Supposedly, three in every four people walking into a store to wire money spend money on a second product at that store.
Diversification has been the watchword of the forward-looking fringe financier in recent years, and any number of companies were in Las Vegas to help conference goers enhance their bottom line by broadening their offering of products. There were about a half-dozen tax preparers on the exhibit floor pitching the instant tax refund as the perfect way to goose annual revenues (“CHARGE to prepare returns and CHARGE to cash their check”). There were companies pitching prepaid phone cards and also several pushing gold buying as the ideal side business (“add significant income to your financial service center’s bottom line at virtually no cost”) in hard economic times, when more people would be needing access to quick cash. The largest crowds, though, seemed to be drawn to the booths of those peddling the debit cards that help Wichita’s Tim Thomas live the good life.
Debit or prepaid credit cards have become a sensation inside the industry in recent years. A price sheet I picked up when visiting the booth of a company called CashPass, which sells a prepaid MasterCard, spelled out why. Sell more than 500 CashPass debit cards in a month and the enterprising check casher earns a 25 percent cut of all the charges that card generates. That includes an $11.95 setup fee, a $6.95 monthly fee, and more fees when a customer puts more cash on the card. Sell more than 1,000 and your cut is 30 percent. A CashPass representative was happy to translate those numbers into dollar figures for me: 1,000 cards on average means an extra $10,700 per month added to an entrepreneur’s bottom line. The advantage to the customer is that with what in effect serves as a portable bank account, he or she has taken a step forward into the mainstream, albeit a stunningly pricey one.
Listening to speeches that weekend in Las Vegas meant hearing about any number of bogeymen. In his welcoming speech, the group’s chairman, Joseph Coleman, singled out the FDIC and its hand- wringing over those 17 million or so Americans without a bank account, the so-called “unbanked.” From the FDIC’s point of view, the people who could least afford it were paying a surcharge on their wages—the Brookings Institution found that a worker bringing home $22,000 who doesn’t have a bank account spends an average of $800 to $900 a year on check-cashing fees, or more than $1,000 annually if factoring in fees on money orders and bill- paying services—and the agency in recent years had been using its bully pulpit to pressure the banks under its charge to do more to reach moderate-income customers. Coleman couldn’t bring himself to even use the term “unbanked.” Banks charge noxiously high bounced-check fees and they revealed themselves to be so greedy they practically took down the global economy. His preferred term, to the delight of the crowd, was “the bank free.”
Several speakers spoke about competitive threats posed by Walmart, which was moving aggressively into both the check-cashing and debit card businesses with a pair of low-priced products. It cost $3 to cash a payroll or government check at a Walmart and the retail giant was offering better terms on Visa debit cards as well. Other giant retailers were also starting to nibble around the edges of the market, and for those in the cash advance business there were the online payday lenders that charged considerably more than their brick-and-mortar counterparts but had nonetheless been gaining in popularity, accounting for roughly $3 billion of the $44 billion in payday loans made in 2007.
Maybe the weekend’s gloomiest speaker was Bill Sellery, the group’s top lobbyist. The news out of Washington wasn’t good, Sellery told the crowd. Dick Durbin, the assistant majority leader in the U.S. Senate and, not incidentally, the senior senator representing Barack Obama’s home state, had introduced a bill capping the national interest rates on subprime loans at 36 percent. That would affect the payday lenders and also auto title lenders and those in the pawn business. Several congressmen were working on similar legislation in the House. The only good news was that there had been so much bad news in the previous year, Sellery said, and so Congress probably wouldn’t have much time for worrying about a group of industries on the economic fringes.
The news from state capitals around the United States was no less ominous. There were small threats to the industry, such as the occasional community voting to impose a moratorium on new check-cashing stores, payday lenders, and pawnshops, and larger threats like those in Ohio. So great was the unease over Ohio that when Ted Saunders, the chief executive of CheckSmart, the Columbus-based chain that had recently been sold to a private equity firm, appeared on a panel about mergers and acquisitions, he spent as much time talking about the election in his home state as he did his assigned topic.
The polls offered mixed news, Saunders told the group. “People out there have a very negative impression of our industry,” he said. “It’s really scary. Our data shows that we rank just below prostitutes and politicians in terms of popularity.” But the problem—that people don’t understand the value proposition we offer customers—could also prove the industry’s saving grace. Focus groups showed their side “slightly ahead among people who have seen our commercials and understand our message,” Saunders said. The key was raising enough money to deluge Ohioans with television ads. He reminded people that on the convention’s first night there had been an appeal for every operator to donate $1,000 per store to help in Ohio and also Arizona, where there was a second, less pressing referendum on the ballot. (On the convention’s second day, a different speaker suggested that every chain donate $50 per store to a FiSCA Scholarship Fund.) They were planning on spending “in the high $30 million range,” Saunders said, over the last ninety days of the campaign in the hopes Ohio would serve as their Maginot Line. “If we can beat back this attack, we take away this notion it’d be easy to put us out of business,” Saunders said. “This can be our line in the sand.”
Payday, the Sequel
Bill Faith doesn’t walk into an office so much as he bursts through the door. He is a gale- force wind blowing through the corridors. Sitting in the office of one of his staff members while waiting for him to arrive, I heard Faith before I saw him. “We’re going to do it!” a gravelly voice boomed as if amplified by a megaphone. “This is David versus Goliath!” he bellowed, talking to no one in particular. With election day a few weeks away, political junkies across the country were weighing the relative strengths of the Obama versus McCain get-out-the-vote efforts but Faith was preoccupied by Issue 5, the Ohio state referendum sponsored by the payday lenders. Everybody in the office had stopped working, taking in the show. “David is going to beat Goliath,” Faith roared happily. “We’re taking these giants down.”
It seemed an odd day for Faith to be feeling optimistic. That morning, the office of Ohio’s secretary of state released the most recent campaign disclosure forms. In the previous few months, the payday lenders had spent $13.8 million, compared to the $260,000 spent by the “Yes on Issue 5” side. (Confusingly, though Issue 5 was paid for by the payday lenders, a yes vote was a vote in favor of imposing a 28 percent rate cap on the industry.) Worse, Faith and his allies had only $4,000 left in the bank with election day a few weeks away. But to Faith this glaring imbalance represented an occasion to score points—to cast a stone when the media would be paying attention to their down-ballot fight. He repeated his David-versus-Goliath line, tinkering with the phrasing, listening to how it sounded. A few hours later, “Yes on Issue 5” put out a press release telling reporters and editors that they could attribute the following quote to Faith: “This is a David versus Goliath battle. Voters need to know that a ‘yes’ vote on 5 lowers outrageous interest rates. It’s the stone that stops the giant industry.”
Before Faith’s happy entrance, I had been talking with Suzanne Gravette Acker, the communications director for COHHIO, Faith’s advocacy group. Gravette Acker, in contrast to her boss, was feeling jumpy about the payday ballot initiative. “They’ve hired really good lawyers,” she said. “They’ve got really good strategists.” She worried over the wording of the referendum (“it’s so vague and confusing you don’t know if you’re supposed to vote yes or no”), and she fretted over the latest series of pro-payday television ads, which mentioned jobs and raised privacy issues but never mentioned the 391 percent APR. “They’ve done a great job of muddying the water,” Gravette Acker said—and meanwhile the Yes side had spent all of $200,000 on a limited cable TV buy.
But Faith was having none of it. “Suzanne just needs a day off,” Faith said, and then jokingly ordered her home. What more did they need to do, he asked, aside from reminding voters that those who were least able to afford it were paying triple-digit interest rates? “These people, they’re vultures picking on the bones of working people,” Faith said of the payday lenders. “And I don’t see voters saying, ‘Yeah, that’s right, let’s let these vultures continue to prey on hardworking people and seniors living on Social Security. Let them charge them 391 percent.’” He gave his head a shake and grunted out a phlegmy laugh. “Ya know?”
