large ‘unbanked’ or ‘underbanked’ population of the United States, estimated at approximately 70 million people.” After Diamond Castle paid $268 million for CheckSmart in 2006, Saunders jumped when the new management offered him the job of chief financial officer. “This was going to be our vehicle,” Saunders told me. With the purchase of CheckSmart, Diamond Castle wasn’t just buying 175 payday and check-cashing stores; it was securing a platform on which to build.
“Fundamentally you have an entire sector of the population, whether people like it or not, living outside the American banking system,” Saunders said. “And so long as those people are not welcome in the conventional banking system, and they’re not served by the conventional banking system, there’s going to be alternatives. That’s just what America is.” Using CheckSmart, Diamond Castle would snap up smaller chains as fast as they could, wring out redundancies, and eventually grow into an efficiently run giant of the poverty business. That at least was the theory.
The first challenge Diamond Castle faced in its plan to dominate this corner of the financial universe was that people were generally reluctant to sell because they too saw that there was still big money in the poverty business. “If you went through all our files, you’d see we tried quite diligently to expand this business,” Saunders said. “But it was like the Wild West out there among the payday lenders and check cashers and pawnbrokers. These are people who have no fear and never had any fear.” Saunders and his cohorts tried explaining that the industry was approaching a saturation point and, as a consequence, the better-funded, better-managed companies would crush the smaller players. But pretty much everyone they spoke with saw themselves as playing the role of the alpha company in that scenario. “Getting any of them to the point where they thought it made good economic sense to sell the business was next to impossible,” Saunders said. By the time the global credit crunch put a sudden stop to their expansion plans, CheckSmart had grown to only around 250 stores, and most of those additional seventy-five stores were built rather than bought.
“It would be a fair statement that in retrospect we didn’t have the greatest timing in the world,” he said.
Saunders barely paid any attention when the state legislature was holding hearings about payday lending. “We were heading into this terrible economy, which meant more people were going to need this service, not less,” he said. “I was thinking [the legislature] couldn’t be so clueless as to cut people off just when the need was greatest.” His promotion to CEO came at around the time the governor was signing the payday rate cap into law. So Saunders would need to navigate his company through the choppy waters of both a recession and a new regulatory environment at the same time he would take time to tape a segment for Fox News or argue for the industry’s survival at small forums around the state.
“The combination of good employees who want to deliver a valued service and a customer who appreciates that service ought to be enough to create a business in America,” he said. “But I don’t know what’s happened to our country.” He brought up the new rule that dictated that no Ohioan could take out more than four payday loans in a year. “What if government in their infinite wisdom said you couldn’t swipe your Visa card more than four or six times in a year? Well, that’s what the legislature did to these other people over here,” he said.
Saunders felt he owed it to his investors, his employees, and his customers to take to the stump. “If someone marched in tomorrow and took the company away, I could go do something else,” he said. “I can’t say that about everybody who works for me. I can’t say what would happen to a lot of our customers.” Like Billy Webster, Saunders had spent time working behind the counter before deciding to get into the business. “You spend three or four hours, without any cameras around, really talking to the people, and you become one hundred percent convinced that those people wanted the service and needed the service,” he said. “But when people hear the word ‘payday,’ they immediately shut down. They become instantly closed-minded. They think, ‘That’s toxic, that’s bad, that’s awful.’
“If you’ve never had to use the product, it’s easy to turn your nose up to it. People think, ‘Only a fool. Only an uneducated person.’” And of course the media reinforced those negatives, he said, as did those “supposedly independent consumer organizations.”
Saunders asked me if I knew the name Martin Eakes. I told him I did. “Then you understand what’s really going on here,” he said. I told him I wasn’t sure I did. “You’ve got this group, CRL, which is supposed to be for what it sounds. Consumer protection. But it’s funded by this credit union started by Martin Eakes, who just happens to be the head of the CRL. And it’s this very same credit union that chased payday out of North Carolina in order to increase their fee revenues.”
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
Faith, in contrast, paid Sandy Theis, a former
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
