How KC’s wealthiest enclaves became a shadowy nexus of predatory lending
The new money started announcing itself at St. Ann sometime around 2008.
“It was most obvious at the school auctions,” says one member of the Prairie Village Catholic church. (Like many people interviewed for this story, this source did not want to be identified by name.) “You’d see these cliques of people pulling up in limos, acting wild, dropping a lot of money on exotic two-week vacations and the other lavish items up for bidding. Or all of a sudden so-and-so has a brand-new Range Rover. Or so-and-so family is moving into some giant Mission Hills mansion. And you see it enough times and you start to go, ‘Where is this money coming from?’
“And on one hand, it’s St. Ann — this is a school and a church that serves Mission Hills and Prairie Village,” the member continues. “You expect to see nice cars in the parking lot. But there was something so sudden and loud about this. It was this bizarre explosion of really extreme wealth.”
Word trickled out: Some members of the church had become mixed up in the online payday-loan industry.
Payday lenders advertise their loans as short-term, emergency solutions. But every credible study of the industry has found that the high interest rates and fees these outfits charge are designed to turn the loans into long-term debt burdens on the borrowers. These parishioners were involved in various business interests that enjoy astronomical profits by lending to borrowers at interest rates that commonly reach unholy heights of 700 percent.
St. Ann’s pastor, the Rev. Keith Lunsford, joined the parish in 2009, after replacing Monsignor Vincent Krische, who retired. “I don’t have any firsthand knowledge of anybody at St. Ann involved in the payday-loan industry,” Lunsford tells The Pitch.
But according to a number of people The Pitch contacted for this story, the presence of families who have amassed tremendous wealth through their involvement in online payday lending was, and continues to be, a taboo topic and a source of tension in the parish.
“It presented a moral conundrum for St. Ann,” says a different parishioner. “Because there was all this money coming into the church through donations and through the auctions and, I mean, it was huge money. And gradually everybody realized that it was money that, if you trace it back to its root, came from poor people who were being taken advantage of, who were being charged crazy interest rates. So there were a lot of behind-closed-doors, hushed-tones conversations happening about it. People on the finance committee and the school board were talking about the morality of taking that money. But in the end, I think they just looked the other way.” (Last year, the church reached an $8 million capital campaign goal to fund extensive renovations. It does not disclose specific donations.)
St. Ann is not the only Catholic church in the Kansas City area whose members are whispering about usury. Go to Sunday Mass at Visitation Parish, just south of the Plaza, and you’re likely to see a few individuals who bought their Ward Parkway mansions with money earned through charging the welfare class massive interest rates on short-term loans.
Regarding the church’s position on payday lending, the Rev. Patrick Rush, pastor at Visitation, notes the lack of specificity in the Bible as to what would constitute usury in modern times. “I think in today’s world, you would have to make the judgment of what constitutes a legitimate interest rate versus what constitutes an exorbitant interest rate,” he says.
Where does 700 percent fall in that judgment?
“I would say that’s an exorbitant interest rate,” Rush says.
Rush acknowledges knowing of at least one member of Visitation engaged in the online payday-lending business. But he says his role as pastor is not to pry into his congregants’ business ventures.
“What I do is put out the religious principles of our Catholic community,” he says. “I preach justice; and in justice, I preach business ethics; and in business ethics, I preach not victimizing people. Our members live their own lives and can make their own decisions and compromises about that.”
Over on the East Side of town, at St. Therese Little Flower, the Rev. Ernie Davis has less reason to be diplomatic.
“We’ve seen members of our parish who lost their homes through the snowball effect of payday lending,” Davis says. “It has absolutely ravaged the lives of people in our parish.
“There’s no justification for it [payday lending] in the faith we share,” Davis continues. “Anything that oppresses the poor is condemned in both Jewish and Christian Scriptures. People have a sense of what is right and fair, whether it’s through Scripture or through their hearts. And charging especially poor people hundreds of percent in interest is oppressive.”
Payday money has also migrated into local law firms and investment firms seeking the legal fees and hefty dividends that the industry generates. That many of the area’s millionaires are profiting from payday lending — either directly (through operating lending businesses or lead-generating businesses) or indirectly (through investing in funds that finance those businesses) — is an uncomfortable open secret among Kansas City’s financial elite.
The industry has its defenders, who will tell you that payday loans provide a service that banks do not. They will tell you that, for people who need cash in a hurry, a payday loan is the best option. They will point out that such loans offer desperate borrowers something better than bank overdraft fees.
What they don’t defend — what they cannot defend — are payday loans’ interest rates. At a time when states are capping lending rates at highs of about 36 percent, payday lenders often assess 20 times that much against vulnerable consumers. It’s easy for them to do, in part because they never see the borrowers. Their extortion starts behind Indian tribes and layers of generically named shell companies, and it thrives in the murky abyss of the Internet.
This is an industry that has enriched itself by preying on the least fortunate members of society. And Kansas City is, in many ways, its home base.
The Online Lenders Alliance is a Washington, D.C., lobbying group for the payday-loan industry online. It was founded by a Kansas City native — Mark Curry, who has been involved with multiple payday-loan-related businesses registered in Kansas, Missouri, Nevada and other states — and its list of donors for the year 2013 includes a high number of people with Kansas City–area addresses.
You will not find the name Scott Tucker on that list. But the story of how predatory online lending exploded in Kansas City begins with Tucker.
Because he was the subject of a piercing 2011 investigative report by CBS and iWatch News, Tucker is one of the few known quantities in the world of online lending. Today, Tucker, 51, is a race-car driver. He has competed in the American Le Mans Series with the team he owns, Level 5 Motorsports. But his racing hobby is bankrolled by the money he has made through his payday-loan businesses.
Tucker grew up in Kansas City and attended Rockhurst High School, graduating in 1980. (He donated between $15,000 and $49,999 to the Jesuit school in 2011, according to the 2012 President’s Report.) He later attended Kansas State University. When he was 26, Tucker was popped on charges of mail fraud relating to a loan scheme he and a friend cooked up. Tucker presented himself as an executive of a fake investment firm called Chase, Morgan, Stearns and Lloyd, and duped at least 15 investors to the tune of $100,000. Tucker was sentenced to a year in Leavenworth. He was released in 1992. Shortly thereafter, he began operating a brick-and-mortar payday-lending location.
In 1997, Tucker hooked up with a Philadelphia businessman named Charles Hallinan, who was also involved in some payday-loan businesses. Together, they founded a payday-lending company called National Money Service, with Hallinan providing NMS’s initial $500,000 line of credit. Tucker was president; Tucker’s brother Blaine Tucker was vice president.
Despite the fact that a condition of the agreement with Hallinan was that the Tuckers could not start any businesses that would compete with NMS or Hallinan’s entities, Tucker started CLK Management in 2001.
Over the next five years, Tucker, through CLK, is believed to have pioneered many of the shadowy hallmarks that now define the online payday-loan industry, such as constructing byzantine trails of front companies and merging with Indian tribes to provide his businesses with regulatory immunity. (Only the federal government can sue businesses on tribal lands. That makes it difficult for states to prosecute Tucker when his companies lend at interest rates surpassing the caps they have in place.)
William James, a former collection agent employed by CLK, gave an affidavit in 2008 stating that despite CLK’s “official” tribal address, he went to work every day at an office in Overland Park that served as the company’s actual headquarters. There was nothing to suggest that CLK was owned by an Indian tribe, he said. He also told lawyers about the bottomless complexity of CLK’s corporate structure.
“In addition to owning One Click Cash, CLK also owned or was affiliated with … Ameriloan, US Fast Cash, United Cash Loans, Preferred Cash Loans, and Internet Cash Advance Marketing,” James stated. “I understand that there are at least 500 Internet-based payday-lending companies that are currently affiliated with one of the five companies mentioned above owned by CLK.”
The affidavit sheds light on the company’s lending practices as well.
“I often saw a customer loan of $300 turn into a $900 debt in a very short period of time, due to interest, rollover and late fees,” James said. One month, James stated, he brought in $52,000 in collections. He estimated that 60 percent of that figure came from the principal of the borrowers’ loans, and that the rest came from interest, rollover and late fees.
So hidden and shielded was Tucker that it was not until 2005 that any state authorities even learned his name. Tucker had gone so far as to hire someone to pose as the CEO of his business interests and register his shell companies. (This practice is, rather remarkably, legal in the state of Nevada.) Tucker’s identity came to light only after the impostor was subpoenaed by the Colorado attorney general.
In 2009, Hallinan filed a lawsuit against Tucker after discovering that Tucker had not only started dozens of payday-loan businesses on the side but also transferred assets out of NMS and into Tucker’s new businesses. (It was settled out of court.) Among other things, it revealed the nature of the relationships between Tucker’s businesses and the Indian tribes — namely, that he was paying the Modoc Tribe of Oklahoma between just 1 and 2 percent of the revenues of his companies in exchange for renting their name and land for regulatory purposes.
“It’s the worst deal Native Americans have made since they sold the island of Manhattan for a bag of beads,” says Jeffrey Wilens, a California lawyer who has brought a class-action suit against a group of payday-loan companies, including the Tucker-affiliated AMG Services. “Tucker is taking advantage of these tribes and skimming all the profits for himself to support his racing career and his lavish lifestyle.” (In addition to his Leawood residence, Tucker owns an $8 million vacation home in Aspen and a private jet.)
In 2012, the Federal Trade Commission filed suit against Tucker and AMG Services, alleging that the company threatened consumers over the phone while trying to collect debts. The two parties reached a partial settlement this past July.
“The agreement bars the settling defendants from using threats of arrest and lawsuits as a tactic for collecting debts, and from requiring all borrowers to agree in advance to electronic withdrawals from their bank accounts as a condition of obtaining credit,” according to an FTC release. “The FTC continues to litigate other charges against the AMG defendants, including allegations that they deceived consumers about the cost of their loans by charging undisclosed charges and inflated fees.”
Meanwhile, Tucker continues to fly around the world racing cars, enjoying low-level fame competing in a sport he bought himself into. A spread in KC magazine last year featured two photos of Tucker, one of him in full gear behind the wheel of a race car, and another of him modeling a stylish cocktail-hour outfit. “Scott Tucker — Kansas City Celebrity and Auto Racing Genius,” the headline reads.
Scott is not the only Tucker to get the rich-person treatment by KC magazine. HomeDesign, a specialty imprint of KC, featured an interior-design spread of the mansion of his younger brother, Joel, in its September 2009 issue. At the time, Joel and his wife, Stacy, lived in Mission Hills and were St. Ann members. (They divorced in 2010.) Joel Tucker has since moved to Boulder, Colorado, according to the address listed on his 2012 political contributions. Last year, at an auction benefiting the Boys & Girls Clubs of Metro Denver, Joel Tucker went home with the highest-selling item: a weekend getaway featuring a private jet to a pied-à-terre in Manhattan’s Art District, for $35,000.
Joel Tucker’s money comes from a payday-related company he started in 2002 that at the time was called Bahamas Marketing Group. In January 2008, he changed the name to BMG Solutions. Then he changed it again in September 2008, to eData Solutions. Presumably, these tweaks were precipitated by Bahamas and BMG acquiring a reputation, on message boards and online forums, for harassing borrowers. This post, from a debt-consolidation forum in 2009, is consistent with other cries for help that you can find by simply searching “Bahamas Marketing” online:
“These people are contacting me about a payment I have already made back in 2007, they are threatening to have me arrested and have an investigator sent to my place of work. Now they are asking me for a new payment of $710.00 for withdrawing this action. Should I pay? What should I do? I have proof of this payment… I’m scared… PLEASE HELP!”
In an executive summary from early 2011 obtained by The Pitch, eData Solutions calls itself a “technology-based market facilitator for online consumer finance.” The document reveals that eData Solutions does just about everything related to online lending except actually lending money.
Say you need a quick loan. You type “fast loan online kansas city” into Google and click on one of the sites that pops up. There’s a good chance that the site is not an actual lender but instead is a middleman of sorts that processes your information, evaluates your credit in a matter of seconds, and creates a profile for you. This software — eData Solutions’ version is called iLead — then auctions off your profile to companies that do the lending.
The executive summary also notes that 85 percent of loans processed by eData Solutions are generated through internal leads. Critics of the online-lending industry view lead generators as problematic because they stifle accountability by creating an extra layer between borrower and lender. There also are reports of lead generators reselling borrowers’ information multiple times. That’s why you sometimes hear about people taking out loans online and then being barraged by calls from offshore data centers.
“These websites mask the true identity of the lender so it is harder to track down and prosecute deceptive lenders,” U.S. Sen. Jeff Merkley (D-Oregon) said of lead generators in 2012.
In addition to processing leads, eData Solutions has made money through other Web products on its electronic platform: iACH, which processes transactions between consumers’ bank accounts and lenders, and iCollect, which purchases defaulted loans from eData’s customers for third-party resale to debt-collection agencies (for a fraction of the loan balance).
“What happened in California in 1849?” says Pete Smith, a McDowell Rice Smith & Buchanan attorney representing eData Solutions. “There was a gold rush. That’s what happened some years back with the payday industry. Everybody wanted in on the money. But eData isn’t one of the companies doing the digging. It’s more like selling picks and shovels to the people digging.”
Offering such mining accessories can be quite lucrative in the era of Web-based microloans. According to documents obtained by The Pitch, eData Solutions grossed $30 million in 2007, $37 million in 2008, $38 million in 2009, and $54 million in 2010. The company reported a net income of $26 million in 2010. That’s after it paid salaries and benefits totaling $3 million to a measly 16 employees.
At the time, Joel Tucker owned 70 percent of eData Solutions. That means he cleared roughly $18 million in 2010 — more than the individual incomes of the CEOs of Halliburton, Yahoo and Lockheed Martin that year.
Joel Tucker borrowed a page from his brother’s book and sold eData Solutions to the Wyandotte Nation tribe in Oklahoma in 2012. Its new president, Doug Spangler, says Joel Tucker no longer has a management role at the company.
“We’re not in the payday-lending industry,” says Spangler, who previously served eight years in the Kansas House. “We’re a computer software company. We provide services to people in the financial-services business.”
But Spangler also speaks the language of online lending rather fluently, demonstrating awareness of trends in the industry and familiarity with its major players.
“The biggest payday operators in the country are in Kansas City,” Spangler says. “It’s a mecca for the industry.”
The ownership structure of eData Solutions that was in place in 2011 indicates that 17 percent of the company belonged to Spectrum Business Ventures, a private investment firm headquartered on the Country Club Plaza. (Spectrum Business Ventures also owned 100 percent of eDat Holdopp, a Missouri limited liability corporation used in eData Solutions’ puzzlingly complex business structure.)
Amit Raizada is listed as president and secretary of Spectrum Business Ventures on all the company’s filings since 2005. Raizada also signs as both manager of eData Solutions and president of Spectrum Business Ventures in a joint lawsuit filed by the two entities in 2011.
Raizada formed Spectrum Business Ventures in 2002 after “developing wireless retail stores for AT&T and T-Mobile,” according to a 2010 Kansas City Business Journal article. Like a lot of private investment firms, Spectrum Business Ventures doesn’t disclose much about its practices. The Business Journal report noted that the company bought a distressed ethanol plant in Nebraska in December 2010. According to its website, Spectrum Business Ventures has lately been acquiring apartment buildings in the Carolinas. And Raizada apparently shares Scott Tucker’s enthusiasm for race cars: In 2012, he bought a McLaren sports car for $269,255 in cash from a dealer in Beverly Hills. He later sued the dealer for misrepresenting various attributes and accessories of the vehicle.
In 2011, eData Solutions and Spectrum Business Ventures filed suit against a Scarsdale, New York, finance company called New World Merchant Partners. The entities had previously entered into an agreement whereby NWMP would “act as a non-exclusive financial and strategic advisor to eData in connection with assisting eData in the research of, and the identification and selection of, one or more sources of capital.” The suit alleges that NWMP later violated nondisclosure and confidentiality agreements that had the effect of harming eData’s business.
Pretty boring stuff — until you scan for the dollar signs in NWMP’s counterclaim. Among the highlights: NWMP claimed that it brokered $15.5 million in financing for eData from an unnamed company. NWMP also claimed that eData was able to obtain $60 million from an outfit called the Riverside Co. through NWMP’s contacts. Finally, NWMP alleged that eData was in the process of entering into a contract, aided by NWMP’s introduction, with Deutsche Bank “in an amount believed to be $180,000,000.00.”
One of the largest banks in the world lending $180 million to a virtually unknown Kansas City company? Such a deal — Smith, who also represents Spectrum Business Ventures, disputes the figure — gives a sense of the cash-drunk nature of the online lending business. So do a few other local investment offerings that The Pitch has obtained.
Ward Parkway Capital is an LLC formed in February 2012 by Kansas Citians Michael Sinatra and Jim Gamble. Sinatra is a principal at local consulting firm Chadwick Partners; he previously owned a limousine company in town and served as a VP at UMB Bank. Earlier this year, Sinatra was named one of Ingram’s magazine’s “40 under 40.” Gamble is a real-estate agent with Reece & Nichols.
In Ward Parkway Capital’s offering, it sought $5 million from investors, with a minimum buy-in of $50,000. The document promises investors a 25 percent annual return on their money.
That is a pretty rich claim. What’s the secret?
“The Company intends to use the proceeds of the sale of the Notes to fund one or more new loans to one or more Payday Lending Operators,” the offering states.
Sinatra and Gamble’s venture resembles a Prairie Village lemonade stand compared with Vianney Fund, whose offering The Pitch has acquired. Led by Vincent Hodes, Vianney in 2010 sought $20 million from investors, with a $100,000 minimum buy-in. (Hodes is a member of St. Ann. He also is listed as the owner and president of Midland Metal Manufacturing, a plumbing-supply company.)
Vianney Fund projected its annual rate of return to be between 18 percent and 35 percent. “We intend to focus the majority of the Company’s efforts and investments on funding loans to payday-lending companies in both the retail and Internet markets,” the offering states. “However, the Company may also extend credit to other Subprime Borrowers, including check-cashing, rent-to-own, subprime mortgage, and pawn shops.”
In other words, Vianney is an equal-opportunity exploiter of poor people.
The Vianney offering also notes that Hodes “has made loans totaling in excess of $15 million over the past four years to a number of Subprime Borrowers that the Company may target for loans in the future.” Hodes or his affiliates, it reads, have made loans totaling approximately $10 million to the Bahamas Marketing Group and KSQ Management.
Both of these companies are controlled by Joel Tucker. A related document obtained by The Pitch shows that Joel Tucker entered into a guaranty agreement in favor of Vianney Fund.
“What Vince Hodes does is draw up an investment fund and then take it to his rich friends at the country club and get them to drop in a hundred thousand, a couple hundred thousand apiece,” says a source familiar with the setup. “Then he hands the money over to somebody like Joel Tucker to use as capital for his payday companies. And it’s such a great return that if you have that kind of money, it’s just a very easy bet to make. Because in a year, you’ve done nothing, and now you’ve got an extra $20k or $30k. Or if you’re super-rich and you have a million sitting around, in theory you’re making $200,000 without lifting a finger.
“That’s why this payday stuff has spread around the city like it has, despite how ugly it is at its core,” this source continues. “Because it’s just another investment to a lot of these people. They’re just writing a check. They’re so far removed from where that money is actually coming from that they barely even have to think about it.”
Christopher Hodes, Vincent Hodes’ brother, is not quite so removed. From a Brookside building at 601 East 63rd Street, he presides over a variety of hard-to-pin-down companies. Based on lawsuits filed in recent years, he is likely very much immersed in the online lending industry.
In 2010, the Arkansas Attorney General sued Arrowhead Investments and Galaxy Marketing, as well as Christopher Hodes (whom it alleged to be the controller of these two companies), for lending over the Internet to Arkansans at interest rates of 782 percent. Arkansas law caps consumer lending rates at 17 percent. The companies settled and promised not to lend in the state again.
But another lawsuit from that year, brought by Axentia Solutions (a “business with expertise in sales and marketing of debit card programs,” according to the petition), reveals how difficult it can be for a state to ensure that a Christopher Hodes company is not lending at usurious rates to its citizens.
The suit names Christopher Hodes as a principal owner of a company called Star Financial and alleges that “Hodes is an individual who has a financial interest in Star, as well as other entities that engage in, fund, support, or profit from the payday-loan industry.” It then names 36 such LLCs, in addition to Arrowhead Investments and Galaxy Marketing. It notes that among Star’s financial backers are Vincent Hodes and Vianney Fund. Not a shock.
Also not shocking: It states that “because sovereign Indian tribes enjoy immunity from many state and federal regulatory regimes, Hodes had become interested in exploring the possibility of using various Indian tribes as lenders in order to circumvent the increasingly restrictive regulatory environment in which the payday-lending industry operated.” Axentia had relationships with the Ponca tribe, and in the course of Axentia and Star’s dealings, Hodes was introduced to some of the tribe’s representatives. The suit goes on to allege that Christopher Hodes went around Axentia and persuaded the Ponca Indians to sever their relationship with Axentia and enter into a nondisclosure agreement with “Star, Hodes or Hodes-related entities.”
Christopher Hodes and another brother, Billy Hodes, were primary investors in the south Plaza restaurant and bar the Beacon. It opened in 2012, and reports of unscrupulous business dealings had begun wafting from the place by the time it closed this past summer.
The Beacon served much of the community around Visitation Parish, located a couple of blocks away. Christopher and Billy Hodes are members of the parish; Christopher was on the school ministry team in 2011 and the administrative ministry team in 2012. The latter “advises the pastor and parish council in matters pertaining to the financial affairs of the parish,” according to the Visitation website.
The Hodeses bought out the Beacon’s principal partners in late 2012. When the brothers closed the place, former employees attest to being left high and dry. Carlos Williams, the former head chef at the Beacon, describes an environment in complete disarray.
“By the end, the liquor license had expired. We were on a do-not-deliver list with distributors,” he says. “And they were withholding the money that’s supposed to be sent to the courts for employees with child support. People’s checks were being garnished because the money wasn’t being sent where it was supposed to be sent.”
Williams also notes that the Beacon’s accounting was done through one of Christopher Hodes’ businesses.
Whitten Pell, who created the concept for the Beacon, has a similar take: “Myself and many of the other investors found dealing with the Hodes brothers to be extremely unpleasant.”
There are recent indications that the world of short-term online lending might soon undergo an implosion not unlike that of the Beacon. The federal government is flexing some muscle in both regulating the industry and prosecuting its especially bad apples. And some local payday outfits, once aligned, have begun to turn against one another.
Read part two of this story here.