the turnover rate on some blocks was approaching 50 percent.
“When you look at communities like South Ozone Park,” Gerecke said, “you can’t help but think that abusive lending was often more racial than economic.” Gerecke’s claim has been substantiated by any number of studies, including a May 2006 report by the Center for Responsible Lending that demonstrated a significant racial bias in subprime mortgage lending even taking into account income and credit score.
In the car with McCarthy, looking at all those once-beautiful homes now serving as nothing more than well- dressed drug houses, I couldn’t help speculating about whether I was seeing a vision of the future. It was here, in communities like Dayton’s west side, where the subprime mortgage disaster that would engulf the country first reared itself. It’s here where the disaster has had the longest to play itself out—and it was clear as we wound up our tour that it’s far from over.
Borrowed Time
Allan Jones had opened 1,300 payday stores yet through much of our two days together in Cleveland he bellyached how it could have been more. Several times he brought up Europe. Advance America operated stores in the United Kingdom; Check ’n Go bought a small chain in Scotland. The payday loan was becoming so popular in the UK that Kevin Brennan, its consumer minister, told the BBC he was “concerned that so many people are relying on these forms of high-cost lending.” But Jones had never been to Europe, so in the summer of 2007 he and his family spent several weeks hopscotching their way across the continent, never staying in one place for more than two days. “I was trying to learn culture,” he said. “Trying to get myself up to speed. So basically it was up and out with the tour guide at nine each morning and go through five.” By the time the trip was over, everyone was happy to be home and Jones expressed no desire to ever return.
“I was all set to take the plunge but I was afraid of Europe,” he said. Instead he opened some stores in Texas, a state he had always avoided because the rules required a payday lender to partner with a local bank. “I was ignorant of Europe,” Jones said. “But Texas I understand, I told myself. Why go to Europe if you haven’t been to Texas yet?” He found a partner bank and together they opened sixty stores.
“I can’t tell you how many times I kicked myself for that decision,” Jones said with a deep sigh. Texas has been a consistent money loser and Europe makes him nostalgic for the United States in the mid-1990s, when most of the country was still virgin territory. “I could really use that money,” he said of the cash he’s not collecting because of his failure to open any stores overseas. His money is so tied up in planes and yachts and real estate and cars and horses, he moaned at one point, that there were still projects around his property he wanted to take care of, starting with the paving of the roadway leading up to his house, but he didn’t want to dip into his savings to do so.
“There’s this big misconception out there that payday is more lucrative than it is in reality,” he said. “People have this idea that I must be richer than I am.”
To make his point, Jones pulled out the small calculator he carries in a pocket. We were near the end of lunch on our first day together and he pushed aside the plate of food and started to punch in numbers. The average Check Into Cash store, he said, makes roughly $1,500 a month in profits. There are four and one-third weeks in the typical month, so he divided $1,500 by 4.3. He then divided that number by the 44 hours in a week that his stores are typically open. That worked out to $7.93 an hour.
“Does that sound excessive to you?” he asked, fixing me with a level gaze. “That’s practically minimum-wage rates.”
Rather than answer, I asked to borrow his calculator. He slid it across the table and I plugged in the $1,500 in profits he had just told me a store makes in a month. I multiplied that by 12 months. His average store generated $18,000 a year—after paying salaries and factoring in bad loans and even incidentals like his payments to Jones Airways for the use of his own jets. I multiplied that $18,000 times his 1,300 stores and held up the number for Jones to see: $23.4 million. He had given away a 2.5 percent ownership stake so I subtracted that amount. That left him with $22.8 million in after-tax profits.
I tried to engage Jones in a discussion of how much might be enough. Jones responded that he had the opposite worry: His empire was shrinking. The Ohio vote had taken place three months earlier but he was still angry about it as if it had taken place the day before. By that time he had already shut down forty of his ninety-four stores there—using his numbers, that represented roughly $720,000 in lost profits. And then there were the stores he had recently closed in Oregon and New Hampshire. When I mentioned that hard economic times would drive up demand at those stores that were still open, he frowned: A recession would probably mean a spike in defaults, he said sourly. He mentioned the millions he had spent buying a dude ranch in Jackson Hole he now wishes he hadn’t. I kept fiddling with his calculator to figure out his earnings if he punched the clock like so many of his customers do. Based on a 44-hour week, he made just a shade under $10,000 an hour in 2008. Around the country, headlines blared the news of rising unemployment rates and every day the papers were bringing more news of people losing homes through foreclosures. He had just had a strong January, Jones acknowledged, but even if things slowed down considerably over the rest of 2009, he seemed to be at least one American who could be able to survive a pay cut.
There was a time I was unsure what to think of the payday loan. Not everyone can tap a rich friend or family member for a few hundred dollars to hold them over until payday, and of course credit cards are their own quicksand. The interest rates on a payday loan were horrifically high but they seemed largely irrelevant on loans that lasted two weeks. Besides, what’s a single mom making $22,000 a year supposed to do when her car breaks down and she has no cash left in her bank account?
I can remember the exact moment when my view started to harden in opposition to the payday loan. I was on an airplane streaking west toward Dayton when I came across a report by the former Ohio attorney general (he would resign in May 2008 over a sex scandal) that included the testimonies of former payday employees like Chris Browning. As they told it, the payday loan wasn’t an every-once-in-a-while product that customers reserved for emergencies, as their bosses would have people believe, but rather a monthly reality for well over half their customers. In that scenario, an annual percentage rate of 391 percent wasn’t some theoretical number but a good gauge of the price too many people were paying for credit.
“I left the industry when I saw that the rollovers were as high as they were.” That’s what Jerry Robinson told me when I visited with him in Atlanta. Robinson had helped Toby McKenzie decide to get into the payday business, and as a banker for Stephens, Inc., he had been one of the industry’s early cheerleaders. But the industry had become a victim of its own success. “There’s just too many stores. That’s the bottom line,” Robinson said. “Customers have two loans, then three loans, then five.”
Billy Webster tended to agree: Too many entrepreneurs had gotten into the business and, as a result, it was too easy for borrowers to end up owing money to several stores at once. The shame of it, Webster said, was that the industry might have avoided some of these problems if it had been more open to reforms like the one he helped to negotiate in Florida. The state government there maintains a database to ensure that no borrower has more than one payday loan out at a time (and caps rates at $10 per $100) and yet entrepreneurs like the MacKechnies of Amscot Financial, with all its stores in central Florida, are thriving. But people inside the industry such as Allan Jones (and also Jerry Robinson) slammed Webster for caving in to payday’s critics. “The industry’s worst instinct has been to confuse reform with prohibition,” Webster said. By the middle of 2009, Advance America had counted fifteen pending bills in Congress and another 173 around the country that would have an impact on its business— and the man now sitting in the Oval Office had, as a candidate for president, promised to “empower more Americans in the fight against predatory lending” by capping “outlandish interest rates.” Advance America had earned $30 million in profits in the second half of 2008, and then booked another $26 million in profits in the first quarter of 2009, yet its stock was down by more than 75 percent from its high because of uncertainty about the payday loan.
“It’s hard to invest in the future earnings of a company if you don’t know if it’s going to have a future,” Webster said. To guard against further erosion of its market, the payday lenders collectively have forty company- paid lobbyists on staff and contract with another seventy-five lobbyists working in thirty-four states, the head of its
