Payday lenders are finding themselves in the Obama administration's crosshairs as the president's new financial regulator begins to flex its muscles following the recess appointment of the agency's director, Richard Cordray.
Nearly 20 million U.S. households use payday lenders and pay roughly $7.4 billion in fees every year, Cordray told attendees at a Brookings Institution event.
Payday lending is one big piece of the Consumer Financial Protection Bureau's responsibility that will include non-bank financial companies such as money transfer agencies, credit bureaus and private mortgage lenders.
"The consumer bureau will make clear that there are real consequences to breaking the law," Cordray said. "Since most of these businesses are not used to any federal oversight, our new supervision program may be a challenge for them."
But Jabo Covert, vice president of government relations for Cleveland, Tenn.-based Check Into Cash, said payday lenders already face multiple layers of regulation by states.
"There are already more regulations to get a $200 loan than there are to get a $100,000 car," Covert said. "This is nothing but a political stunt by the president and some of the anti-business groups to claim that we are not regulated and need a regulator."
Tennessee Sen. Bob Corker blasted the new agency this week, warning that the bureau has a budget of more than half a billion dollars, no congressional oversight, and would be controlled by one person with complete autonomy to regulate consumer and financial transactions.
"I strongly support consumer protections and am not opposed to eventually confirming a director, but not before putting in place a board-like structure and checks on rulemaking abilities to ensure the director is accountable and does not have unfettered power," Corker said.
Check Into Cash officials note that they are already regulated by the Tennessee Department of Financial Institutions, the U.S. Federal Trade Commission and local agencies for each state in which it operates. The state agency says it regulates more than 1,200 payday lenders, dubbed "deferred presentment services companies," across Tennessee.
"We have regulators in our offices and we're audited every year," Covert said.
Complying with the rules has been a conscious choice from the beginning for owner Alan Jones, who voluntarily restricts online loans in states where the practice is banned or the law is murky, the company claims.
But Chattanooga-based Credit Payment Services - which includes entities like Terenine, Area 203, Support Seven and ACH Federal - has not received a Tennessee license, according to the Tennessee Department of Financial Institutions.
It has continued to operate outside of the state license process, which is required under a state law passed in 2011, despite multiple state and federal investigations.
The group of companies operates websites such as MyCashNow.com, PayDay Max.com and DiscountAd vances.com, but keeps the association a secret, a Times Free Press investigation found in December.
In a Dec. 18 letter to employees in which he referred to other payday entities as "customers," Terenine President David Carney insists his businesses operate within existing laws.
"We believe our customers, who are in the payday lending business, have the right to operate their businesses under the Commerce Clause of the U.S Constitution and federal law without being licensed in Tennessee," he said.
That's exactly the type of company the new federal agency was created to investigate, said Jim Winsett, head of the Chattanooga Better Business Bureau.
"I do think payday lending is one of the industries that is going to be very visible to the organization right away," Winsett said. "It's not going to be looked upon favorably."
However, state officials say any progress by the agency, which was created in 2010, may be slow.
Greg Gonzalez, commissioner of the Tennessee Department of Financial Institutions, said it is "too early to tell" what changes the new agency would bring to the state, but that the new regulators would look to augment state rules if necessary.
"The extent of state oversight is going to be a factor in how they proceed," he said. "We've done a lot of good things here, and we don't want to go backwards and yield on that."
For consumers, the extra layer of regulation may not affect the process for filing a complaint, said Sharon Curtis-Flair, director of communications for Tennessee's attorney general, Robert E. Cooper Jr.
Consumers can file complaints against payday businesses with the attorney general, the Tennessee Department of Financial Institutions, or the Consumer Affairs Division, or to the FTC and now the Consumer Financial Protection Bureau at the federal level.
But the plethora of options can be misleading.
"Essentially all the complaints end up in the same place," she said.
That place is the FTC Consumer Sentinel Database, a secure online database that is used by thousands of civil and criminal law enforcement authorities worldwide, Curtis-Flair said.
Though the FTC won't intervene to try and mediate problems with individual companies, the database allows the agency to target patterns of behavior, she said.
However, Tennessee consumers with payday loan complaints may find themselves being sent back to square one if they try to navigate the new consumer bureau's website.
On Friday the new regulator was directing complaints regarding non-bank loans back to the Tennessee Office of the Attorney General.
"It seems there are a lot of options," Curtis-Flair said. "There's a little bit of overlap."
The New York Times contributed to this story.