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The Payday Playbook: An Inside Look at the Struggle of High-Interest Lenders to Remain Legal by GadCapital

Missouri campaigners pushed to prohibit high-interest loans last year. The battle revealed the high-cost loan industry’s fierce attempts to remain legal and business.

Last year, the Rev. Susan McCann tried to outlaw high-cost payday loans in Springfield, Mo. She recalls having trouble keeping calm. She was yelled at.

He and others were bribed to block signatures. “When she spoke, many screamed “Liar!” False! She’s wrong!”

Such encounters showed the high-cost loan industry’s aggressive attempt to remain legal and in business.

Payday loans, which trap millions of Americans in debt, have led to scores of state measures to root out abuses. The industry is robust. At least 39 states charge 100 percent or more for payday or other loans. Rates may top 1,000%.

Missouri activists proposed capping loan rates at 36% last year. The story of the subsequent fight illuminates the industry’s tactics, which included lobbying state legislators and contributing lavishly to their campaigns, a vigorous and, opponents charge, underhanded campaign to derail the ballot initiative, and a sophisticated and well-funded outreach effort to convince African-Americans to support high-cost lending.

Industry leaders reject Missouri’s proposal. They claim such initiatives would deny clients their best or only lending alternative.

Quick Cash

High-cost lenders love Missouri. One payday, installment, and auto-title lender for every 4,100 Missourians. The typical two-week payday loan in Missouri has an APR of 455%. That’s 100 percentage points more than the national average.

Democrat Mary Still, who won a state House seat in 2008, proposed a plan to ban high-cost loans. The new governor, Democrat Jay Nixon, favored change.

Legislators were the issue. According to research by the nonpartisan Public Campaign, payday lenders gave $371,000 to politicians and political organizations during the 2010 election season. Still become used to high-profile lobbyists’ visits. But they didn’t need to fear the House Financial Institutions Committee. Don Wells, the committee’s chairman, owned Kwik Kash. He was unreachable.

Still, others were ready to pursue another road after two years of frustration. “People have to vote,” she remarked. Legislators were purchased.

Faith groups, community organizations, and labor unions proposed capping rates at 36%. The biggest challenge was gathering 95,000 signatures. If initiative backers could achieve that, they were convinced it would pass.

The lending sector was ready to fight before the signature push started.

MECO emerged in the summer of 2011. The organization kept its funders private while opposing the payout proposal. Patrick Tuohey’s Missourians for Responsible Government was the only donor. As a 501(c)(4) organization, Missourians for Responsible Government is exempt from reporting donations. Tuohey didn’t comment.

The source of the $2.8 million Missourians for Responsible Government gave MECO throughout the struggle is unclear.

QC Holdings spent “significant resources” to defeat the Missouri measure, according to a 2012 filing. QC has 101 Quik Cash (not Kwik Kash) locations in Missouri. In 2012, one-third of the company’s income came from the state, double California’s share. “Ballot initiatives are more emotional than parliamentarians’ discussions,” the business claimed in its annual report. If the initiative passes, the corporation would likely default on its debts and stop dividend payments.

QC, Cash America, and Check into Cash donated $88,000 to Freedom PAC in late 2012. MECO and Freedom PAC shared a treasurer and 501(c) (4). State records reveal Freedom PAC spent $79,000 against Still’s 2012 state senate run.

MECO backed three lawsuits against the ballot proposition. If any of the lawsuits succeed, the initiative will be removed from the ballot, no matter how many people signed petitions in favour.

Correspondence containing threats and other hoax-like activities

Meanwhile, initiative backers recruited volunteers to collect signatures. The campaign began with umbrella groups like Metropolitan Churches United of St. Louis, which drafted more than 50 congregations, said its executive director. Communities Creating Opportunity said 80 churches and groups in Kansas City participated.

In Kansas City and St. Louis, African-American congregations led the alliance, but the problem passed racial lines and reached suburbs and small towns. There are eight high-cost lenders in Liberty, a mainly white suburb of Kansas City. McCann, the church’s leader, said it was necessary for people of religion to address the issue.

Volunteers gathered signatures throughout Lent and Holy Week. Door-to-door and on corners.

Several clergies received a “Legal Notice” from a Texas legal firm on MECO’s behalf in early January 2012. “We’ve heard that you, your church, or members of your church may be collecting signatures or pledging to accept orders from the proponents’ political operatives,” the letter claimed.

“Please be aware that harsh laws with criminal consequences apply to initiative petitions,” it added in bold. Churches might lose tax-exempt status if they become involved in politics. MECO would “promptly report” any infractions, the letter said.

After Rev. Wallace Hartsfield of Kansas City’s Metropolitan Missionary Baptist Church got the letter, a lawyer was contacted. A letter? Hartsfield recalls. If you think we’re doing anything unlawful, sue, okay? No lawsuits or other proceedings have been taken against initiative religion organizations.

MECO didn’t comment. Anthony & Middlebrook of Grapevine, Texas, directed a comment to a departing lawyer. He wouldn’t comment.

Lenders and supporters took further moves. A Republican lobbyist filed what seems to be a decoy proposal to the Missouri Secretary of State. It recommended capping loans at 14 percent but said the restriction wouldn’t apply if the borrower signed a contract at a higher rate. Jewell Patek’s second plan would have banned capping loan interest rates. Patek said nothing.

According to state documents, MECO spent $800,000 on signature gatherers for competitor campaigns. Gerth of St. Louis congregations thought it was effective. He and others alleged that people believed they had signed the 36% cap petition when they hadn’t.

MECO’s actions caused further misunderstanding. In April 2012, a municipal court agreed with MECO in one of its challenges against the initiative, jeopardising it for months until the state Supreme Court reversed the verdict. During those months, MECO personnel reportedly informed voters contemplating signing the petition that it was “illegal.”

The MECO-paid commercial doesn’t address payday lending or restricting interest rates.

Lenders that provide payments over time now participate in the competition

Installment lenders formed Stand Up Missouri to oppose the rate-cap measure and distance themselves from payday lenders.

“Special interest organisations posing as grassroots, faith-based coalitions” targeted payday lenders and “safe” forms of credit including instalment loans, according to the group’s website. “Stand Up Missouri does not represent payday lending,” the organisation declared.

Unlike payday loans, instalment loans are paid off over time. Many payday lenders provide these loans, but charge higher yearly rates (from about 300 to 800 percent). World Finance, one of the country’s largest instalment lenders and the biggest Stand Up Missouri sponsor, charges a 204 percent annual rate, according to its latest annual filing. See all your options in a Apply Now site.

Like payday lenders, World profits from trapping consumers in debt. Payday and instalment lenders target comparable clientele. 56% of payday borrowers and 72% of instalment loan borrowers in Illinois had salaries under $30,000 in 2012.

Stand Up Missouri gathered $443,000 from instalment lenders and related industries to oppose the ballot issue.

Installment lenders in Missouri organised a letter-writing campaign, printed commercials, distributed video testimonies, and hosted a demonstration at the capital. Stand Up Missouri sued to oppose the measure like MECO.

Tom Hudgins, chairman of Stand Up Missouri and president of Western Shamrock, rejected an interview but issued a statement. Stand Up Missouri agrees “certain financial sectors” may need change, but advocates didn’t want to deal with lenders.

Due to their lack of interest in establishing market-based changes, we’ve met with Missourians around the state to discuss the financial sector and reform options.

“Make it look as excellent as possible.”

Rev. Starsky Wilson of St. Louis sat at a Four Seasons table in February 2012. Floor-to-ceiling windows see the city’s arch and skyline. Two lobbyists and Hudgins stood before him, he recalls.

African-Americans were key to lenders’ revenues and the petition effort. Wilson’s flock is mostly black.

Also lobbyists. Kelvin Simmons was the state budget director and a Missouri political veteran. His new employment was Dentons, subsequently SNR Denton, and he represented Stand Up Missouri.

Lobbyists and Hudgins asked Wilson to reconsider the rate-cap idea.

Wilson wasn’t persuaded, but he was only one target. Wilson says he ran into two community leaders at the Four Seasons who were there to hear Stand Up Missouri’s message. Several African-American clergy met with lobbyists, he added. Some believed their message that instalment loans were necessary for middle-class African-Americans. Wilson began counter-lobbying. Simmons and Boyd’s representative denied comment.

African-Americans account for 23% of payday loan borrowers, according to Pew Charitable Trusts. Green was “Senior Advisor of Minority Affairs” for the payday lenders’ national trade association, then head of “community outreach” for Advance America, a big payday lender. In 2012, he started his own “community relations” firm, The Partnership Alliance Co. He’s been involved in legislative battles in North Carolina, Georgia, D.C., Arkansas, and Colorado during the last decade.

Green refused to speak, and MECO did not pay him or his firm in 2012. Hartsfield knew he was there to promote payday loans.

Green sent an open letter to Georgia’s legislature black caucus saying that payday lending regulation was unnecessary and condescending. Opponents of payday lending “think that individuals unlike them are just po’ chillin’ and must be parented by those who know what’s best for them,” he wrote.

Hartsfield claimed Green made a similar point but also addressed church problems during their private discussion. Hartsfield remembered Green stating payday lenders may assist. The promise meant “we’ll assist you there if you stop here,” the minister stated.

Green’s new company, World Finance, answered all queries. In a statement, World said it was “pleased to have Mr. Green as a member of its team to expand World’s outreach to the communities it serves and to allow him to continue his many years of being directly engaged in and giving back to those areas.”

After the AJC reported the transfer, Green presented paperwork demonstrating it was a real estate loan. Green claimed the politician agreed to return the debt plus $40,000 but hadn’t. The state ethics committee decided Green breached no rules since lobbyists may do business with politicians.

The investigation into the disappearance of the petitions

Springfield’s work resembled hand-to-hand fighting. The initiative’s opponents recruited opposition via ProActive Signature Solutions.

ProActive’s Oscar Houser: “It was well-funded.” He wouldn’t reveal who hired ProActive. Only MECO reported funding signature gatherers. According to Houser, the staff concentrated completely on preventing customers from signing.

Marla Marantz, a Springfield citizen and retired teacher, was employed to collect signatures. Every day, at least one and frequently many ProActive staff joined her, she adds. They followed her to the library and DMV. She and her opponents (whom she made close with) named it “blocking.”

ProActive employee: “We’re blocking them from getting signatures” How may “”Blocking” usually gives us a bigger group, the employee adds. We use numbers.” Marantz is flanked by three ProActive staffers in the video.

Missourians for Responsible Lending, the initiative’s sponsors, sued MECO and ProActive in May 2012, saying they harassed and assaulted signature gatherers. Marantz and three others said they had experienced similar treatment. It required MECO staff to stay 15 feet away.

MECO’s attorneys responded. MECO contended the litigation was an unlawful effort to stifle political opponents based on “sporadic small violations.” Even if opponents “constantly insulted with vulgarity,” they maintained, the First Amendment would protect them.

Houser termed the lawsuit “frivolous” and claimed MECO’s attorneys could handle it. Case halted. Patterson’s shattered passenger side window and missing petition box were reported in a police report. Patterson stated half of the 5,000 signatures were supporting the 36% cap measure.

Nobody was arrested. Kansas City and St. Louis volunteers recovered the missing signatures. The secretary of state’s office needed signatures within two weeks.

Industry also prepared. Since December, MECO has added $331,000. Stand Up Missouri raised $151,000.

Jewell Patek, the same Republican lobbyist who submitted the industry’s 2011 petition, filed another in May. The limit is 400%.

Installment lenders keep courting African-Americans. Stand Up Missouri sponsored a Christmas party for St. Louis Baptist pastors in December and the National Baptist Convention in June. It’s kept its high-powered African-American lobbyists and added Cheryl Dozier, executive director of the Missouri Legislative Black Caucus. Willie Green has reportedly approached African-American pastors on behalf of World Finance, according to initiative backers.t