazion also has little use for critics of the refund anticipation loan. In their study of the 2006 tax season, the product’s two most prominent critics, Chi Chi Wu at the National Consumer Law Center and Jean Ann Fox at the Consumer Federation of America, found that more than 12 million Americans spent a collective $1.24 billion in interest and fees because they were either too desperate or too impatient to wait a few weeks for their refunds. The study went on to advocate a “RAL Reform Agenda” that called for greater regulation of commercial tax preparers, better funding for free tax preparation programs—and a ban on tax loans made against the earned income tax credit.
Ogbazion didn’t know the names of either woman but he thinks he knows the type. “They look at our customers and say, ‘Why don’t they just borrow the money from an uncle?’ ‘Why don’t they just wait two or three weeks?’” he said. “But they don’t get it. These are people who can’t wait. Gas and electric is off at home. They’re facing an eviction notice. They’ve been putting off all these bills.”
Another thing they don’t appreciate, Ogbazion said: He’s more than just an emergency banker to the working poor. As he views it, he’s a positive force for economic development in communities desperate for commerce. Instant Tax provides part-time jobs for six thousand people. He occupies storefronts that would otherwise be dark. “Look at where our stores are,” he said. “There’s no Gap. There’s no Nordstroms. We employ people from the neighborhood. We’re paying rents in those neighborhoods.
“People want to close us down,” he continued, “but that would mean more boarded-up businesses and more boarded-up homes.” When I mentioned that I had peeked into his store across the street, Ogbazion flinched. The place, he said, was in dire need of an overhaul. He tapped on his keyboard and then swiveled around his computer screen. He wanted me to see pictures of stores that had recently had a makeover. There were shops with wood floors and ficus trees and handsome hardwood desks and stylish couches—the sort of environment you’d happily visit again next year if necessary.
“Basically our deal is we tell our customers we know a bank that is willing to loan them money on their refund when no one else will do it,” he said. “And if we can make them feel a little better about the experience, then I think that’s a good thing.” Ogbazion said he hoped to add one hundred new locations during 2009. Hard economic times would make it more difficult for potential franchisees to raise the start-up capital but low-cost storefronts, especially in the hard-pressed communities in which his industry flourishes, would no doubt be plentiful, and people desperate for money only increases the demand for rapid refunds.
Ogbazion initially deflected questions about the interest rates the banks that underwrite his refund anticipation loans charge his customers. “What’s the fair rate to charge?” he asked me. “We don’t really care what that is. We get our tax preparation fees and we get a little more if they want an instant refund.” When pressed, he defended his partners. “They’ve burned the banks,” he said of his customers. “They’ve bounced too many checks. They’ve mismanaged their finances. Their credit is poor.” Still, the rates the banks charged seemed excessive given the risks. People owe money for back taxes or for child support but the banks tell Ogbazion that they default on maybe one in every one hundred customers. Yet Wu and Fox found that banks charge an APR between 83 percent and 194 percent for a RAL. JPMorgan Chase would boast that it had lowered its RAL rate, but, including fees, the APR on a RAL still worked out to more than 60 percent on the average sized return.
Ogbazion didn’t know the names Wu and Fox before I sat down in his office, but he wants to argue with them. “Sometimes when I hear people like that putting the industry down, it really bugs me,” he said. “It’s not like me or any of these franchisees would be the people who would climb through the ladder at a Big Four firm even if we were to become CPAs. You go with the hand that you’re dealt and you make the best of it.” Looking out the window of his fourteenth-floor office, he asked, “What else was I supposed to do?”
Ten
Same Old Faces
MANSFIELD, OHIO, 1997–2007
An agitated Jared Davis paced the top floor of the prosperous looking offices he and his brother built for themselves a few years back on a glitzy edge of Cincinnati. The 1,300 or so Check ’n Go payday loan stores they operated then, at the end of 2008, may share strip mall space with low-rent cousins such as Rent-A-Center and Jackson Hewitt but the bosses work down the street from a Nordstrom, a Restoration Hardware, and other establishments that suggest that the poverty industry is far away. With slate floors and the sleek modern furniture in the conference room where we met, the Davis brothers seemed to have spared little expense in the building of what rival Allan Jones described as a “fancy monument.”
Jared Davis is a large man standing around six feet, five inches tall with a pear-shaped body and a big lump of flesh under his chin. The day I visited he was wearing a salmon-colored dress shirt open at least one button beyond modesty. His hair was unkempt and his face was covered with stubble. A “big old goofy-looking dude who always needs a shave” is the way Allan Jones described him. Jones then blinked one of his eyes rapidly as if sending a Morse code message. By that time I had met Davis and knew Jones was doing a crass imitation of his competitor. During our time together Davis was a bundle of movement. He pulled on the leaves of a nearby plant; he kept jumping out of his seat as if the point he was making got him so worked up that he physically needed to move. But mainly what one couldn’t help notice was the uncontrollable tic that caused one of his eyes to blink spastically. Davis later referred to it as his Tourette’s. The more voluble he grew, the more vigorously he blinked.
I was in Cincinnati primarily to talk about the early days of payday lending and a specific store that Check ’n Go has operated in Mansfield, Ohio, since 1997. Davis, however, was spoiling for an argument with all those who question the way he and his brother make their money. In the old days, Davis said, the town druggist or Walt over at the general store would let you run a tab when money was tight. “What used to happen, if you needed eggs or milk, the basics, the local grocers let you buy it on credit,” Davis said, pacing back and forth. Try that today at your local Kroger, he said, throwing his hands into the air, “and they’ll throw you out of the store.” That’s where the payday lenders come in. But try explainin
g this to a media hopelessly biased against you and with frauds like Martin Eakes donning a cape as if Supermen. “Anyone with half a brain,” he said, “can see that the reason Self-Help and Eakes are against us is because they’re our direct competitor.”
Eventually Davis began talking about the early days of payday when the country seemed one giant opportunity to explore and conquer. He lost his share of races, like the time he thought he had found a choice storefront in the center of one modest-sized town in Kentucky and then learned from the real estate agent on the property that Check Into Cash had gotten there a few hours before him. But he lucked out in Mans field, a small city of fifty thousand in an otherwise rural stretch of Ohio that had no doubt been a happier place before its largest employer, Westinghouse, shut its plant, as did Tappan and a depressingly long list of other manufacturers.
“You wanted to be the first or second chain to discover some new town because once those two or three good spaces were taken, the game was over,” Davis told me. Billy Webster had beaten them to Mansfield but the Davis brothers were second and they leased the perfect spot, a storefront just off the main highway into town. There, next to a Mr. Hero sandwich shop, they installed a woman named Chris Browning to open and manage their fifth store in Ohio and around the seventieth overall. Browning, who had spent the previous fourteen years working collections for various car dealers around town, was a minor payday miracle. The turnover rate among store managers at the big chains exceeds 50 percent a year yet Browning lasted for more than ten years before being fired in the middle of 2007.
Chris Browning knows she can be difficult. But what are you going to do when you’re surrounded by idiots and fools? “To me what’s right is right, what’s wrong is wrong, and why mince words?” she told me in a voice just a little too loud. “I’m pretty straightforward, bold, and vocal. I tell it like it is.”
Inside Check ’n Go, Browning’s direct supervisors didn’t always appreciate her brassy demeanor. “Chris has a management style that is extremely hard to supervise,” the regional manager assigned her area wrote of her early in her tenure. “She constantly berates her direct superiors and shows little confidence in corporate personnel. Chris has a tendency to feel everyone is against her.” But there was no denying she was very good at what she did. A well-run store in a choice location back then might bring in $150,000 or $170,000 in fees each year; a strong store maybe $200,000. Browning, managing a store in a remote outpost two hours from the nearest big city, generated $247,000 in fees her first full year on the job and $251,000 in her second. “I wish I had eight of Chris,” the same manager wrote, running the eight stores under his control.
“As long as she continues to put up the numbers,” he added, “I will continue to work towards a better understanding between us.”
Browning is a short, stout woman who lives in a small ranch house surrounded by soybean and wheat fields. She and her husband chose a home in so remote a location thirty miles from Mansfield, she said in a scratchy smoker’s voice, because they wanted to insulate the kids from “a town gone to hell in a hand basket.” She was a few months shy of her sixty-second birthday when we met in the fall of 2008. She greeted me at the door wearing a red Ohio State Buckeyes sweatshirt and jeans. She wore her hair in a short gray bob and when she smiled I noticed she was missing a front tooth. Within minutes of my entering her home, she was practically yelling. It was more than a year since she had been pushed out but she was still smarting from the way she had been treated.
“They fired me because eventually their policy became, if a body walks in the door, you loan ’em money, and I wouldn’t do that,” Browning said. That’s no doubt too facile an explanation, but sitting behind her counter every day, staring out a plate-glass window onto a street populated by the Big Lots, Subways, and Wendy’s that litter the edges of any city, Browning had a perfect perch for watching the rapid rise of a new industry and its impact on the people of the community. Increasingly she found she didn’t like what she was seeing. And as her attitude toward payday soured and the competition grew more heated, Check ’n Go decided it had little use for a store manager with the fighting spirit of a longshoreman posting only average numbers.
The Ohio legislature said no the first time they were asked to legalize payday lending within the state’s borders. But then the Ohio House of Representatives switched from Democratic to Republican control in 1994 and the enabling legislation, championed by the state’s check cashers’ association, passed at the end of 1995, without anyone really noticing. “It really flew below the radar,” said Bob Lambert, who was a lobbyist for the state’s pawnbrokers, a group already in the small-denomination loan business. As Lambert remembered it, he was the only person to testify against the measure.
Around one year later Chris Browning spotted the classified ad Check ’n Go ran in the local paper for a branch manager of the new store they would be opening in town. Branch manager: She liked the sound of that title. The starting salary was lousy, only $21,000 a year, and the benefits mediocre (three vacation days that first year), but they also told her she could earn as much as $6,000 more a year in bonuses. She didn’t know what a payday loan might be when she first saw the ad but once it was explained to her it made immediate sense. Her husband had worked as a welder who more than once had been laid off. In time, Browning confessed, they would use a payday loan to help make ends meet.
“There was a need for something like this for working people around here,” Browning said. “The credit unions weren’t licensed to make small, short-term loans. The smaller finance companies were closing up and getting out of Dodge.”
Browning straightened her back proudly and peacocked a bit while talking about her early days with Check ’n Go, when she was something of a star inside the company. A typical store could take six or more months to break even but hers was profitable after just two. She told me about the calls from David Davis to tell her what a good job she was doing and to ask her for ideas. She helped develop some of the early training materials the company used and they were always imposing on her to help them train a new manager for some other store. She kept her bad debt low and her numbers continued to grow; her employee reviews show that her hard work was paying off in a robust bonus every quarter.
She was the dutiful employee in those first years she worked for Check ’n Go. She left flyers for the store at all the local Laundromats and car repair shops and though she hated doing it, she also tried dropping them off at medical offices around town as well. “Doctors were real touchy about brochures,” she said, but at least a few succumbed. “You’d get a new kid on the block,” Browning said. “His receivables are up; he wants his money for treating John Doe’s son”—and soon that doctor’s office starts sending patients and their families to her store. “If somebody couldn’t pay the deductible or the co-pay or whatever, the clerk says, ‘Here’s a brochure, these people might be willing to help you out.’”
More payday outlets opened up in Mansfield. Where there had been five stores in town in 1999, there would be twelve by 2001. The battle was no longer a race to see who could secure a prime location but a war of dueling rewards programs and rival marketing campaigns. By 2000, she was no longer clearing $250,000 in fees per year, but revenue was in the $210,000 to $220,000 range through 2003, and it edged back up to $235,000 in 2004, by which time there were twenty payday loan stores in town. Maybe that was the truly shocking thing about payday and also the tragedy: Rivals could keep opening new stores but revenues at the existing establishments would remain fairly steady.
Ultimately, this modest-sized working class enclave would become home to twenty-seven shops offering payday advances. It fell on people like Browning to keep people coming in the door. And as the pressures increased to collect more revenues from loyal clients and as corporate hounded her and the other managers to find new customers to replace the old ones whom they would invariably lose, so did Browning’s cynicism about the service she was supposedly offering. I
t didn’t help that whereas once hers had been the only store in her stretch of Mansfield, by 2006 three competitors had opened outlets only steps from her own.
There was something claustrophobic about those hours I spent in a home overstuffed with Beanie Babies and other collectables. There were so many lighthouses scattered about Browning’s home—lighthouses of wood, lighthouses carved out of stone, lighthouse clocks, lighthouse paintings, a lighthouse thermometer—that I couldn’t imagine a safer place to navigate a ship at night. The breakfast nook where we sat was piled high with bills, magazines, and other daily detritus; a shelf stuffed with assorted dolls loomed. But the good news was that this same tendency to save spilled over to her job. She had detailed records showing how her store performed month by month for her entire tenure at Check ’n Go, including a running tally of the proportion of her loans falling into default each month and the number of customers she was serving. She kept copies of her employee reviews and copies of emails and other missives from corporate. I might have suspected hyperbole if she didn’t have a copy of the actual Check ’n Go directive informing store managers that they were to loan “to anyone getting social security who had at least one dime to their name.”
Check ’n Go printed cards offering regulars a $20 discount for every new customer they brought in. The other big chains did the same. “Now, remember,” Browning said in a deep voice, in imitation of one of her manager’s, “give two referral cards every time you make a loan.” She reverted to her own voice: “The idea was that we could get you to convince your mother, your cousin, your next-door neighbor, your best friend to come to our place.” To extend their reach, the home office instructed that they leave brochures in factory break rooms and in the mailrooms of apartment complexes around town. The company had brochures printed in Spanish. “Grow your fan base by using the Hispanic marketing materials,” read one missive from corporate. Another encouraged store managers to treat even phone calls from people asking for an address or the store’s hours as an opportunity to sell. “Don’t simply answer these questions,” a memo advised. “Find a way to make them your customer!”