Online payday lenders who were routinely accused of illegal and predatory practices operated with impunity from an Española storefront for years.
That storefront is now shuttered, but the story of Ambassador Financial Services and ZipCash is a familiar one of lax regulation and big-money politics. Although Ambassador kept a low public profile in Española, it had friends in high places in state government and allegedly pulled on strings reaching as high up as Lt. Governor Diane Denish.
The company also contributed significant amounts to the campaign coffers of key state legislators, including House Speaker Ben Lujan (D-Nambé) and Sen. Richard Martinez (D-Española), and it has been part of a massive industry effort to gut proposed regulations.
The Business
Until 2008, Ambassador and ZipCash shared an office at 314-B Riverside Drive, in Española. According to a former ZipCash employee, a third payday lender — Cash Supply — also occupied the space but left in mid-2007.
Between 2006 and 2008, the New Mexico attorney general’s office received 16 complaints from across the country for the Española-based online lenders. Although the companies’ interest rates and fees tended to be quite steep, that’s not what got the customers really outraged. Rather, it’s a provision of the loan contract, which some customers claim was sent to them only after they complained. That provision authorizes the loan company, upon default of a payment, to take one or more debit withdrawals directly from the person’s checking account.
Often these withdrawals resulted in a negative account balance, which triggered overdraft fees. One complainant racked up $900 in bank service charges during a single month, thanks to multiple withdrawals from the loan company, state documents state.
Several customers complained of continued harassment from the lenders, even after they had paid back more than twice the original loan amount, according to documents. Those payments were going to interest and fees instead of the principal, the company would respond. Loan documents disclose annual interest rates as high as 1,500 percent.
“Ambassador Financial Services hunted me down like a dog as I did not give them my new routing and checking account number,” one customer from New York wrote. “I want something done regarding them dipping their grubby hands into my checking account WITHOUT AUTHORIZATION!!!”
In one letter to a delinquent customer, an Ambassador/Nationwide Cash collections manager states that borrowing money with no intent to repay constitutes fraud. Because the loan was obtained over the Internet, it would be federal wire fraud, the letter states. The letter quotes a federal statute stating that such fraud can result in up to 30 years in prison, $1 million in fines, or both.
Consumer Federation of America Financial Services Director Jean Ann Fox said deceptive practices are typical of online lenders, who prey on people desperately in need of cash.
Short-term loans, usually consisting of just a few hundred dollars, can be a last-resort financial savior for low-income borrowers. The target audience is people who are unable to access the kind of revolving credit, such as bank loans or credit cards, routinely available to the middle class.
Low-income borrowers tend to live paycheck to paycheck, and most of them seek payday loans for unexpected crises like funerals or car trouble, said Angelica Anaya Allen, director of the Senior Citizens’ Law Center.
“It’s a product that’s been created for a niche market of poor people who have very, very few options when they have a financial crisis,” Allen said. “If your car breaks down, you can’t wait two weeks for your paycheck. How are you going to get to work in the intervening week and a half? People just don’t have that kind of financial flexibility, if they’re at that end of the market, to be able to absorb those kinds of costs.”
The loans can seem affordable because of the small amount being financed — for example, it might cost $90 to borrow $300. But the loan has to be repaid in its entirety, plus fees and interest, within two weeks — hence the name “payday loan.” When customers can’t pay, their default triggers an escalating series of finance charges, which can end up being equal to and sometimes double or triple the amount originally borrowed.
The outcome of the consumer complaints followed a predictable pattern. First, customers complained to the attorney general or other consumer-complaint agency in their home states. Those agencies would research the company, find that it was licensed in New Mexico, and forward the complaint to the New Mexico attorney general.
New Mexico attorney general staff presented themselves as third-party mediators, recommending resolutions based on the Unfair Practices Act, according to a 2007 letter. In nearly every instance, the lender would state that it had broken no laws and agree to waive the outstanding balance. The complaints were considered resolved, and Ambassador and ZipCash had active small-loan licenses until they left the state earlier this year.
Allen, who worked for the Attorney General’s office until 2006, said she remembers Española as “notorious” for online payday lending. But state law applies exclusively for borrowers in New Mexico, so there wasn’t much to be done for out-of-state complainants, she said.
“Internet lenders that are based in New Mexico are not subject to the provisions of the New Mexico small loan act,” Allen said. “It tends to be a pretty unregulated area.”
At least one attorney general’s office, in West Virginia, did intervene. Payday loans are illegal in West Virginia, and the state sued Ambassador and Cash Supply for making such loans to its residents. The companies either settled or were ordered to no longer make loans to West Virginia borrowers.
Why Española?
Attorney Dennis Williams, of Langhorne, Pa., represented Ambassador until mid-2006. He said the company set up shop in New Mexico in 2004.
“At the time, a lot of lenders were operating what’s known as the single-state model,” Williams said. “Kind of like banks will all end up in South Dakota or Nevada — some states had laws that were more favorable to certain financial-service businesses than others. At the time, a number (of lenders) did gravitate to New Mexico.”
New Mexico’s lending law imposed one restriction — it wasn’t enough for out-of-state companies to simply set up a local mail-forwarding address.
“You had to actually have a place where people could go if they had questions or concerns or anything to do with a loan that a New Mexico company made — so that’s what they did,” Williams said. “They actually went to Española, they leased some space, they filled it with employees and actually did operate from there.”
Roberta Brown, of Española, said she was employed by ZipCash for over a year. Brown said she worked in collections and was one of only two ZipCash employees on-site.
Despite the company’s assertions otherwise, their major players remained outside the state. For instance, Ambassador’s Española business licence lists an agent with out-of-state contact information; ZipCash’s license carries its toll-free service line.
Likewise, Ambassador’s lease carries the name of John DeAngelo, who is based in Pennsylvania, with the Pennsylvania address of Williams’ law firm.
But why Española? Williams said the company was working with an Albuquerque-based attorney, whose name he couldn’t remember, and that attorney had contacts in Española.
“Frankly, it could have been anywhere,” Williams said. “Being from outside the area and relying on people that we had identified locally to help us get set up, they recommended we move in that direction and we certainly had no quote-unquote ‘dog in the fight’ to go elsewhere.”
Valley National Bank President C.L. Hunter, who owns the space at 314 Riverside, initially directed questions about the tenants to Denish. She was the one who helped bring the companies to Española, Hunter said.
“She called and wanted to know if they could rent that building,” Hunter said.
Denish spokeswoman Danielle Montoya said Denish has never heard of the companies or their owners and has no connection to them.
When reached for clarification, Hunter said Denish was just helping him fill an empty retail space.
“She just did us a favor,” Hunter said. “We had an empty building. She had nothing to do with it beyond that.”
Williams said the Española site had other attractions. For one, Ambassador was an Internet-based lender that never intended to make a large volume of loans within New Mexico. Therefore, it didn’t need an office in a major urban center, Williams said. A great space was available, the rent was cheap, and Española’s high unemployment rate helped the company in its license application, Williams said.
“In order to qualify for a New Mexico license at that time, you did have to show — what was the advantage to the state of New Mexico?,” Williams said. “So this was the advantage — hey, we’re bringing jobs to an area where jobs were needed.”
The building has been vacant for the last few months. Why did the companies leave? Part of the reason could be the 2007 state regulations, which put a cap on total borrowing per customer, required businesses to verify income and required payment plans to be made available.
“With the law changes, I’m assuming that it just no longer fit their business model,” Williams said. “I know that a number of other lenders have also left New Mexico for that reason.”
The lenders who shuttered their Española offices have either regrouped under different entities or changed locales. The web sites for ZipCash/NetCashUSA state that they are no longer making loans, and they redirect visitors to iAdvance, a Delaware-based online lender with the same parent company as ZipCash/NetCashUSA.
Ambassador’s Nationwide Cash web site is still operational, but it now states that the company is licensed in Delaware and is subject to Delaware law. The phone number has not changed.
Larry Frascella, who is listed on Ambassador documents as the company president, filed for bankruptcy for a separate venture that he co-owns with his brother David Frascella, court documents state. That company makes payday loans under the name CashToday.
Messages left for Frascella and other representatives of Ambassador/Nationwide and ZipCash were not returned. Agents who answered Nationwide’s phones greet callers with “Hello, may I have your Social (Security number)?”
Big-Money Politics
The industry lobbied to remove tough restrictions, such as an interest-rate cap, from a proposed 2007 bill, and consumer advocates say state laws need to be tougher to protect the public. State senator Bernadette Sanchez (D-Albuquerque) said she plans to reintroduce an interest-rate cap, and Denish has identified loan reform as one of her major initiatives for 2009.
Sanchez admitted it could be an uphill battle.
“The industry puts a tremendous amount of money into this,” Sanchez said. “By the time we finished that bill that session, I would say there were probably about 20 or more lobbyists. And that’s just people they pay in-state — there’s lobbyists that come from out of state. So yeah, they have a real powerful force and they put a lot of money into this. Which tells you that they’re making a lot of money.”
Lobbyists mean connections, too — Ambassador Financial has Dick Minzner. Minzner is the widower state Supreme Court Justice Pam Minzner and a former Democratic (CHECK) state representative and Taxation and Revenue secretary. He was registered as Ambassador’s lobbyist during the 2007 legislative session and through the end of December. He did not return a call for comment.
Allen, who tracked the bill for her work under a consumer-protection grant program, said she’s heard varying figures for how much money was spent in 2007 by the payday loan industry.
“I know in prior years that a quarter of a million dollars was spent on lobbying efforts by the industry,” Allen said.
It didn’t end there. Between the bill’s passage and the company’s departure from New Mexico, Ambassador donated a total of $8,500 to state legislators and political-action committees. Those donations included $2,300 to House Speaker Ben Lujan and $600 to Sen. Richard Martinez.
Martinez said he doesn’t know a lot about Ambassador’s business other than what he’s heard during presentations before the Indian Affairs Committee, of which he is a member. Martinez said the company never lobbied him directly, and he didn’t solicit their donation.
“I don’t have a relationship with them other than the fact that they sent me a check,” Martinez said.
Martinez said he isn’t opposed to the payday loan industry itself. He said he knows people who turn to payday loans because they have no other credit available to them. The industry probably needs to be regulated at some point, but a 36 percent cap on interest rates is too low, he said.
“I think it will kill the industry, and my intentions are not to kill the industry,” Martinez said. “We need to take care of our constituents, but by the same token I think that by killing the industry we’re not taking care of our constituents, because a lot of my constituents depend on these lending institutions.”
Allen said that’s common. In addition to lobbyists, the lenders would also bring customers to testify before legislative committees, she said. She said customers came partly because they were often compensated for their time — perhaps by a simple offer of a free dinner — but also because walk-in loan companies generate a lot of loyalty by focusing on customer service.
“Many of the payday loan customers that I spoke with talked about how positively they would feel when they went to a payday loan company, because they got what they needed, which is immediate cash,” Allen said. “Whereas at a bank, they knew that they would be treated in a way that would make them feel bad.”