Meet the Man Who Made a Fortune Exploiting the Poor With Payday Loans
Editor's Note: The author adapted and wrote the following for AlterNet, based on his book Broke USA: From Pawnshops to Poverty, Inc.: How the Working Poor Became Big Business, out now from HarpersBusiness.
The first time I spoke with Allan Jones, one of the pioneers of subprime lending, he practically ordered me down to Tennessee. Jones is responsible for the modern-day payday loan industry. While he didn't coin the term “payday loan,” he was the first to spot the vast moneymaking potential in making these small-denomination loans of maybe $200 or $400 against a person's next paycheck. Jones opened his first payday store in 1993 in his hometown of Cleveland, Tenn. By 2006, the payday loan was a $40-billion-a-year industry with more storefronts scattered around the country than the combined numbers of McDonalds and Burger King, each offering a kind of fast-food finance to the working poor at annual interest rates as high as 500 and 600 percent, depending on the state.
“If you're a'gonna write about payday, you gotta get down here and see me,” Jones told me the first time we spoke. “I created the industry and the rest of 'em just copied me.” At that point, I was just starting work on a book chronicling the rise of a poverty industry in the U.S. so large it rivals the casino business in terms of annual revenues generated, and here one of the princes was insisting I come spend some time with him. But then, after dozens of emails and phone conversations with the assistant in charge of his schedule, I received a curt email from the communications director for Check Into Cash. Mr. Jones, it seemed, had changed his mind.
I decided to travel to Tennessee anyway, to see for myself this improbable birthplace of the cash advance business. A few days before my arrival in Cleveland, I sent Jones an email informing him that I'd be in town and talking with people about him. An hour later my phone rang. It was Jones. He'd be happy to see me while I was in town, he said -- and that weekend Allan Jones and I became BFFs.
We attended a wrestling match on the campus of the University of Tennessee in Chattanooga, one hour's drive away, and then had lunch. Back in Cleveland, he showed me the hospital where he was born and drove me by the house where his childhood friend Doug lived. He pointed out where his sister lived and confided in me that his weight had grown so out of control he had recently had gastro-bypass surgery. He drove me up the hill to show me the spectacular home that had cost him tens of millions to build and invited me to watch the Super Bowl with him and his sons, but I declined because we had already spent more than five hours together and had plans to meet the next morning. Even best friends need time apart.
* * *
Destiny, as Allan Jones sees it, was awaiting him even as he exited the womb. The big news in Cleveland in the fall of 1952 was the opening of a new hospital and the first baby delivered there. “The day I'm born and I'm already in the newspaper,” Jones said shaking his head in amazement. Is it any wonder, he asked me, that he had accomplished “great things” in his life? A few years back he had the idea of building a “First Mother's Garden” on the grounds of the hospital in honor of his mother. “There was all this attention on me,” Jones reasoned generously, “but it was her who gave labor.”
Jones is bald with a round face and a full beard -- think Rob Reiner, but more dyspeptic and bulkier and without the liberal politics. He stands maybe 5-foot-8-inches tall and has the round shoulders of a former fullback. He's dressed that first day in scuffed cowboy boots and a monogrammed white dress shirt and his large belly hangs over low-riding frayed jeans. And in case I didn't notice the jeans and scuffed boots, he told me, “See, people think I'm so rich but I dress normal.” His son attends public school. His home number is listed.
Home, for Jones is a house modeled on the Biltmore, the stunning French-styled chateau that robber baron George Vanderbilt built a century earlier. It features stables for his racehorses and a regulation-sized football field complete with stands and clubhouse. The garage holds a $300,000 Maybach and a vintage Rolls and Bentley. Two private jets are waiting at the airport. When the 136-foot yacht that had previously been owned by the King of Spain was destroyed in a fire, he replaced it with a 157-foot-yacht with no less than 10 big-screen TVs. Sure, he's done well, he concedes, but that's because he's providing an essential service to those hard-working Americans who would otherwise be out of options. The hundreds of millions of dollars in profits he's made over the years making payday loans to the working poor only proves that helping people and making money sometimes go hand in hand.
“Money has never been my motivator,” he claims. “It feels good to be able to help hard-working people when they need a hand.”
Jones had once thought he might be a wrestling coach or a “biological teacher” but a year at Middle Tennessee State College proved enough. At 19, he went to work at his father's debt collection business. At 24, Jones, single-minded and impatient, pushed his father aside, buying him out for $100,000. “He was adverse to controversy,” Jones said of the old man. “I wasn't.” That trait would serve him well once he stumbled on the idea for the payday loan.
I was treated to two tellings of the story of that fateful day that Jones and Steven Hixson, a childhood friend who has been on Jones' payroll practically his entire life, took to the skies in Jones' private plane to meet with a man named James Eaton. The first time, Jones told me the tale in a hushed voice as he was driving me to Chattanooga. “I think of all that I've accomplished in my life and how so much of it came down to that one moment,” he said, shaking his head.
That was the reverent version. The second was the raucous one that apparently Jones, Hixson (who everyone calls Doughball), and their friends have been telling for years. I heard it after work on our second day together at the bar of the Bald Headed Bistro, a restaurant Jones opened a one-minute walk from his office.
Jones had always admired Eaton. He was a “real stately” fellow, he said, a bespectacled man who smoked a pipe. “He looked to me kind of like Sherlock Holmes,” Jones said. That made it all the sadder when Jones found Eaton working in a dilapidated gas station. There, in a shack with paint peeling off the walls, Eaton had set up a meager-looking business called Check Cashing, Inc. “I guess I've found myself my man in northeast Tennessee,” Jones told himself.
Jones had not yet gotten to the best part of his pitch when Eaton excused himself to deal with a customer. After a couple of more interruptions, a baffled Jones asked Eaton what he was up to. He explained that he was loaning cash to people who needed a bridge loan until the next payday. The school janitor borrowing $100 today would pay him back $120 when he received his next paycheck.
“People would thank him,” Jones recalled. “They would thank him and thank him and thank him.” He thought about his own business. He had 250 employees but also endless headaches. The businesses that paid his bills were constantly bellyaching that he wasn't aggressive enough in collecting overdue debts and he was forever hearing complaints from debtors that his agents were too gung-ho.
Jones wondered about the fee Eaton was charging. Wasn't 20 percent too steep for a short-term loan of maybe a week or two? Expressed as an annual interest rate, that worked out to more than 500 percent. “That's when the light bulb went off in my head,” Jones said.
Eaton said no to Jones' job offer. “This is the happiest business I've ever been in. I'm happy, my clients are happy,” he told him. “They just love me.”
On the plane ride home, Hixson recalled, Jones was there but not there. “I couldn't hardly say a word to him,” Hixson said. They're happy, I'm happy. Collections is a tough business. All those hospitals and department stores and credit card companies always on your back. They just love me. All those deadbeats demanding to talk with him because his people were rough with them over the phone. Cheaper than a bounced check.
Jones thought of the grateful look on people's faces when Eaton handed over the money. And Eaton? How could he help but feel anything but ecstatic? He was earning 500 percent interest on the money he had out on the street. Jones's own business, collections, was low overhead but Eaton was essentially running his operation out of a shack.
Jones was pushing 40. He went over the numbers in his mind. Ten grand, he concluded. He would set aside $10,000 and give it a shot.
* * *
Jones opened his first store a few weeks after visiting Eaton. Not long after that, he opened a second one in a town 30 miles away. He describes the childhood chum he put in charge of that second store as a “lump on the log,” but that didn't seem to make a difference. The second store made money as rapidly as the first. In 1994, he opened another seven stores around Tennessee. That year he made $486,000 in profits on just under $1 million in fees -- a profit margin of around 50 percent.
To boost growth, Jones hired a guy he had known in school who had always struck him as a smart fellow. He gave him $1 million to open more stores. "Do you want 20 nice-looking stores," the man asked him, "or 60 that don't look so nice?" Jones naturally chose the bigger number. The next year, halfway through this latest building boom, Check Into Cash's 52 stores made $3.7 million in fees and generated nearly $1 million in profits. Drawn by the fat profits Jones was making off those with thin wallets, other entrepreneurs started opening stores of their own and payday became a kind of great land rush. Desperate for cash, he sold his collections business for around $10 million. He borrowed another few million dollars more from a private equity fund he complained charged him an interest rate of 14 percent. His average customer, of course, was paying an interest rate 30 or 40 times that rate for his or her money.
Jones thought about taking Check Into Cash public. He went so far as to engage CIBC Oppenheimer, a big investment bank, to file the requisite paperwork but changed his mind. By the late 1990s the big regional banks and a few of the national ones recognized the big profits to be made in investing in fringe financiers like Jones. So rather than sell shares to his company, he borrowed $50 million from National City, a Cleveland, Ohio-based bank. An IPO would have put $50 million or so straight in the bank where borrowing from NatCity meant paying back a loan with interest, but remaining private had its own rewards. Plus, Allan Jones was not a man who liked answering to anyone but himself.
“We have board meetings at Check Into Cash,” Jones joked, “but I win every vote 1-to-nothing.” He mentioned a competitor named Billy Webster, whose company, Advance America, trades shares on the New York Stock Exchange. Webster is a former Clinton White House aide who until recently ran Advance America, the country's largest payday lender, numbering in at 2,500 stores. “How much of his company does Billy own?” Jones asks. “How much of my company do I own? Go ask Billy and I'll bet he'll tell you: His shareholder meetings are a lot longer than mine.”
But living in a bubble surrounded by old cronies from childhood has a price tag, too. I had a microphone on his lap while Jones drove me around town when I innocently noted that Cleveland, Tenn. seems a surprisingly white town for the rural south. "We have just enough blacks to put together a decent basketball team and a football team that wins some games," he said, "but not so many the good people of Cleveland, Tennessee need to worry about crime."
"That's why I can leave my keys in the car with the door unlocked," he explained. I started to muster a response but he cut me off. "You don't like what I'm saying," he said, "but I'm just telling you the way it is." He tells me, too, about the black man he's known since the two wrestled together in high school. He shines shoes at the corporate headquarters and does odd jobs at the various businesses Jones owns around town, including a restaurant, a barbershop and a small radio station. “The little chocolate man,” Jones and his cronies call him.
It's not just race. Jones can have the tinniest of ears when it comes to talking about his money. The Ohio legislature was considering a bill that capped at 28 percent the interest rates the payday lenders could charge and Jones, eager to show they couldn't make money under that rule, rushed to Ohio to testify. He probably didn't help his cause when word spread that he had flown to Columbus on one of his private jets. “I don't know why that should make any difference,” he groused when I met with him a few months later. He and his allies lost the Ohio fight.
* * *
Somewhat ironically, money is one of Jones' sorest subjects. People may make him out to be greedy -- a man feasting on the misery of others -- but he, for one, is struck by how little he makes. “There's this big misconception out there that payday is more lucrative than it is in reality,” he told me over lunch. “People have this idea that I must be richer than I am.”
To make his point, Jones pulled out the small calculator he carries around. He pushed aside his plate and started to punch in numbers. The average Check Into Cash store, he said, makes roughly $1,500 a month in profits. He divides that amount by the number of hours (44) one of his stores is typically open and shows me the readout: $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 himself for the business' use, such as his private jets. I multiplied that $18,000 total by 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. He had already shut down 40 of his 94 stores in Ohio -- 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 the stores that were still open, he frowned. "A recession would probably mean a spike in defaults," he said sourly.
I kept fiddling with his calculator to figure out his earnings if he punched the clock like so many of his customers. Based on a 44-hour week, Allan Jones 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 should be able to survive a pay cut.