"Exempt from state usury laws, check cashing outlets are making big profits by offering short-term loans at more than 390 percent interest per year." Legalizing Payday Loans Mulled By JOHN HENDREN .c The Associated Press When Toby McKenzie wanted states to pass new laws endorsing ``payday loans'' at high interest rates, he and his colleagues in the check cashing industry got out their own checkbooks. McKenzie started at home in Tennessee. His family donated $33,200 to lawmakers' campaigns over three years. He gave $5,000 to Gov. Donald Sundquist's inaugural committee and later hired one of the governor's top aides. His wife joined a prestigious lobbying firm as a partner. Last year, he and his wife gave $130,000 to the Republican Party. In 1997, Tennessee became the 19th state this decade to make check cashing businesses exempt from its usury laws, allowing check cashing outlets to make short-term loans at what amounts to more than 390 percent interest per year. A similar strategy of campaign contributions and aggressive lobbying has prepared the way to legality for payday lenders in many states -- despite criticism from consumer advocates who say the business preys on the poor, the ignorant and the desperate. Payday loans work like this: You want money today, but payday is a week or two away. You write a check dated for your payday and give it to a check cashing outlet. You get your money, less a fee. In two weeks, the check casher cashes your check or lets you pay another fee to renew the loan for another two weeks. In 18 more states, as in Tennessee where a temporary law allowing payday loans expires this year, the check cashing industry is currently seeking to change laws that forbid their unique brand of triple-digit loans. ``They hired a Noah's Ark of lobbyists,'' recalled Tennessee state Sen. Steve Cohen, who counted 10 lobbyists for the industry as the Legislature debated whether to legalize payday loans. ``They hired a black lobbyist to get black votes,'' Cohen said. ``If we'd have had a transsexual they would have hired a transsexual lobbyist.'' Payday lenders and their families donated at least $105,750 to Tennessee lawmakers' campaigns from October 1996 through October 1998. While McKenzie was the big giver, Check Into Cash owner W. Allan Jones and his family gave $29,300. The Tennessee Cash Advance Association gave $23,300 and members gave $15,200 separately. Those figures don't include large, unregulated ``soft money'' gifts to the Republican and Democratic parties. Jones' company and McKenzie's subsidiary, National Cash Advance, make loans from the Carolinas to California. The two industry pioneers and their wives, who live in Tennessee, contributed as far away as Florida; all four gave the maximum allowable $500 to Gov. Jeb Bush. McKenzie gave another $5,000 to the GOP in Florida, where payday lending is legal but remains under fire from critics and law enforcement officials who say some companies are charging more than the 10 percent allowed each time a loan is renewed. One group, the California Check Cashers Association, spent $79,135 lobbying California lawmakers in 1996, the year the state passed a law allowing and regulating payday lending. Lobbyists for payday lenders say their contributions are legal and typical for any business group trying to influence legislation. ``There is not an industry in any democratic society that does not represent itself in government bodies,'' said Anthony Simone of the payday lenders' group Community Financial Services Association, defending the contributions. Critics argue that powerful lobbyists and big contributions -- not consumers' best interests -- are what changed state laws. In Tennessee, Brian McGuire of the consumer advocacy group Tennessee Citizen Action, said he tried to fight the payday loan legislation. But it was an uneven match, some observed. ``Legislatures work pretty well if you have good lobbyists on both sides,'' said Tennessee state Sen. Roy Herron. ``Where the system breaks down is where you have a crew of highly effective and capable lobbyists on one side and only five-and-a-half million silent Tennesseans on the other side. Then the result is not always justice.''' Beyond giving money, payday lenders have also hired well-connected former politicians. In Louisiana, they hired the law firm of former U.S. Sen. Russell Long. In Tennessee, McKenzie's company made a top executive out of Sundquist's aide, Chip Saltsman. He's now also chairman of the Tennessee Republican Party. In Kentucky, Steve Beshear, a former lieutenant governor and attorney general, ran for the U.S. Senate in 1996, saying, ``Congress is owned, body and soul, by special interest groups.'' After he lost, he became the top lobbyist for Kentucky's payday loan industry. His employer, the Kentucky Deferred Deposit Association, spent $102,539 on lobbying from September 1997 through April 1998, the month the law was changed. Beshear declined calls seeking comment. In Kentucky, payday lenders didn't just give at the state level. They gave $21,000 in just five weeks last year to Kentucky Lt. Gov. Steve Henry's U.S. Senate bid. They gave $11,000 over two months to the Senate campaign of former Rep. Scotty Beasler, D-Ky., including $4,000 from the Joneses and McKenzies. Kathy Ryan borrowed $200 from a check cashing firm so she could take her 7-year-old daughter to visit relatives last year, just months after Kentucky approved triple-digit payday loans. When Ms. Ryan couldn't pay the loan back, she borrowed more to pay the fees. With only $800 a month in disability income to pay the $1,160 she owes four payday lenders, she may file for bankruptcy. ``I go to bed thinking, 'How on earth am I going to get this paid?' '' said Ms. Ryan, 39, of Middlesboro, Ky. ``When I hear the alarm go off in the morning, it's the first thought I have.''
