D.C. Press Conference on Payday Industry
September 12, 2007
Statement of Michael Donovan
My name is Mike Donovan. Until yesterday, I was a district director of operations for Check ‘n Go, the country’s second largest provider of payday loans, and the largest payday lender in Washington, D.C. My responsibilities included overseeing the day-to-day operations of nearly 20 stores in the District, as well as several stores in Northern Virginia and Delaware. Most recently, I was also responsible for running the grassroots campaign to kill Councilmember Cheh’s payday loan bill. My responsibilities put me in a good position to set the record straight on a few things the industry has been saying and doing.
For instance, there’s the industry claim that most borrowers pay off their loans “on time.” Clever wording that, because if a customer pays back a loan on the due date but then turns around and borrows the money right back again, strictly speaking the customer is paying the loan on time. Of course, we train our sales staff to keep customers dependent, to make sure they keep re-borrowing, whether in the form of a renewal, or a back-to-back transaction, forever, if possible. We virtually guarantee customer retention by encouraging customers to borrow up to 85% of their gross income – that is, more money then they actually receive in their take-home pay. In Virginia, our policy is to loan 100% of gross income.
The average Check ‘n Go customer in the District is continuously in debt to the company for at least a year, and it’s not uncommon to see customers trapped for many years. The repeat borrower is vital to our business model. It is the basis for bonuses. It is the basis for store payroll budgets. We create complicated metrics with deliberately obscure names like “unique customer count” to disguise – even to our staff – the fact that we’re in business to create repeat customers. We’re so good at doing this in the District that, in the aggregate, Check ‘n Go stores here have about 10 times the loan volume of company stores in any other market in the country. Check ‘n Go has almost 1,500 payday loan stores nationwide.
The industry claims it has “best practices” that will end repeat borrowing and stop the debt trap. I always laugh at this one because saying it will end the debt trap is an admission that there is a debt trap. But I also laugh because, as I said, we’d have no business without the repeat customer. The rollover ban is a sham because it still allows customers to pay back one loan and then borrow a second before leaving the store, re-borrowing the same principal. That’s not defined as a rollover, even though it amounts to the same thing. So “no rollovers” is a meaningless concept.
In fact, the rollover issue is a charade in itself. While everyone is talking about rollovers, the company is busy promoting its internet installment loans with the First Bank of Delaware – at APRs of about 400% and up – and fee-less debit cards on which salaries can be directly deposited, and that allow $250 worth of overdraft credit – at a fee of $20 per overdraft. These products are aimed at increasing the maximum indebtedness of individual payday customers. That way we can both maximize and accelerate our fee income, not to mention gain electronic access to a customer’s assets, which is otherwise illegal in the District with a payday loan.
Another misleading best practice is the extended payment plan, which in theory allows a borrower unable to repay the loan on the original due another 90 days to pay it back with no extra fee. Why is this meaningless? Well, we instruct our staff not to tell customers that the option exists. Customers are supposed to discover it referenced on the back of the CFSA brochure that is handed to them quarterly along with their privacy statements. (Think about it: quarterly privacy statements for borrowers on two-week loans. Clearly something is not right.) Then they have to ask for an extended payment plan the day before their loan is due. If they ask on the due date, they do not qualify. And they can only get one of these a year. Moreover, we train our staff to discourage borrowers who ask for the option from exercising it.
Let’s talk about the industry’s assertion that it does not target minority populations. Well, I can tell you emphatically that it does. I have been responsible for selecting sites for new stores in D.C. and northern Virginia. On the site selection sheet we are required to indicate the racial and income characteristics of the area. We seek out low-income African-American and Latino neighborhoods because we know that this is where our most profitable client base is located. In the District, nearly all of our customers are African-American. In fact, when a PR company went around to all the payday loan stores in the District to make a promotional video, the crew spent the entire day looking for a white customer to put in the film. They finally found just one.
Here are some other “misrepresentations” I want to clear up. DCFSA, the ostensibly local industry trade group set up to kill the Cheh bill, says that 400 people will lose their jobs if payday lenders leave D.C. Check ‘n Go is the largest payday lender here, and is the only company whose only product is payday loans, nothing else. Check ‘n Go has 75 employees, about 40 of whom live in D.C. ACE Cash Express has been here since 1968. It’s not closing up shop, although it may cut some staff. First Cash Financial also has a pawn license, so it’s also sticking around. The “creating unemployment” scare tactic is just that: a scare tactic.
Then there’s the lobbying campaign against the Cheh bill. We coerced customers into writing letters to councilmembers when they came into our stores to take out or renew a loan. We made them write the letters before we would conduct the transaction. We gave them a script and had them put the letters in unsealed envelopes so we could screen them later and destroy those that were unfavorable. We made customers and employees telephone the Council to express support for the industry. We required customers and staff to go to the DCFSA website and send emails to the Council; customers who were not D.C. residents were told to use the store address. We got customers to appear in a pro-industry video by telling them it would only be seen by the Council. Then we put the video on YouTube, on the DCFSA website, and invited the media to watch it. We convinced the Washington Informer and the Afro-American to host town hall meetings to debate the pros and cons of payday lending. We sought legitimacy from partnering with these well-respected publications, but we planned to shuttle all our staff in D.C. and northern Virginia to the event and hire a radio personality to do a live radio feed from the site, turning it into a celebration of the industry. Fortunately, the newspapers got wind of the plan and put a damper on the project. We are organizing a day-long financial literacy session for high-school students. But it will be taught by our staff (who have no training or teaching skills) and will feature more free gifts, rap artists and festivities than the essentials of financial education. I was involved in the planning and implementation of all these PR initiatives. The great irony is that the money to pay for them comes from the pockets of payday loan borrowers.
The company will do whatever it believes is necessary to beat back attacks on its bottom line. The Check ‘n Go vice president of government affairs, John Rabenold is currently running for the Statehouse in Ohio, where the company is headquartered. Getting a high-level staff member into a lawmaking body would be a coup for Check ‘n Go, especially since a coalition in Ohio is actively pursuing legislation that will restrict payday lending in that state. All Check ‘n Go executive staff at the level of district director and above, in over 30 states, were asked by the CEO to donate at least $200 to Rabenold’s political campaign. We were told that this was voluntary, but our understanding was that a failure to do so would impact our careers in the company. In fact, Rabenold’s campaign treasurer is the Check ‘n Go director of training and development. So there is a lot of pressure to support the Rabenold campaign, both monetarily and otherwise.
None of this is why I left my job at Check ‘n Go. I resigned because I could no longer stomach the lies, and I could no longer continue exploiting customers, making hard lives even harder. I hope that by speaking out now I will be able to, at least in some small part, make up for the harm I have done by helping to end a very abusive business practice.