What's a payday loan?
A payday loan is a short-term loan, typically a few hundred dollars, that must theoretically be repaid the next time a customer gets a paycheck. Payday lenders charge high fees, capped in Tennessee at $15 for every $100 loaned, every two weeks. Many customers "roll over" the loans, paying hundreds of dollars in fees without paying down the principal. The loans aren't secured by collateral like a house or a car, so lenders typically require direct access to a customer's bank account.
Groups such as the Center for Responsible Lending have criticized the industry -- which today is still a Wild West outpost in the world of finance -- for targeting the poorest members of society with what appears to be a good deal, but which in reality mires them in debt for years.
Lenders say they're providing a service that helps customers avoid missing a car payment and losing their ability to go to work, for example. Since banks typically don't offer smaller loans, payday lenders may be the only choice for poorer members of society. Tightening the rules on payday loans also tightens their access to much-needed credit, lenders argue.
Source: News reports
Payday lender and philanthropist Carey V. Brown's business suffered a mortal blow at the hands of financial regulators, but he has no plans to abandon his career as an entrepreneur, nor has he dropped his dream to give away millions of dollars to save souls overseas.
Though the stream of payday lending revenue that supported many of his nonprofit ventures has dried up, Brown says that won't stop him from supporting worthy causes across the globe. The Covenant Values Foundation, through which Brown has pledged to give away $1 billion, will continue making gifts -- even if it is at a reduced level.
"Obviously, the funding from the businesses is down, but giving from others is up," Brown said.
The scrappy financial virtuoso, who got his start as a buy-here, pay-here car salesman in Rossville, told the Times Free Press in a rare interview that the foundation's bills are paid and there's money in the bank, though he doesn't like to reveal specifics about his finances.
"My parents taught me that finances are personal," Brown wrote in an email to the Times Free Press. "I agree with them. My favorite fine food restaurant is still Subway. I have never owned a vacation home or an airplane. My only boat is a kayak."
As his businesses grew to bring in an estimated $1 million to $2 million in daily revenues, Brown avoided the public spotlight, dressed unpretentiously and didn't flaunt his wealth. He has been described by associates as a quiet leader who ran his business conglomerate for the primary purpose of generating cash to support charities.
Even as he pledged to give away $1 billion to charity, he chose to do it modestly. Brown's giving goal was never to be the biggest philanthropist in the world, but instead to use matching gifts to help organizations raise up new donors.
So far, it's worked. Of the six original matching grants, Brown said each organization has reported between 140 and 300 new givers to match his challenge.
He'll need the participation of other donors more than ever as he works to pick up the pieces of his payday conglomerate that fell apart in August amid regulatory scrutiny. His former cash cows -- MyCashNow.com, DiscountAdvances.com and PayDayMax.com -- were shut down when banks cut off access to financial networks, which had a domino effect on the businesses that supported his websites such as Area203 Digital and Cloudswell.
The space formerly occupied by Area203 -- now disbanded and its website shuttered -- has been turned over to TransCard, a growing prepaid debit card company that is now the biggest tech company in Chattanooga. Cloudswell, which handled many of the technical aspects of Brown's operations, is selling its domain name, and its skilled IT workers have taken jobs with other businesses. Even Brown's personal website is shut down.
But his business and philanthropic legacy will live on.
His theories about offshore loans and locating servers on Indian reservations to escape regulations are still used by others in the industry, even as financial regulators fight to bring lenders in line with local rules.
More than legal gimmicks and technological powers, Brown's websites succeeded because he didn't emulate the predatory tendencies of his competitors, he said. When Hurricane Katrina cut a path of destruction through the southern U.S. in 2005, for instance, Brown's call center employees hit the phones and began forgiving loans for those whose lives were affected by the storm, he said.
What happened to Brown's businesses
Brown made the controversial decision to charge interest rates and fees that were higher than what many states allowed. As an online lender who kept his companies' computer servers offshore and on Indian reservations, Brown claimed to be immune from state rules on lending. For years, he successfully battled back challenges, claiming that he needed only to heed federal, not state regulators.
In 2013, Brown met his match in a New York attorney named Ben Lawsky, the first-ever superintendent of financial services in the Empire State. Lawsky used a legal loophole to bring Brown's payday lending conglomerate to a screeching halt by giving banks an ultimatum: They could either use their powers to cut off "illegal loans" such as the ones Brown was making, or the banks themselves could be in violation of the laws of New York for abetting illegal behavior.
Banks had to choose a side. They chose Lawsky. By cutting off Brown's businesses from the banking network, the regulator effectively starved Brown and other "illegal" payday lenders of cash by eliminating their ability to collect debts and make loans.
Source: News reports
"We always went far and above what the law requires in treating our customers as we would want to be treated," Brown said. "In fact, that was part of our secret recipe. While most of our former competitors were treating their customers like dirt, we were the nice people trying to collect."
In a way, he sees his legacy as one of bringing human kindness to a business that often finds its customers at a crossroads of misery and financial hardship.
"Now that we are no longer lenders, I hope other lenders will learn to treat their customers better," Brown said. "We forgave many loans, but it was the right thing to do."
Brown also left a mark on the world of giving.
As a man who values his privacy, he, in turn, offers anonymity to potential donors at the Covenant Values Foundation, allowing them to make directed gifts while avoiding the limelight.
He also doesn't take a salary for his work at the foundation. The austere approach shows potential donors that he prioritizes causes, not cocktail parties.
"We do not even charge a lunch at Subway," he said.
His philanthropic roots run deep. Over the years, his companies have offered technology services and other help to Precept Ministries, the Dawson McAllister Foundation, Tennessee Temple and even Focus on the Family. Before his businesses were shut down, Brown said he had used millions of dollars in payday profits to support more than 10,000 orphans, founded 31,608 churches and brought 447,667 new believers to Christianity.
Those numbers should continue to increase, in spite of his recent losses.
Even without his lending businesses, cars still dot parking lots at some of Brown's buildings. Some of his companies, such as ACH Federal, successfully cultivated customers outside of the payday lending industry. The nonprofit ventures he supported, some of which branched out into for-profit enterprises, also continue to operate.
The more than 400 layoffs stemming from out-of-state regulators' actions have been "extremely painful," Brown said, but he's not done with the world of payday lending just yet. He may be locked out of the banking system that allows online payday lending to work, but he can't be locked out of the Internet, and still has access to a handful of very popular domain names.
Those domain names were of special interest to competitors like CastlePayday.com or ACE Cash Express, which can use the sites to drive traffic their way. Brown made a deal with those and other companies, which allowed customers who hit his defunct websites to select their state of residence, before being redirected to a payday website run by a former competitor. In exchange, Brown receives a fee.
"Some of our former payday lending customers have asked us to help them locate a new source for loans," Brown said. "We have helped these former customers in some states."
He sold debts owed by payday loan customers to collection agencies like Silver River Management, which sought to collect via Western Union transfers. This went on for months, although more recent reports say that all accounts have been closed.
"Our call center is still operating to answer customer questions as we wind down operations for MyCashNow, PayDayMax, and DiscountAdvances," a representative from Silver River Management told the Times Free Press.
Despite his interlinked network of business entities, nonprofit organizations and websites, Brown generally prefers not to talk about his own accomplishments. He also doesn't like others to talk about them. He sued former employees who revealed the scope of his business empire to the public in 2011, and former workers spoke of extensive nondisclosure agreements, even for those in non-sensitive marketing positions.
But Brown just likes to keep the focus on helping others, he said.
"I have never tried to build a personal empire and have always tried to show in words, deeds and actions that my passion is helping others," he said.
Contact staff writer Ellis Smith at esmith@timesfree press.com or 423-757-6315