Broke, USA

by Gary Rivlin

  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 abou
t 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.

  Sixteen

  Dayton after Dark

  DAYTON, OHIO, 2008–2009

  On a sunny and crisp autumn day, Jim McCarthy and I were on a driving tour of Dayton. Weeks earlier I had phoned McCarthy to talk about the impact of the poverty industry in one typical midwestern city, and McCarthy, an upbeat forty-three-year-old with bright blue eyes and a raucous Nathan Lane laugh, graciously offered to show me around. At that point I was new to Dayton, so he veered a few blocks out of his way to show me the preserved, pristine bicycle shop where the Wright Brothers built the first airplane to successfully take flight. He made sure I saw the broad lawns and handsome red brick buildings of the University of Dayton and, for a food break, he chose a revitalized neighborhood that would have felt familiar to anyone living in a regentrified section of Brooklyn, Chicago, or Oakland. McCarthy, who was born and raised in nearby Cincinnati, does his best to present his adopted hometown in the most favorable light, but block after block of boarded-up homes and a seemingly endless chain of strip malls dominated by the companies I had been writing about left my head whirling.

  I had been forewarned. That morning I had pored over local maps with a woman in McCarthy’s office named Anita Schmaltz, plotting possible routes. This was in October 2008 and Ohioans had yet to vote on Issue 5, by which the future of payday lending would be decided. I had told Schmaltz I was looking for neighborhoods thick with payday lenders, check cashers, instant tax companies, and consumer finance shops. She shrugged. If that were my criteria, she said, I might as well spin a dial because it made no difference in what direction we headed.

  Schmaltz’s finger traced the snakelike path of the Miami River, which bisects Dayton. Heading west meant passing through the city’s black neighborhoods and, just over the city line, entering Trotwood, whose population in recent years had shifted from nearly all white to majority black. The poverty industry, she said, was particularly well represented in this suburb named, appropriately enough, after a character from a Dickens novel. A single street in Trotwood was home to no less than six payday shops, along with a Rent-A-Center and a Jackson Hewitt. The prospect of including Trotwood on our tour caused Schmaltz to sigh. That’s where she and her husband owned a home.

  Heading south would bring us to a set of first-ring suburbs that had fallen on hard times, starting with Kettering. Not long ago, Kettering was a nice middle-class community that many within Dayton aspired to. But that was before the metropolitan area experienced seven straight years of job losses, starting in 2001 and culminating with the June 2008 decision by General Motors to shut down the giant truck plant it operated in Moraine, directly to Kettering’s west. “There’s lots of payday in Kettering,” Schmaltz said—and also in Moraine and West Carrollton and several more first-ring suburbs she named. But it doesn’t stop there even as one proceeds farther south and begins the climb out of the Miami Valley. Allan Jones may have been the first payday lender to open a store in a newer, more prosperous-looking suburb called Miamisburg but he had hardly been the last. Eight competitors opened outlets in Miamisburg, along with Rent-A-Center and Aaron’s. Jackson Hewitt and Liberty Tax each had two stores in town.

  We ended up sticking mainly to the eastern half of the city and a sampling of predominantly white suburban towns. In recent years, the Center for Responsible Lending has released a pair of studies claiming that there is a racial bias to the placement of payday stores. These reports enraged the likes of Billy Webster and Allan Jones and I can’t say I blame them. They are hardly the most progressive group you’ll ever meet. After the end of a long day with Allan Jones, I commented that Cleveland seemed a very white town. “That’s why I can leave my keys in the car with the door unlocked,” he answered. I started to muster a response but he interrupted me. “I’m just telling you the way it is,” he said. “We have just enough so that our football and basketball teams are good.” But the payday industry as a whole seems no more racist in its approach to business than a great white shark deciding between different shades of fish. A few years back, Policy Matters Ohio studied the geography of payday lending in Ohio. They thought they were going to show that lenders target black communities, but in fact the group found almost no correlation between race and store placement, researcher David Rothstein said. “The big surprise was in how payday had really taken off out in the suburbs and rural areas,” he said.

  After conferring with Schmaltz, McCarthy plotted out a route and pointed his 2002 gray Ford Focus east. We visited a few of east Dayton’s more battered neighborhoods and then headed south to begin a loop around some of the city’s first-ring suburbs. When I noticed three or four boarded-up homes on a block in the first neighborhood we visited, McCarthy waved off my whistle. “This is nothing,” he warned. At the end of the 1990s, people in Dayton had been alarmed that the courts were seeing more than two thousand foreclosures a year in Montgomery County, which encompasses Dayton and some of the first-ring suburbs. But that number crossed four thousand in 2003 and then again in 2005. The city would be hit by another 5,200 foreclosures in 2008 and there were forecasts of five thousand more in 2009.

  The various neighborhoods swim together. There’s not really a name to that first neighborhood—the East Third Street community is the best McCarthy can manage—but in a way it made no difference. Each white working-class neighborhood was more or less a carbon copy of the other, a passing montage of modest-sized homes broken up by corners crowded with representatives of the poverty industry. Census data showed that the people who lived in the second neighborhood we visited, Linden Heights, were generally better educated than people living in the first, but the real difference, at the street level at least, seemed to be the proportion of homes for sale and the particular names of the stores that had taken root there. Both had a Jackson Hewitt and a Cashland payday store but whereas the first neighborhood had two check-cashing outlets and a Rent-A-Center, Linden Avenue, the main drag through Linden Heights, was home to a Check ’n Go, a CheckSmart, as well as an Aaron’s and at least two instant tax shops.

  Kettering was a lot like its city cousins except that the drive to or from a furniture rental store was a little leafier and more pleasant. Toby McKenzie opened the first payday store there in early 1997; Advance America and an outfit called Check Exchange opened stores the following year. Another four payday operators established a presence between 2003 and 2006, and Cash America, the pawn giant, opened a store in a Kettering strip mall. By the end of 2007, Ohio would rank first in the United States in foreclosure inventory and in Ohio (in short order, the state would be surpassed by Nevada, Arizona, and Florida) only Cuyahoga County (Cleveland) had a bigger foreclosure problem than Montgomery County (Dayton). Statistics like those helped to explain a fall in the
average sales price of a home in Kettering from a peak of $160,000 to $100,000 in the first quarter of 2009. Not surprisingly, Kettering and Moraine and West Carrollton offered endless more views of neighborhoods studded with plywood and for-sale signs.

  McCarthy took the scenic route along the river to head back north, but even a dramatic change in background offered only a partial respite from the gloom of our tour. He pointed to the vast empty space where for decades National Cash Register had operated a series of factory buildings. At that point, NCR, which did a robust $5.3 billion in business in 2008, still had its headquarters in Dayton but years ago it moved most of its manufacturing overseas—and then, in June 2009, the company abruptly announced it was moving its central offices to the Atlanta area. Other ghosts hover along the river, including a long list of tool-and-die makers that shut down years ago and a vast, six-story redbrick building now literally filled with junk, like loose mannequin arms and radio vacuum tubes collected by a company called Mendelson Liquidators. Farther north was an old GM radiator plant torn down to make room for something the city is optimistically calling “Tech Town.” At the end of 2008, though, it seemed little more than thirty empty acres of good intentions.

  Back in the city, more familiar Poverty, Inc. names occupy strip malls and storefronts and even an abandoned Pizza Hut now serves as a Cashland payday outlet. Yet perhaps the most startling sight on this portion of the tour are the bloated carcasses left behind by big-box stores that have abandoned Dayton in recent years, including a Builders Square, a Sun Appliance, and a Walmart. The mammoth shell that Walmart left behind, surrounded by an ocean of asphalt, must have been particularly galling. Dayton city officials had put together an attractive package of tax breaks to draw Walmart to this corner of the city, McCarthy told me, but as soon as the deal’s term expired, the retail giant moved several miles north “in pursuit of another set of benefits from a different jurisdiction.”