Payday Lending Cultivates Legislative Support for Comeback
As 2005 gave way to the new year, the NC Banking Commission handed down a decision shuttering the state’s largest payday lending company; a little more than two months later Attorney General Roy Cooper announced a settlement with three others that would result in the industry for all practical purposes halting operations in North Carolina.
Before the ink on the agreement was dry industry lobbyists and executives had already started pouring thousands of dollars into the campaign coffers of key members of both political parties in the NC House of Representatives, and advocating legislation that would allow them to stage a comeback.
Among those who have received significant contributions from the industry is Rep. Earl Jones, who is running for reelection in District 60. An outspoken proponent of ensuring that poor people retain access to “short-term, emergency loans,” Jones appears to be regarded by representatives of the politically connected industry as a key legislative gatekeeper – a perception the Greensboro Democrat makes no effort to discourage.
Several critics – chief among them a Raleigh Democratic consultant turned venture capitalist named Joe Sinsheimer -‘ have charged that Jones has been less than transparent in his dealings with the payday lending industry, including some of the lead players.
Campaign finance reports filed by the Jones campaign with the NC Board of Elections in 2004, for example, failed to note in two entries for contributions totaling $3,000 from William Webster IV that the donor was the CEO of South Carolina payday lending company Advance America. One report identified Webster as “manager, printing industry.” The erroneous description obscured the fact that Webster co-founded the company after serving as director of scheduling for President Clinton and chief of staff for Richard W. Riley during the former South Carolina governor’s time as secretary of education and head of the presidential transition team.
Webster would step down as CEO in exchange for the less active role of vice chairman of the board of directors in August 2005, four months before the decision by the NC Banking Commission to stop Advance America from using charter relationships with out-of-state banks to legitimize illegal loans. His company suffered a devastating blow, effectively shutting down. Three other companies, Check Into Cash, Check In Go and First American Cash Advance -‘ which made loans that the attorney general claimed could saddle debtors with annual percentage rates in excess of 400 percent interest – soon closed their doors following the decision against Advance America.
Since then an Atlanta company has taken the lead in pleading the payday lending industry’s case in Raleigh. CompuCredit Corp., which advertises itself as a “direct marketer and servicer of branded credit cards and related fee-based products and services to consumers who may have been overlooked by other traditional providers of consumer credit,” is not an entirely new player; one of its subsidiaries is First American. Five days before the company agreed to stop doing business in North Carolina a pair identified as Jerry Lee Robinson of Peachtree City, Ga. and Denise Harrod of Atlanta each wrote checks for $500 to Jones.
What the state representative’s 2006 campaign finance reports don’t say is that Robinson is the president of Valued Services, identified on a recent careerbuilders.com posting as CompuCredit’s micro loan unit and the umbrella for subsidiaries First American, Cash Advance, Check Advance, Purpose Money and Purpose Financial. Nor does Jones’ campaign note that Harrod is registered with the state of North Carolina as a CompuCredit lobbyist. Knowing Robinson and Harrod’s connections to CompuCredit would also give political observers insight into another fact: The company has as a member of its board of directors Mack Mattingly, a former Republican US senator from Georgia.
Earl Jones told YES! Weekly in a Sept. 21 interview that he was not aware of Robinson and Harrod’s ties to CompuCredit at the time he filed the reports. He added that rather than call contributors to ask for more information he typically looks at the information on their checks to determine their employers and prefers to list them under the broad category of “financial institutions” rather than by company name.
“CompuCredit, they contribute legal and legitimate campaign contributions to various candidates, including me, and so there’s no reason to subject them to scrutiny,” Jones said. “I appreciate their contributions the same way I value contributions from any other industry.”
When asked if he has met with Robinson or Harrod, Jones replied, “No, not yet.” While the lawmaker downplays any notion that he has played a role in recent decisions affecting payday lenders he has also made public statements over the past 12 months that could be read as encouraging to the industry.
“The issue is access to financial services for those lower-income North Carolinians who need short-term, emergency loans,” Jones told YES! Weekly. “I’ve never been a supporter of payday lending. I have been in opposition to eliminating a service without providing any other alternative.”
As a member of not only the House Financial Institutions Committee but also the National Black Caucus of State Legislators Task Force on Payday Lending, Jones is in a position to assist CompuCredit. The company has made no secret of its intentions to shape state law in ways that would allow it to expand operations, although its efforts in North Carolina so far appear to have been stymied.
A section in the company’s 2005 annual report about its Valued Services unit reveals that “our plans for the first half of 2006 include expanding into three additional states and opening 45 new locations under the Purpose Financial brand.” Among the services the company hopes to offer are credit cards under the Visa, MasterCard and Discover brands, along with auto loans, tax preparation services and insurance products.
The report continues: “We plan to become the neighborhood financial services center for the financially underserved, and to distinguish ourselves from the mono-line companies through a rich product line that provides consumers with choices to fit their circumstances. We will help our customers rebuild their credit ratings by reporting their prudent use of mainstream financial services to the credit bureaus. Through these efforts and our use of risk-based consumer pricing, we expect to graduate good-performing consumers to better terms and financial products at lower costs to them.”
The language of the Credit Enhancement Services Act, a bill filed in the NC House by Rep. Beverly Earle (D-Charlotte) on May 25 bears a remarkable similarity to the intentions expressed in CompuCredit’s annual report. Neither Robinson nor Harrod could be reached despite multiple phone calls on Sept. 21 to confirm their role in the legislation. Earle, who was reached by phone on Sept. 22, declined to comment on CompuCredit’s influence.
The bill defines “credit enhancement services,” in part, as providing “at least one service to the financially unbanked consumer that demonstrably provides access to traditional banking services and for the development of a positive financial performance.”
A bipartisan group of legislators signed on as primary sponsors for the legislation, including Robert Grady, a Jacksonville Republican who chairs the Financial Institutions Committee. Between January and May 2006, Grady received a total of $6,150 in campaign contributions from finance-related sources. Another member of the Financial Institutions Committee, Huntersville Democrat Drew Saunders, collected $1,750 in the same period.
More support came when Havelock Democrat William Wainwright signed on as a cosponsor of the Credit Enhancements Act. Wainwright, who serves as vice chairman of the Financial Institutions Committee, received at least $1,250 in late April from campaign contributors acting on behalf of CompuCredit, including Robinson, Harrod and William M. Buford, who like Harrod is registered as a lobbyist for the company. Another cosponsor, Spring Lake Democrat Marvin Lucas, received matching $250 campaign contributions from Robinson and Harrod on Feb. 2. Other cosponsors include Democratic Whip Larry Bell of Clinton; Rep. Pete Cunningham, a Charlotte Democrat who serves as special assistant to Speaker Jim Black; and Rep. Thomas Wright, a Wilmington Democrat.
The sway held by the payday lending industry over North Carolina politics is among the reasons that Sinsheimer, a former political consultant who worked on Democratic campaigns for the NC House and Senate in 2002 and 2004, has called for Black to step down as speaker of the House. Sinsheimer gained notoriety in November 2005 when he launched the jimblackmustgo.com website.
“I’m very much a progressive Democrat,” he said. “I find it very hypocritical that my party is beating its chest over passing the minimum wage raise but at the same time they’re getting in bed with payday lenders. Money is driving too many decisions.”
Rep. Jones was not among the cosponsors of the Credit Enhancements Act, which was referred to the Rules, Calendars and Operations Committee only four days after it was filed. Jones said he would not rule out supporting a version of the bill in the next session, and expected CompuCredit’s representatives to ask for his support even as he promised to continue meeting with consumer advocates opposed to the bill.
The bill’s language provides far more specificity than Jones has so far been willing to do in outlining alternatives to the payday lending operations shut down by North Carolina officials in December 2005 and March 2006. The proposed legislation recognizes “that the cost of serving the financially underserved and unbanked consumers is extraordinarily high to the [lender] and therefore a higher risk-based interest rate shall be permitted to cover this risk when the credit enhancements are offered as a package.”
“The way the bill was designed it would have allowed loans of up to three thousand dollars at an initial interest rate of up to sixty percent, but thereafter would have had no limit on the interest rate,” said Al Ripley, a consumer advocate and registered lobbyist with the NC Justice Center in Raleigh. “In addition, it allowed for fees that would have led to triple-digit annual interest rates.”
Ripley added that the legislation was troubling because it contained no prohibition against car title lending, which he called “a very abusive type of credit.”
“It’s basically disguised predatory loans as a credit enhancement product,” he said. “It’s almost a re-branding effort to hide the true nature of payday lending, to disguise it as something else.”
In his interview Jones presented himself as a broker between the payday lending industry and its critics. He said he considers himself a supporter of industry and banking, but also was quick to note that he took the initiative to arrange a meeting with Martin Eakes, CEO of the Durham-based Center for Responsible Lending.
“I have to rely on the expertise of the banks, the so-called payday lending – I don’t even call it that; I just call it financial services – and the consumer groups,” Jones said. “I met Martin Eakes, and asked him to come up with a product that’s acceptable. That’s what politics is: Get them together and get them to agree on a product. That’s the position I’ve taken in a letter to the Banking Commission and on the floor of the House.”
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