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
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
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
