Chattanooga area payday lender Carey V. Brown lays off workers

Chattanooga area payday lender Carey V. Brown lays off workers

August 17th, 2013 by Ellis Smith in Local Regional News

SupportSeven at 5962 Brainerd Road

Photo by Tim Barber/Times Free Press.

The PayDayMax.com is closed.

Websites shut down by New York regulator:

Major Carey V. Brown holdings

  • ACH Federal
  • Arch Advantage
  • Area203 Digital [Formerly Logic Marketing]
  • Cloudswell [formerly Terenine]
  • Credit Payment Services
  • Eclipse in Action
  • Firma8/Kingdom Site
  • LeadPile
  • Sovee
  • SupportSeven

Payday lender and philanthropist Carey V. Brown laid off most of his staff Friday, sending about 400 workers home, some with no severance.

Brown's hand was forced after a New York financial regulator convinced banks to stop transmitting what the state views as "illegal" payday lending transactions through a nationwide automated clearing house, or ACH network.

Yet even as employees began streaming out of his building carrying boxes, duffel bags, backpacks, plants and fans, most of them continued to maintain the secrecy that Brown has demanded from his workers as a condition of employment.

One woman, who had just packed up her car with a bag full of personal items, claimed she was "going to lunch," but did not appear to return for an afternoon shift as the parking lot of Cloudswell at 1516 Riverside Drive thinned out and stayed empty.

On the surface, Brown's businesses appeared to be marketing agencies, IT companies and call centers. They were festooned with an ever-changing array of names like Terenine, Cloudswell, Area203, Envision and SupportSeven, but few outsiders knew that they were all part of a conglomerate that operated the now-defunct payday websites MyCashNow.com, PayDayMax.com and DiscountAdvances.com.

The mass layoffs at Brown's group of payday companies Friday capped a tumultuous few years for the Chattanooga-based businesses, which are geographically scattered around the city.

The entrepreneur has tangled with a number of state and federal agencies across the U.S., pushed the boundaries of legal lending and pioneered innovative ways to stay out of the cross-hairs of regulators.

Brown's online payday loans often carried interest rates that exceeded the legal limits in many states, and he had been the subject of lawsuits and investigations by a number of state and federal agencies since 2011. The Times Free Press has written about a number of Brown's brushes with the law in 2011, 2012 and this year, but the entrepreneur managed to keep his businesses running until this month.

SELF-MADE MAN

The former Rossville used-car dealer preferred to present himself to the public as a philanthropist. He unveiled his Covenant Values foundation at a ceremony in downtown Chattanooga, pledging to donate $1 billion to charity. His companies made donations to food banks and a STEM school, joined the Chamber of Commerce and sent money to orphans and others in need.

A Christian at age 12, Brown grew up playing with orphans who were supported by profits from the owner of Hershey Chocolate Co. He decided then and there to do the same thing -- but with a twist. Working his way through college at Tennessee Temple University with the profits from Happy Motors, a buy here, pay here used-car company, Brown became a self-made man. The giant chicken on his auto lot's roof was a landmark for miles.

Carey V. Brown

Photo by Contributed Photo/Times Free Press.

With a degree in accounting and now a background in financing cars, Brown moved on to brick and mortar payday lending, and then took his businesses online. He eventually developed about 1,000 jobs in the U.S. and Costa Rica, according to his biography, and has supported more than 10,000 orphans, founded 31,500 churches and helped convert almost 450,000 people to Christianity.

A spokesman declined to say how many workers he still employs, or which of his operations will live on.

But Brown's public persona was often overwhelmed by the struggles of his businesses. On his personal website, he kept a running list of his legal battles and scandals, offering a brief defense against each charge. He sued a handful of former employees for discussing his business or trying to work elsewhere in the payday loan industry.

A group of shell companies was designed to make his loans appear as if they were coming from offshore businesses, rather than from Chattanooga. He attempted to further insulate himself from state regulators by locating a payday business within Indian territory, as courts have found that states have no jurisdiction there.

"It's kind of like gambling on the water," said Carla Gentry, a former employee. "It could be illegal but if you're two inches off the shore, you're OK."

Brown has rarely responded to requests from the media for comment, and did not respond to repeated requests to comment on the mass layoffs that took place Friday at his payday businesses. In a brief statement Friday wishing the displaced employees well, Brown said in the current regulatory environment, "the ongoing viability of these companies is unsustainable."

NEW YORK CHALLENGE

The layoffs were an acknowledgment that his business model -- which has always depended on the inability of states to stop him -- may not work anymore.

"The Supreme Court has long recognized that the U.S. Congress has the authority to regulate interstate commerce and that Congress' authority substantially restricts state regulation," Brown wrote on his website in the course of explaining the various cease-and-desist orders he has received from several states.

Brown, however, was not counting on Benjamin Lawsky, superintendent of financial services for the New York State Department of Financial Services, finding a loophole to the Interstate Commerce Clause.

Lawsky, in effect, told banks in early August that if Brown was making payday lending transactions through their network, and those transactions broke New York law, then the banks themselves could also be in violation of the law for facilitation the transactions. Rather than go toe-to-toe with the New York State Department of Financial Services and risk losing the ability to do business in New York, the banks appear to have caved to Lawsky's wishes.

Such a move is unprecedented, said Peter Barden, communications director for the Online Lenders Alliance.

"We find that the actions of the state of New York are really unprecedented government overreach, because they are attempting to pressure banks and payment processors into stopping transactions that were legally authorized by customers," Barden said.

Like Brown, the Online Lenders Alliance believes that interstate commerce is supposed to be regulated by federal agencies such as the Federal Trade Commission, which is what he believes the Constitution requires. No state has ever attempted to make an end run around federal law quite as blatantly as Lawsky, he said.

"You have government entities basically putting very real pressure on banks to just stop processing what are legal transactions between legal companies, and the customers who have authorized them," Barden said. "As an association, we are weighing all legal and regulatory options to fight what we believe is an unprecedented attempt at government overreach."

Though many of Brown's employees have criticized him for adopting an ends-justify-the-means approach in his pursuit of payday cash to support the less fortunate, former Brown employee Simon Vainrub jumped to his former boss' defense Friday.

"I am sad to see so many jobs destroyed and so many customers harmed just because one holier-than-thou regulator thinks people are too stupid to make their own choices," said Vainrub, who lost his job in 2011. "Without payday lending, the only option becomes the loan shark."

BRAIN DRAIN

Brown's workers come from all walks of life. Some were courted from out of state. Others came from local Chattanooga-area businesses. Some previously worked in banking. A few have no banking experience. He paid above-market rates, but turnover was high. Reviews on Glassdoor.com were not favorable.

Many workers had families. Promised a lucrative career at a young, innovative and growing business, some turned around and quit when they found out they'd be working mainly on payday loans, and not with outside clients. Others enjoyed helping the poor get access to money that a big bank would have denied them.

A few tech businesses here worry that the loss of so many developers, designers, programmers, writers, editors and digital wizards could become a huge brain drain for a city that in recent years has attempted to rebrand itself as the Gig City -- a technology driven smart town with ultra-fast broadband speeds and startup businesses under every rock.

"It feels like a middle-class Patten Towers," said Jenny Hill, a partner at Papercut Interactive, in reference to a recent public-housing disaster that saw hundreds of poor citizens left on the street after a structure fire."We've got a lot of citizens pushed out all of a sudden."

So Hill, along with a handful of other Chattanooga businesses, decided to do something to help. Next Tuesday, Hill, local social media guru Jon Moss and others will host an event to "begin the dialogue about what the folks who have been affected by these layoffs feel like would be helpful for them," she said.

"We have IT professionals, marketing professionals, customer service professionals. Those companies had a lot of good talent, but we need to keep that here in Chattanooga," she said.

J.Ed Marston, vice president of marketing and communications at the Chattanooga Area Chamber of Commerce, said there's typically a silver lining when tech businesses like Brown's companies shut down. For instance, st3, a streaming video company that occupied the building later taken over by Cloudswell, laid off 100 staffers in 2002 when it was unable to raise enough capital to build out its operations.

"I can't count the exact number, but at least 10 and probably more companies were created by people who came to Chattanooga for st3," Marston said. "Historically, we have seen some previous situations where we had a company that had a high concentration of technology or design professionals, and when those companies foundered, what happened is that many of the people liked Chattanooga so much, they either found jobs with other companies or started other entrepreneurial adventures."

Contact Ellis Smith at esmith@timesfreepress.com or 423-757-6315.