A payday lending company failed to pay its bills, stalled the lobbyist it owed money to repeatedly, and ultimately stopped responding to his letters and calls entirely, according to a new federal lawsuit in Colorado that shines light on how the predatory loan industry makes use of political consultants to keep ahead of regulators.
The political consulting firm Chesapeake Enterprises sued a payday lender called Online Consumers Network (OCN) in federal court to recover $575,000 in billings that the company never paid. Chesapeake is run by a long-tenured Republican strategist named Scott Reed. Reed is more famous for his current day job as chief strategist for the U.S. Chamber of Commerce and his past work managing Bob Dole’s 1996 presidential campaign, but his sideline business at Chesapeake Enterprises involves playing off his connections and experience with GOP politics to provide intelligence, advice, and lobbying assistance to companies willing to pay his fee.
“Because of the unique nature of Reed’s knowledge, experience and expertise, Chesapeake is ideally suited to provide services to clients in the payday loan industry,” Reed’s attorneys write in the complaint against OCN. The importance of working with national Republicans to stay ahead of payday lending regulations is spelled out even more clearly in the letter establishing Chesapeake’s contract with the lenders, which is included as evidence for the suit.
“I believe Chesapeake Enterprises is uniquely positioned to assist your industry both in dealing with the Republicans in the US House and the Senate, and in offering strategic advice to you and the Members of Congress on this vital consumer lending industry,” Reed wrote in that 2012 letter to OCN president Cole Kimball. Reed had lobbied on behalf of OCN’s payday lending operations as far back as 2009, but the formal retainer agreement didn’t begin until late 2011.
OCN’s failure to pay apparently caused Reed’s firm to land in the red for the first time in his career. “I have been in this biz for 17 years and 2013 was my first loss….because of this mess,” Reed wrote in a January 2014 email attached to the lawsuit. Reed did not return multiple requests for comment. An attorney for the Kimballs “categorically denied” the allegations in an email, but declined to comment more specifically on the complaint since it is an open case.
The alleged debt-dodging behavior by the payday lenders described in the suit will resonate with anyone who has been hounded by a debt collector. There are accusations that OCN stalled repeatedly and made Chesapeake chase them down for payment: “Defendants repeatedly misrepresented to Chesapeake that their payment was forthcoming, that Chesapeake should be patient,” the complaint says, adding that the lending firm’s behavior was “designed to string Chesapeake along under the auspices that Defendants’ payments were forthcoming or imminent.”
There are bogus-sounding excuses for why OCN couldn’t settle its debt when Chesapeake asked them to pay up: “Still circling the airport,” Cole Kimball wrote in one of nine separate emails documented in the suit; in another, he asks Reed to be patient because he’s in Kiev working on “a $8 billion euro deal and it’s quite complicated to move that kind of money around the world.”
There is a moment where Reed is trying to get Kimball on the phone but the voicemail box is full. (“I am not calling to bust your balls,” Reed promises, saying the billing situation has reached “a crisis point.” “That’s weird. What number did you call?” Kimball replies.) And there is a resentful allegation that Kimball was living high on the hog even while pleading poverty to Chesapeake’s billing department: “Defendants continued to travel abroad extensively and utilize private Gulfstream jets for their domestic travel,” the complaint alleges.
The complaint also accuses the lenders — a pair of brothers named Del and Cole Kimball — of running a complex and intentional scheme to defraud Reed’s company of nearly two years’ worth of services without paying the $25,000 monthly retainer the two firms had agreed upon. Because that alleged conspiracy relied on email and other interstate telecommunications, and because it allegedly made the Kimballs a lot of money, the consulting firm is also asking Judge Kathleen Tafoya to deem the Kimballs racketeers. That would mean applying a law known as RICO, which was originally created to help prosecutors target the mafia over its various rackets such as loan sharking and illegal gambling houses. If Tafoya does find the Kimballs liable under RICO, she could award Reed’s company treble damages, turning the $575,000 debt into more than $1.7 million in settlement costs.
Chesapeake’s suit is the second news story in recent weeks to feature talk of using RICO to go after a payday lender accused of shady conduct. Just before the holidays, Bloomberg sources said that federal prosecutors are preparing a criminal case against payday lending mogul Scott Tucker that might include RICO charges. If that proves true, it will be the stiffest legal pursuit of a payday lender over alleged violations of state usury laws that are supposed to protect borrowers from exorbitant interest rates and loan terms that trap them in perpetual debt. But relatively few states maintain such protections, and both storefront payday lending and its internet-based equivalent remain common in the country’s poorest communities.
Considering that they charge over 300 percent interest on average and suck billions of dollars out of poor neighborhoods every year, the enduring popularity of payday loans may seem strange. But the communities where these lenders operate have a genuine need for short-term credit, and few or no alternative sources of quick cash in the too-frequent event that the phone bill, electric bill, and rent all come due at the wrong time. In addition to genuine demand for payday loans, there is evidence that these borrowers are generally quite savvy about the financial quicksand they’re walking into, and are knowingly choosing the least-worst option available to them in dire circumstances.
Sen. Elizabeth Warren (D-MA) has suggested empowering the Postal Service to provide basic banking services to these people at far lower cost, and the Consumer Financial Protection Bureau is working to provide unprecedented oversight of the industry to curb its worst abuses. But with high costs of living and low wages driving the working poor into the arms of predatory lenders, policymakers will have to target poverty if they wish to address the problem at its root.