Broke USA Part 6

"I didn't drink a single beer in college," Ogbazion told me when we met in Dayton. "I was that focused."

I met Ogbazion, whom everyone calls Fez, shortly after the check cashers' convention in Las Vegas. The roster of attendees at the convention-we all received copies in our goodie bags-included a woman representing a Dayton-based company called Instant Tax Service. That sounded promising. H&R Block, Jackson Hewitt, and Liberty Tax Service were the Big Three in next-day tax refunds, a product that generates more than $1 billion in annual revenues, but I thought it might be interesting to talk with a smaller player seeking to strike it rich in this corner of the poverty economy. I wrote her a note proposing that we meet the next time I was in Dayton and she suggested I talk with Ogbazion, whom she described as the company's founder and chief executive. Their offices, she said, were downtown, at the corner of Third and Main.

That made sense. Third and Main is a major transfer point on the Dayton city bus system-an ideal locale for a business catering to the working poor. Spotting the Instant Tax Service sign, I peeked inside. It was a run-down storefront with walls pleading for a new coat of paint. Founder and CEO-the dual t.i.tles seemed a bit much. I imagined myself sitting in a banged-up folding chair while Ogbazion sat behind a battered metal desk like one you might find in a county welfare department or a homicide detectives bullpen while outside a large plate-gla.s.s window half of Dayton milled about waiting for the 41 crosstown bus.

I began to suspect I was wrong when I found a human-interest article in the Dayton Daily News Dayton Daily News about this emigre from East Africa who had founded one of the city's more successful new businesses. By the time the article appeared in 2004, Ogbazion was running more than one hundred Instant Tax Service storefronts in ten states and crowing about opening a thousand more. The woman from my initial email exchange hadn't flown to Las Vegas to learn more about the business. She was there to woo potential partners interested in opening a franchise. Their come-on seemed particularly effective: "Work just seventeen weeks a year! No prior tax experience necessary! Low start-up costs! Franchise fee deferment!" about this emigre from East Africa who had founded one of the city's more successful new businesses. By the time the article appeared in 2004, Ogbazion was running more than one hundred Instant Tax Service storefronts in ten states and crowing about opening a thousand more. The woman from my initial email exchange hadn't flown to Las Vegas to learn more about the business. She was there to woo potential partners interested in opening a franchise. Their come-on seemed particularly effective: "Work just seventeen weeks a year! No prior tax experience necessary! Low start-up costs! Franchise fee deferment!"

It wasn't until the day I was scheduled to meet with Ogbazion, though, that I looked more closely at the address. It was located across the street from the Instant Tax Service storefront I had perused a few days earlier, in one of the town's marquee buildings, a brown granite structure grandly dubbed One Dayton Centre. I took an elevator to the fourteenth floor. The waiting room was richly appointed, with blond wood paneling and handsome wingback chairs. When I was ushered in to see Ogbazion, he gave me a choice between a leather couch or the seat opposite him at the handsome wood desk where he worked.

Instant Tax Service's archetypal customer, Ogbazion said, is the a.s.sistant manager at a McDonald's earning $19,000 a year. Yet clearly business was booming. There are well-regarded law firms in town that can't afford the rents at One Dayton Centre but Ogbazion leased the entire fourteenth floor and much of the fifteenth. At thirty-five, he was running a business with 1,200 stores and kiosks scattered across thirty-nine states, ranking it just behind the Big Three in a listing of the largest tax preparation firms in the country. It was an enterprise he built using another element of the fringe economy: the subprime credit card.

In Silicon Valley, young upstarts generally innovate and the big boys play catch-up. The same can't be said of Ogbazion's business: H&R Block first started offering its customers the "refund antic.i.p.ation loan" (RAL), more commonly (and not quite accurately) known as the "instant tax refund."

A taxpayer opting for an instant tax refund is not receiving his or her refund any faster than anyone else. What they're receiving is actually a loan arranged by a tax preparer. The collateral is the refund that the IRS typically mails out in two or three weeks after an electronic return is filed. That loan generally comes at a stiff price. Unlike a payday advance, there's little risk that the IRS won't pay a tax refund. Yet, like the payday lenders, the rates vendors charge for RALs, when expressed as an annual percentage rate, are typically in the triple digits, commonly in the 100 to 200 percent range.

The roots of the refund antic.i.p.ation loan can be traced to the Nixon administration and a welfare reform measure called the earned income tax credit. The idea as conceived was a sound one. Rather than give cash payments to a mother with two children, provide her with a tax credit. It's simpler and cheaper to administer and the incentive is tied to the amount of income that a low-wage parent is able to generate. In 2009, a mother with two children receives a cash refund equal to 40 percent of the first $12,000 or so she earns each year (that figure is closer to $14,000 for a couple); the credits start declining once she starts earning more than $16,420 in a year. A home-care nurse with two kids making $15,000 a year would receive an earned income credit of more than $5,000. An LPN with those same two kids and earning $22,000 would receive a refund closer to $3,000. This provision of the tax code put an additional $43 billion in the pockets of the poor and working poor in 2008, according to federal data.

"There would be a depression in this country every year if the earned income tax credit wasn't there," Ogbazion said. "It means billions of dollars each year that goes to buy cars, to pay the landlord, to pay the Christmas bills, to buy furniture." And of course that same $42 billion has served as the honey pot allowing Ogbazion and a host of others to grow very wealthy despite the most modest clientele.

"It's a beautiful, beautiful thing that Richard Nixon gave the country," he said.

"We focused on the low-hanging fruit." That's how John Hewitt, one of the early champions of the refund antic.i.p.ation loan, explained the idea in a newspaper interview. They targeted, he said, "the less affluent people who wanted their money quick." Hewitt, who founded Jackson Hewitt and Liberty, two of the Big Three, recognized a simple truth: People who earn $15,000 or $20,000 a year live in a perpetual state of financial turmoil. They're constantly behind in their bills, put off all but the most essential of purchases, learn to do without. And then once a year they receive a check from the IRS that can be equal to several months' pay. Are they willing to pay one hundred dollars or more on top of tax preparation fees to receive the money tomorrow rather than anxiously watching the mail for two or three weeks? Financial planners might scoff but instant gratification is one of our defining national traits.

Beneficial Finance, one of the giant consumer finance companies, invented the concept of these specialized, tax-time, short-term loans but H&R Block jumped when Beneficial pitched the idea. Starting in the late 1980s, the tax giant became the first tax preparer to offer its customers a "rapid refund" arranged by Beneficial. By 1993, when Ogbazion entered the business, Bank One, based in Chicago and then the country's sixth-largest bank, was also offering these instant gratification loans. It was Bank One, in fact, that agreed to partner with a twenty-year-old soph.o.m.ore at the University of Cincinnati who wanted into the business.

The entrepreneurial bug bit when Ogbazion was around sixteen years old and working in the Procter & Gamble mailroom. His inspiration was the articles he was reading in Fortune Fortune and and Forbes Forbes profiling the young t.i.tans of technology making mountains of money at an improbably young age. He read about Michael Dell, who had started his computer company in his dorm room, and Bill Gates, who was still at Harvard when he founded Microsoft. "I became obsessed with this idea that I needed to start my business by nineteen or it'd be too late," he said. He was the president of his cla.s.s in high school and graduated as valedictorian. But unlike Dell or Gates, Ogbazion didn't have a pa.s.sion for computers or for anything really beyond a desire to become rich. "I knew I wanted to start a business," he said. "I just didn't know what kind of business." profiling the young t.i.tans of technology making mountains of money at an improbably young age. He read about Michael Dell, who had started his computer company in his dorm room, and Bill Gates, who was still at Harvard when he founded Microsoft. "I became obsessed with this idea that I needed to start my business by nineteen or it'd be too late," he said. He was the president of his cla.s.s in high school and graduated as valedictorian. But unlike Dell or Gates, Ogbazion didn't have a pa.s.sion for computers or for anything really beyond a desire to become rich. "I knew I wanted to start a business," he said. "I just didn't know what kind of business."

Ogbazion was a senior in high school when he received a letter from H&R Block inviting him to have his taxes done at no charge. He drove to an office in a strip mall near his parents' home, where he was shocked to discover he needed to wait to see a tax preparer. He was still thinking about the packed waiting area days later when a friend mentioned that he too had gone to Block, where he used a nifty new product called the rapid refund. "He tells me, 'You pay a couple of hundred bucks but you get your money in a few days,'" Ogbazion said. "That's when the lightbulb went on. I understood why H&R Block was so packed." H&R Block's offer of free tax services, he realized, was nothing but a clever marketing ploy to sell RALs to people his age. Thinking back, he realized that the woman who had prepared his taxes had tried to sell him one but Ogbazion was that rare high-schooler who actually owed money to the U.S. Treasury. That fall he would enter the freshman cla.s.s at the University of Cincinnati, living at home and commuting to school each day. He decided to also find an office in a central location large enough to house a tax preparation business.

Ogbazion still has the fax from 1992 that Bank One sent to a Mail Boxes, Etc. near his parents' home, laying out the steps he would need to take to offer customers a refund antic.i.p.ation loan underwritten by the bank. But he got cold feet that first year and almost postponed his plunge the next year as well. That's when he wrote in his diary that he was depressed. "Bill Gates and Michael Dell had started a company at nineteen and I hadn't," he explained. It never seemed to dawn on him to do any research into the pros and cons of the business, as if starting a business required nothing more than nerve. He was probably right.

Ogbazion tells the story of finding his courage, in a hushed voice, as if sharing a moment of divine fortune. "I can still picture it," he said. "I'm driving along and just happened to look to my left. I think about that sometimes. What if I hadn't happened to look to the left at that moment?" He was driving to school and he noticed a FOR RENT FOR RENT sign in the window of the very office where he had gone to have his taxes done in high school. The landlord told him H&R Block had moved to a larger office a few miles away and it would cost $3,000 to rent the office for six months. sign in the window of the very office where he had gone to have his taxes done in high school. The landlord told him H&R Block had moved to a larger office a few miles away and it would cost $3,000 to rent the office for six months.

At that point Ogbazion had saved around $10,000. He had a Sears card and a Discover card that combined carried a cash limit of $5,000. He secured another $5,000 through a low-interest student loan. He re-contacted Bank One, where somebody told him he needed to select a software maker from the vendor list the bank provided. He randomly chose a Columbia, South Carolina, company and spoke to someone there. "They tell me, 'You don't need to know anything about the tax business; the software will walk you through everything; you hook up with Bank One and, congratulations, you're in the RAL business,'" Ogbazion said. But he was also risking everything on this one idea. They offered a two-day tax preparation workshop and Ogbazion elected to pay for a trip to South Carolina.

Ogbazion gets dreamy as he describes those first few months he was in the tax refund business. He was carrying a full load at school and overseeing a staff of five or six he was paying $8 an hour apiece. He was a twenty-year-old African-American running his own business, but the only weirdness he felt was the age gap between him and his employees, one of whom was a retiree in his sixties. "The age thing was something I was much more self-conscious of than race," he said. He named his new business Instant Refund Tax Service.

Ogbazion doubts he would have survived that first year if he hadn't had the good fortune to take the place of an established giant like H&R Block. He stretched a cheap sign inside the store's plate-gla.s.s window and distributed some door hangers around the neighborhood but other than that he did nothing to advertise. "I was blessed that six hundred people came back to that spot looking for H&R Block," he said. "If I had located anywhere else I would have been out of business my first year." He was fortunate as well that the great majority of his customers also opted for a quick payout that put extra money in his pocket.

Making it through that first year seems to have emboldened Ogbazion. He knew he would have to advertise and recognized that telling people about his one store would cost nearly as much as telling people about four stores. Ogbazion didn't bother approaching any banks. He knew that he would need to find an alternative funding source.

Once again Ogbazion was fortunate. The credit card industry was also undergoing sweeping changes in the second half of the 1980s, among them the spreading popularity of the subprime credit card. There was no single creator of the subprime credit card (which could be said to have been invented the first time a bank decided to charge some of its customers 19 percent interest instead of 12 percent) but one early innovator and its most avid early champion was Andrew Kahr. An eccentric man with long, stringy hair and a generally antisocial personality, Kahr had earned his Ph.D. from the Ma.s.sachusetts Inst.i.tute of Technology when he was twenty years old and spent the next several decades striving to strike it rich. Earlier in his career he had even done some work for a.s.sociates, where he created a credit card product aimed at those with a taste for debt. This was in the late 1970s, when around half the people holding a credit card typically carried a debt. That figure was closer to 90 percent for those using Kahr's a.s.sociates card.

Most of Kahr's biggest breakthroughs, though, came once he ventured off on his own and started a company called First Deposit (later renamed Providian Financial). Making big money in the credit card business, he understood, meant attracting a customer who was at once comfortable owing a lot of money yet loath to default on that debt. Providian was the first to send out mailers with teaser rates so low that a large portion of those already deep in debt were likely to transfer that debt to them. These customers, Kahr's research showed, weren't price sensitive but instead preoccupied by the minimum payment they needed to make each month. Providian could get away with charging an APR of 23 percent rather than 18 percent because the company more than halved its minimum payment, from 5 percent of the total owed to 2 percent. Under the Providian model, the credit card was little more than a small loan device-and if Kahr's ideal targets weren't the world's safest customers, they were certainly lucrative. In time, others would follow Providian into these treacherous but financially rewarding waters, including now well-known brands such as Capital One and Advanta (bought by JPMorgan Chase in 2001). Ultimately many of the big banks would brave these same frontiers. It was no wonder. Publications such as American Banker American Banker reported that subprime credit card lenders were posting profit rates two or three times greater than those booked by more risk-averse lenders. reported that subprime credit card lenders were posting profit rates two or three times greater than those booked by more risk-averse lenders.

Inside his office, Ogbazion bent down to remove a box from one of his desk drawers. He has a round, pleasant face, thinning hair, and a small mustache. He was wearing jeans, running shoes, and a yellow fleece West Point pullover from his younger brother's alma mater. He repressed a small smile as he removed the box's top and leaned it forward. Inside he had more than one hundred now-defunct credit cards. "I look at this and I wonder what I was thinking," he said. But of course he knew exactly what he was thinking. He wanted four stores and, once he had four, he wanted eight. He would max out one card and then another but there were always more companies eager to extend him another. So he would transfer as much as he could to these new cards, thereby freeing up the old ones for further cash advances. He knew he was playing a dangerous game. "I was paying rates as high as twenty-five, twenty-six, twenty-eight percent," Ogbazion said. A store would typically break even its first year and, if it was in a good locale, start generating profits approaching 50 percent in its second. But Ogbazion was too impatient to continue opening a few at a time. So in 1998, he opened another eighteen locations. "I hit three hundred grand, four hundred grand in credit card debt several times," he confessed.

Ogbazion's company was in its sixth year in 1999 when Jackson Hewitt, the number-two player in the field, contacted Ogbazion about buying the chain. They were offering $2 million. At that point, he was twenty-five years old and operating twenty-six stores around the greater Cincinnati area, a part-time business generating $2.2 million in annual revenues. He had 150 or so tax preparers working for him, and of the 26,000 returns they had prepared that tax season, 20,000-three in every four-included a rapid refund arranged through Bank One. His business had grown bigger faster than he ever imagined and he was reluctant to sell. "It was almost like Bill Gates before Microsoft trying to imagine the computer business being as big as it would be," he said. Sure, Ogbazion was hundreds of thousands of dollars in debt, but could you imagine Bill Gates selling Microsoft only six or seven years after he started it?

In the early days, the challenge was convincing the skeptics that there was a market for a fast tax return. "People often ask why anyone would pay extra money to borrow against a refund," Jeanie Lauer, an H&R Block marketing director, conceded in a newspaper interview appearing shortly after the company started offering this novel new product. "Some people have a certain mindset in which they just want the money now and they don't care if they have to pay an additional fee." But then H&R Block faced something like the opposite problem: the intrusion of countless imitators craving the kind of profits H&R was earning from its RAL customers. None proved more aggressive or more ambitious than John Hewitt.

There's an increasing sameness to working-cla.s.s neighborhoods in America today, in no small part because of Hewitt. Just as there are commercial signifiers that indicate a person has entered a relatively affluent neighborhood-a Banana Republic, a Pottery Barn, a Barnes & n.o.ble, a Williams-Sonoma, a corner Starbucks-there is a similar geography of poverty that tells visitors they have crossed to the other side of the tracks. The region of the country or the race of a community's inhabitants do not matter so much as its economics. Whether in a rural town, an aging first-ring suburb, or the urban neighborhoods that house a city's low-wage workers, you'll find the same small coterie of big-name poverty businesses. There'll be a check-cashing outlet near a p.a.w.nshop near a Rent-A-Center or Aaron's rent-to-own. And invariably one will also find a Jackson Hewitt, the company John Hewitt founded in 1982, or a Liberty Tax Service, the chain Hewitt created after Jackson Hewitt was sold out from under him for nearly $500 million. At the start of 2009, there were 6,600 Jackson Hewitt outposts scattered in working-cla.s.s communities across the country-a number that dwarfs the combined number of the country's Gap and Banana Republic stores. Liberty Tax Service is only about half as large as Jackson Hewitt yet there are more than twice as many Liberty branches in North America as Barnes & n.o.ble, Williams-Sonoma, and Pottery Barn stores put together.

John Hewitt has always been a man in a hurry. A self-described math whiz ("I was the best I'd ever met," he told one interviewer), he dropped out of college at nineteen to take a job doing taxes at an H&R Block. Less than two years later he was promoted to a.s.sistant district manager. He had recently turned thirty and was working as an H&R regional manager when Hewitt, his father, and a small group of other investors bought a six-office company, called Mel Jackson Tax Service, based in Virginia Beach, Virginia, for him to run. His budding chain, which he bought for $375,000 and renamed Jackson Hewitt, was still a pipsqueak when Hewitt boasted about the day he would surpa.s.s his old employer, a company then more than one hundred times as big as his own. If anything, Hewitt pushed the rapid refund even more aggressively than Block. Like its rival, Jackson Hewitt partnered with Beneficial and then started pushing its product on television. You can almost see company president Esther Gulyas's head shaking in wonder over the hundreds of people who descended on Jackson Hewitt's Boston offices. "The fee for the refund antic.i.p.ation loan is high," she conceded in an interview with American Banker American Banker, "[but] customers always take that option."

Block had introduced the antic.i.p.ation loan to the tax world but Jackson Hewitt used the product to build a small empire. For Hewitt and his cohorts, the RAL wasn't just a way to boost revenues, it was also the linchpin of its growth strategy. Where the venerable Block operated offices in a mix of neighborhoods, Jackson Hewitt focused almost exclusively on less affluent areas. In 1989, the company cut a deal with Montgomery Ward to open mini-offices inside its department stores; a few years later, it signed a similar deal with Walmart. It even experimented with tax desks inside a pair of national mailbox chains. When in 1997 the company turned to Wall Street for additional capital to speed its expansion, it released a prospectus doc.u.menting the details of its operations. Four in every five Jackson Hewitt customers, the company reported, earned under $30,000 and well over half of its customers chose its "instant refund" program. Those partic.i.p.ating, the prospectus revealed, paid a $24 application fee, a $25 "doc.u.ment processing fee," a $2 electronic filing fee, plus 4 percent of the refund. Someone who wanted her $2,000 in one or two or three days rather than waiting two or three weeks would pay $131 for the privilege. When Jackson Hewitt started peddling the refund loans, the company was operating fifty offices in just three states. Five years later, John Hewitt was boasting of nine hundred offices in thirty-seven states.

Still, the refund antic.i.p.ation loan has never been Jackson Hewitt's main source of revenue. Nor has it ever been Ogbazion's. Jackson Hewitt's prospectus showed that its RALs accounted for around 30 percent of the $31 million in revenues it collected in 1997. But the RAL is also the primary reason these stores exist, if not the only reason. "Obviously that's why people come to us: because we can get them their money quickly, usually within twenty-four hours," Ogbazion said. The RAL brings people in the door but it's the $300 or so the chains typically charge a customer to prepare their taxes that account for the lion's share of revenues. Still, the fees harvested from these short-term, tax-time loans are pure profit. The good news for Instant Tax Service, Ogbazion says, is that 80 percent of the people who have their taxes done at one of his stores end up taking out a tax loan. Compet.i.tors like Jackson Hewitt and Liberty, he said, post similar numbers in the 70 to 80 percent range. "The instant refund is the key to our business model," Ogbazion said. "Just like it's been the key to the success of Jackson Hewitt and Liberty." Avoid neighborhoods with a large concentration of higher-income individuals, the company's 2008 franchise manual counsels, because those people tend either to hire professional tax preparers or use a software program to do it themselves. "We recommend that you locate your office where the household income is $30,000 or less," the manual advises.

Instant Tax was John Hewitt's kind of company and he met with Ogbazion when his young counterpart neared fifteen stores. But Hewitt would be pushed out of his eponymous company in 1996, several years before Jackson Hewitt would again approach Ogbazion. Hewitt wasn't ready to sell but his investors were and so he was pushed out. (The Cendant Corporation, a conglomerate that already owned Avis, Century 21, and several hotel chains, including Ramada and Days Inn, paid $483 million for Jackson Hewitt at the start of 1998. That translated into a return of $400,000 for every $1,000 invested, Hewitt said.) Hewitt thought about a business that specialized in cleaning carpets; he talked wistfully with a reporter about his desire to spend time feeding the hungry. But a year after leaving Jackson Hewitt, he founded Liberty, which Hewitt is always sure to describe as the "fastest growing retail tax preparation company in the industry's history."

Our goal, he told me, "is nothing short of being the biggest tax service in the universe." Hewitt's successors at Jackson Hewitt seemed no less intent on growth than he was-maybe more so given the steep price Cendant had paid. Jackson Hewitt needed to "find ways of attacking entire metropolitan areas," Keith Alessi, the company's CEO, said shortly after its sale to Cendant. In 1999, that meant knocking on the door of a twenty-five-year-old who owned more than two dozen stores in working-cla.s.s communities scattered around the great Cincinnati metro area. Ogbazion declined $2 million but couldn't resist when Jackson Hewitt upped its offer to $3 million. Saying yes meant wiping out several hundred thousand dollars in credit card debt and still walking away with nearly $2 million in the bank after taxes.

After the sale, Ogbazion applied to Harvard Business School and was surprised to be denied admission, despite his success and his grades. He hadn't applied to any other schools and, not knowing what else to do with himself, he decided to get back into the tax game. The terms of his contract prohibited him from opening new stores within ten miles of Cincinnati, so he moved to Dayton, which allowed him to avoid any legal troubles but remain close enough so that he was only an hour's drive from his family. He thought about buying a house but concluded that any money committed to a down payment was cash he wouldn't have to open stores. He opened the first Instant Tax Service office in 2001.

It was much harder this time than it had been in Cincinnati seven years earlier. All the best spots in Dayton had been taken and so Ogbazion needed to focus on the less obvious ones. He opened the downtown store but otherwise focused on white working-cla.s.s neighborhoods and the area's less prosperous suburbs. Instant Tax Service was up to seven hundred storefronts by the time of my visit but Ogbazion had opened only seven in the Dayton area. With the exception of the downtown locale, all are in white working-cla.s.s neighborhoods; several are located fifteen or more miles from downtown. "I moved to where opportunities were still available," Ogbazion said with a shrug. He owned some stores himself, and he co-owned stores with friends and relatives he set up in the business (a cousin in D.C., a buddy who moved to Chicago, a friend living in Indianapolis eager to get in on the business), but mainly he has grown through franchise agreements.

"These are people who have less than $50,000 in the bank and they want to get into business," Ogbazion says of his franchisees. "They know a Subway franchise costs a quarter of a million dollars. They know a McDonald's costs $1 million." He requires a $14,000 down payment on the $34,000 he charges as a franchise fee; leasing and outfitting an office and hiring a part-time staff requires roughly another $10,000. All told, he has sold Instant Tax Service franchises to three hundred people. The average age of a new franchisee is thirty-six and more than a quarter are from Ethiopia or Eritrea. "What would you do with a nine-month vacation?" the company asks in an ad campaign it ran in Franchise Times, Franchise Times, among other publications. In theory his is a business where you work your tail off for three or four months and then have most of the rest of the year off. But Ogbazion admits that plenty of people within his franchise family still work second jobs to make ends meet. "The money isn't as great as sometimes our critics make out," he says. Unless, of course, you're collecting a 20 percent share of the gross revenues every year from hundreds of Instant Tax stores around the country. among other publications. In theory his is a business where you work your tail off for three or four months and then have most of the rest of the year off. But Ogbazion admits that plenty of people within his franchise family still work second jobs to make ends meet. "The money isn't as great as sometimes our critics make out," he says. Unless, of course, you're collecting a 20 percent share of the gross revenues every year from hundreds of Instant Tax stores around the country.

Tax preparers who cater to the professional cla.s.ses typically don't start feeling around-the-clock stressed-out until late February or March. In Ogbazion's world, the tax season starts in mid-January. By mid-February, when many in the middle and upper cla.s.ses are only starting to think about their taxes, Ogbazion has filled out more than 80 percent of his client's tax returns. "People basically start bombarding us with calls at the end of December," Ogbazion said. "Can I do my taxes with my pay stubs? Do I have to wait for the W-2? It's nuts. Basically come the first of the year, people want their money."

Or sooner. In 2006, Jackson Hewitt started offering something it called the pay-stub loan. These are loans made in December based on the promise of next year's refunds after an examination of a person's pay stubs. "It was a bad idea," John Hewitt said, but the paystub loans were proving popular with Jackson Hewitt's customers and he felt he has no choice but to follow suit. "Jackson Hewitt had a one-year monopoly on paystub loans but the next year the banks let us and Block and the mom and pops do it." The consumer advocates were apoplectic about this new product costing the working poor even more money, but it was a moot point. "The banks lost tens of millions of dollars doing these things," Hewitt said. "They all basically said, 'Never again.'"

There have been other controversies. Mainly the authorities have been concerned with nomenclature rather than the nature of these loans. Over the years the attorneys general in several states, including California and New York, have rebuked the tax preparers over the language they use to advertise the service. "You can't say you'll get your refund back in a day or two," Ogbazion said. "They're very big on that: 'It's not a refund; it's a loan.'" These cases have cost the Big Three millions in fines as they've stretched the boundaries of what's permissible but Ogbazion finds the whole thing ridiculous. "Our customers know exactly what's going on," he said. "They know it's a loan." To him the authorities fine them over wording because they can't do anything about what really troubles them, which is that his customers choose to use his product. Over the years, Ogbazion watches H&R Block and learns from them. "We basically follow their lead," he says.

Ogbazion also has little use for critics of the refund antic.i.p.ation loan. In their study of the 2006 tax season, the product's two most prominent critics, Chi Chi Wu at the National Consumer Law Center and Jean Ann Fox at the Consumer Federation of America, found that more than 12 million Americans spent a collective $1.24 billion in interest and fees because they were either too desperate or too impatient to wait a few weeks for their refunds. The study went on to advocate a "RAL Reform Agenda" that called for greater regulation of commercial tax preparers, better funding for free tax preparation programs-and a ban on tax loans made against the earned income tax credit.

Ogbazion didn't know the names of either woman but he thinks he knows the type. "They look at our customers and say, 'Why don't they just borrow the money from an uncle?' 'Why don't they just wait two or three weeks?'" he said. "But they don't get it. These are people who can't wait. Gas and electric is off at home. They're facing an eviction notice. They've been putting off all these bills."

Another thing they don't appreciate, Ogbazion said: He's more than just an emergency banker to the working poor. As he views it, he's a positive force for economic development in communities desperate for commerce. Instant Tax provides part-time jobs for six thousand people. He occupies storefronts that would otherwise be dark. "Look at where our stores are," he said. "There's no Gap. There's no Nordstroms. We employ people from the neighborhood. We're paying rents in those neighborhoods.

"People want to close us down," he continued, "but that would mean more boarded-up businesses and more boarded-up homes." When I mentioned that I had peeked into his store across the street, Ogbazion flinched. The place, he said, was in dire need of an overhaul. He tapped on his keyboard and then swiveled around his computer screen. He wanted me to see pictures of stores that had recently had a makeover. There were shops with wood floors and ficus trees and handsome hardwood desks and stylish couches-the sort of environment you'd happily visit again next year if necessary.

"Basically our deal is we tell our customers we know a bank that is willing to loan them money on their refund when no one else will do it," he said. "And if we can make them feel a little better about the experience, then I think that's a good thing." Ogbazion said he hoped to add one hundred new locations during 2009. Hard economic times would make it more difficult for potential franchisees to raise the start-up capital but low-cost storefronts, especially in the hard-pressed communities in which his industry flourishes, would no doubt be plentiful, and people desperate for money only increases the demand for rapid refunds.

Ogbazion initially deflected questions about the interest rates the banks that underwrite his refund antic.i.p.ation loans charge his customers. "What's the fair rate to charge?" he asked me. "We don't really care what that is. We get our tax preparation fees and we get a little more if they want an instant refund." When pressed, he defended his partners. "They've burned the banks," he said of his customers. "They've bounced too many checks. They've mismanaged their finances. Their credit is poor." Still, the rates the banks charged seemed excessive given the risks. People owe money for back taxes or for child support but the banks tell Ogbazion that they default on maybe one in every one hundred customers. Yet Wu and Fox found that banks charge an APR between 83 percent and 194 percent for a RAL. JPMorgan Chase would boast that it had lowered its RAL rate, but, including fees, the APR on a RAL still worked out to more than 60 percent on the average sized return.

Ogbazion didn't know the names Wu and Fox before I sat down in his office, but he wants to argue with them. "Sometimes when I hear people like that putting the industry down, it really bugs me," he said. "It's not like me or any of these franchisees would be the people who would climb through the ladder at a Big Four firm even if we were to become CPAs. You go with the hand that you're dealt and you make the best of it." Looking out the window of his fourteenth-floor office, he asked, "What else was I supposed to do?"

Ten.

Same Old Faces MANSFIELD, OHIO, 19972007 An agitated Jared Davis paced the top floor of the prosperous looking offices he and his brother built for themselves a few years back on a glitzy edge of Cincinnati. The 1,300 or so Check 'n Go payday loan stores they operated then, at the end of 2008, may share strip mall s.p.a.ce with low-rent cousins such as Rent-A-Center and Jackson Hewitt but the bosses work down the street from a Nordstrom, a Restoration Hardware, and other establishments that suggest that the poverty industry is far away. With slate floors and the sleek modern furniture in the conference room where we met, the Davis brothers seemed to have spared little expense in the building of what rival Allan Jones described as a "fancy monument."

Jared Davis is a large man standing around six feet, five inches tall with a pear-shaped body and a big lump of flesh under his chin. The day I visited he was wearing a salmon-colored dress shirt open at least one b.u.t.ton beyond modesty. His hair was unkempt and his face was covered with stubble. A "big old goofy-looking dude who always needs a shave" is the way Allan Jones described him. Jones then blinked one of his eyes rapidly as if sending a Morse code message. By that time I had met Davis and knew Jones was doing a cra.s.s imitation of his compet.i.tor. During our time together Davis was a bundle of movement. He pulled on the leaves of a nearby plant; he kept jumping out of his seat as if the point he was making got him so worked up that he physically needed to move. But mainly what one couldn't help notice was the uncontrollable tic that caused one of his eyes to blink spastically. Davis later referred to it as his Tourette's. The more voluble he grew, the more vigorously he blinked.

I was in Cincinnati primarily to talk about the early days of payday lending and a specific store that Check 'n Go has operated in Mansfield, Ohio, since 1997. Davis, however, was spoiling for an argument with all those who question the way he and his brother make their money. In the old days, Davis said, the town druggist or Walt over at the general store would let you run a tab when money was tight. "What used to happen, if you needed eggs or milk, the basics, the local grocers let you buy it on credit," Davis said, pacing back and forth. Try that today at your local Kroger, he said, throwing his hands into the air, "and they'll throw you out of the store." That's where the payday lenders come in. But try explaining this to a media hopelessly biased against you and with frauds like Martin Eakes donning a cape as if Supermen. "Anyone with half a brain," he said, "can see that the reason Self-Help and Eakes are against us is because they're our direct compet.i.tor."

Eventually Davis began talking about the early days of payday when the country seemed one giant opportunity to explore and conquer. He lost his share of races, like the time he thought he had found a choice storefront in the center of one modest-sized town in Kentucky and then learned from the real estate agent on the property that Check Into Cash had gotten there a few hours before him. But he lucked out in Mans field, a small city of fifty thousand in an otherwise rural stretch of Ohio that had no doubt been a happier place before its largest employer, Westinghouse, shut its plant, as did Tappan and a depressingly long list of other manufacturers.

"You wanted to be the first or second chain to discover some new town because once those two or three good s.p.a.ces were taken, the game was over," Davis told me. Billy Webster had beaten them to Mansfield but the Davis brothers were second and they leased the perfect spot, a storefront just off the main highway into town. There, next to a Mr. Hero sandwich shop, they installed a woman named Chris Browning to open and manage their fifth store in Ohio and around the seventieth overall. Browning, who had spent the previous fourteen years working collections for various car dealers around town, was a minor payday miracle. The turnover rate among store managers at the big chains exceeds 50 percent a year yet Browning lasted for more than ten years before being fired in the middle of 2007.

Chris Browning knows she can be difficult. But what are you going to do when you're surrounded by idiots and fools? "To me what's right is right, what's wrong is wrong, and why mince words?" she told me in a voice just a little too loud. "I'm pretty straightforward, bold, and vocal. I tell it like it is."

Inside Check 'n Go, Browning's direct supervisors didn't always appreciate her bra.s.sy demeanor. "Chris has a management style that is extremely hard to supervise," the regional manager a.s.signed her area wrote of her early in her tenure. "She constantly berates her direct superiors and shows little confidence in corporate personnel. Chris has a tendency to feel everyone is against her." But there was no denying she was very good at what she did. A well-run store in a choice location back then might bring in $150,000 or $170,000 in fees each year; a strong store maybe $200,000. Browning, managing a store in a remote outpost two hours from the nearest big city, generated $247,000 in fees her first full year on the job and $251,000 in her second. "I wish I had eight of Chris," the same manager wrote, running the eight stores under his control.

"As long as she continues to put up the numbers," he added, "I will continue to work towards a better understanding between us."

Browning is a short, stout woman who lives in a small ranch house surrounded by soybean and wheat fields. She and her husband chose a home in so remote a location thirty miles from Mansfield, she said in a scratchy smoker's voice, because they wanted to insulate the kids from "a town gone to h.e.l.l in a hand basket." She was a few months shy of her sixty-second birthday when we met in the fall of 2008. She greeted me at the door wearing a red Ohio State Buckeyes sweatshirt and jeans. She wore her hair in a short gray bob and when she smiled I noticed she was missing a front tooth. Within minutes of my entering her home, she was practically yelling. It was more than a year since she had been pushed out but she was still smarting from the way she had been treated.

"They fired me because eventually their policy became, if a body walks in the door, you loan 'em money, and I wouldn't do that," Browning said. That's no doubt too facile an explanation, but sitting behind her counter every day, staring out a plate-gla.s.s window onto a street populated by the Big Lots, Subways, and Wendy's that litter the edges of any city, Browning had a perfect perch for watching the rapid rise of a new industry and its impact on the people of the community. Increasingly she found she didn't like what she was seeing. And as her att.i.tude toward payday soured and the compet.i.tion grew more heated, Check 'n Go decided it had little use for a store manager with the fighting spirit of a longsh.o.r.eman posting only average numbers.

The Ohio legislature said no the first time they were asked to legalize payday lending within the state's borders. But then the Ohio House of Representatives switched from Democratic to Republican control in 1994 and the enabling legislation, championed by the state's check cashers' a.s.sociation, pa.s.sed at the end of 1995, without anyone really noticing. "It really flew below the radar," said Bob Lambert, who was a lobbyist for the state's p.a.w.nbrokers, a group already in the small-denomination loan business. As Lambert remembered it, he was the only person to testify against the measure.

Around one year later Chris Browning spotted the cla.s.sified ad Check 'n Go ran in the local paper for a branch manager of the new store they would be opening in town. Branch manager: She liked the sound of that t.i.tle. The starting salary was lousy, only $21,000 a year, and the benefits mediocre (three vacation days that first year), but they also told her she could earn as much as $6,000 more a year in bonuses. She didn't know what a payday loan might be when she first saw the ad but once it was explained to her it made immediate sense. Her husband had worked as a welder who more than once had been laid off. In time, Browning confessed, they would use a payday loan to help make ends meet.

"There was a need for something like this for working people around here," Browning said. "The credit unions weren't licensed to make small, short-term loans. The smaller finance companies were closing up and getting out of Dodge."

Browning straightened her back proudly and peac.o.c.ked a bit while talking about her early days with Check 'n Go, when she was something of a star inside the company. A typical store could take six or more months to break even but hers was profitable after just two. She told me about the calls from David Davis to tell her what a good job she was doing and to ask her for ideas. She helped develop some of the early training materials the company used and they were always imposing on her to help them train a new manager for some other store. She kept her bad debt low and her numbers continued to grow; her employee reviews show that her hard work was paying off in a robust bonus every quarter.

She was the dutiful employee in those first years she worked for Check 'n Go. She left flyers for the store at all the local Laundromats and car repair shops and though she hated doing it, she also tried dropping them off at medical offices around town as well. "Doctors were real touchy about brochures," she said, but at least a few succ.u.mbed. "You'd get a new kid on the block," Browning said. "His receivables are up; he wants his money for treating John Doe's son"-and soon that doctor's office starts sending patients and their families to her store. "If somebody couldn't pay the deductible or the co-pay or whatever, the clerk says, 'Here's a brochure, these people might be willing to help you out.'"

More payday outlets opened up in Mansfield. Where there had been five stores in town in 1999, there would be twelve by 2001. The battle was no longer a race to see who could secure a prime location but a war of dueling rewards programs and rival marketing campaigns. By 2000, she was no longer clearing $250,000 in fees per year, but revenue was in the $210,000 to $220,000 range through 2003, and it edged back up to $235,000 in 2004, by which time there were twenty payday loan stores in town. Maybe that was the truly shocking thing about payday and also the tragedy: Rivals could keep opening new stores but revenues at the existing establishments would remain fairly steady.

Ultimately, this modest-sized working cla.s.s enclave would become home to twenty-seven shops offering payday advances. It fell on people like Browning to keep people coming in the door. And as the pressures increased to collect more revenues from loyal clients and as corporate hounded her and the other managers to find new customers to replace the old ones whom they would invariably lose, so did Browning's cynicism about the service she was supposedly offering. It didn't help that whereas once hers had been the only store in her stretch of Mansfield, by 2006 three compet.i.tors had opened outlets only steps from her own.

There was something claustrophobic about those hours I spent in a home overstuffed with Beanie Babies and other collectables. There were so many lighthouses scattered about Browning's home-lighthouses of wood, lighthouses carved out of stone, lighthouse clocks, lighthouse paintings, a lighthouse thermometer-that I couldn't imagine a safer place to navigate a ship at night. The breakfast nook where we sat was piled high with bills, magazines, and other daily detritus; a shelf stuffed with a.s.sorted dolls loomed. But the good news was that this same tendency to save spilled over to her job. She had detailed records showing how her store performed month by month for her entire tenure at Check 'n Go, including a running tally of the proportion of her loans falling into default each month and the number of customers she was serving. She kept copies of her employee reviews and copies of emails and other missives from corporate. I might have suspected hyperbole if she didn't have a copy of the actual Check 'n Go directive informing store managers that they were to loan "to anyone getting social security who had at least one dime to their name."

Check 'n Go printed cards offering regulars a $20 discount for every new customer they brought in. The other big chains did the same. "Now, remember," Browning said in a deep voice, in imitation of one of her manager's, "give two referral cards every time you make a loan." She reverted to her own voice: "The idea was that we could get you to convince your mother, your cousin, your next-door neighbor, your best friend to come to our place." To extend their reach, the home office instructed that they leave brochures in factory break rooms and in the mailrooms of apartment complexes around town. The company had brochures printed in Spanish. "Grow your fan base by using the Hispanic marketing materials," read one missive from corporate. Another encouraged store managers to treat even phone calls from people asking for an address or the store's hours as an opportunity to sell. "Don't simply answer these questions," a memo advised. "Find a way to make them your customer!"

But of course new customers wouldn't do the company much good unless they were converted into semi-regulars. So Check 'n Go programmed its computers to spit out lists of customers who had gone sixty days without taking out a new loan. "We got one of those reports every single morning," Browning said. "We were supposed to call every person on that list and then also send them a letter. And that person kept showing up on your reports until they came back in." Management taught her little tricks. "You were supposed to say, 'I notice you haven't been here in two months; why don't you stop by later, we'll update your information. I'm sure you can use some extra money right now.'" And to keep Browning and her cohorts motivated, corporate offered both a carrot and a stick. Store managers would receive an extra bonus if enough of their sixty-day borrowers returned each quarter-or would get grief if their "customer reactivation rate" was too low. Mainly Browning got grief.

"As far as I was personally concerned, we were being told to hara.s.s these people until they walked back in the door," she said.

Another order that she found even more noxious was the practice of up-selling a loan. Check 'n Go, like most payday lenders, allows people to borrow up to one week's salary. Up-selling was aimed at a customer who earned enough to borrow $500 at a time but borrowed less than that. "I was to repeat, no less than three times, 'Now, are you sure you don't want to borrow $500 before I print this contract?'" Browning said. While she was printing the contract, she might say, "You know I can void this out; are you sure you don't want that extra money?" Reviewing the contract offered one more opportunity to make her pitch. On the final page of the agreement it laid it out in black and white: We have offered you $500 but you are taking a lesser amount. And Browning would say, "Now you see, you qualify for $500; are you sure this $200 is going to be enough money?"

Collections was its own torture. "If a customer was late paying us back, we were to contact that customer a minimum of three times a day," Browning said. People give three references when taking out a loan and she was instructed to phone them as well. If they were still late in paying off the loan, she was to phone their place of work. "It was no holds barred," she said. "You were supposed to do whatever you need to do to get the company's money back."

At least the home office didn't force her to make what some of her rivals referred to as "field calls"-visiting people at home. "If they weren't there," Browning said, "they'd have to put on a door hanger that says, 'You owe us $575, you need to contact our office immediately,' or whatever, and then it's there for everybody who comes to the door to see. I had customers tell me they even had people knock on their next-door neighbor's door to ask what time they'd be home. The idea was to embarra.s.s them into paying any way they could."

Through her large plate-gla.s.s window, Browning could see the Advance America outpost that had opened directly across the street in 2006. Cashland had leased a storefront a few doors down from her own in 2003 and a fourth store called Quik Cash opened in 2005. And so Browning would amuse herself during idle moments watching people play a kind of human pinball between shops.

Her store could boast the biggest parking lot so generally people made her shop their first stop. "They'd borrow money from me and walk straight from my door across the street to the Advance America," she said. "I don't know what they did in there, whether they were paying back or borrowing more, but then I'd watch them walk to the next store and then finish up by walking across the street to Cashland. Then they'd walk back up to my place to get their car." The whole sequence usually played itself out in forty-five minutes or less.

Browning would see the occasional new face inside her store, but she spent most of each day loaning money to the same core of customers. Browning is a talker and inevitably many of these people became friends. They would bring her leftover slices of birthday cake; they would surprise her with cupcakes they had baked. One couple popped in one day for no other reason than to drop off a few apples from the bushel they had bought at a roadside stand out on the highway. Is it any wonder, Browning asked, that with time she saw her job as less about earning quarterly bonuses and more about getting a good night's sleep so she could survive another day?

"The whole thing came to be about money and greed," she said.

Maybe a bartender has the same feeling when the glum-faced man who every once in a while used to sneak in for a mid-afternoon snort starts showing up at 11 A.M A.M. for his first nip and eventually is stopping by every day before work. After a time Browning took to applying a kind of shock therapy to her regulars. She would lecture them about the high cost of a payday loan. Stop buying that six-pack of beer, she would order them. Stop going out to eat. And then to punctuate her point she would swivel her computer monitor around. On the screen there was a tally of all the fees they had paid the company over the years.

Browning tried the gambit on a woman named Susan and it worked exactly as she had hoped it would. Susan, an administrator at the local hospital, had been borrowing the same $500 every two or three weeks for almost two years. That $500 was costing around $1,500 a year in fees. "I thought I was going to have to pick her up off the floor," Browning said. Worse, the woman was borrowing money from other stores. At Browning's suggestion she borrowed $450 instead of the usual $500, and tried to borrow $50 less each successive time. The last time Browning ever saw her was when she came in to pay back the $150 she owed plus the $22.50 fee.

But far more common were customers like David, a GM pensioner who was as reliable as the morning mail. Each month began the same way, Browning said, with David standing outside her door, two cups of coffee in hand. "If it was the first of the month," Browning said, "I knew I could count on a McDonald's coffee." David, she said, received a monthly pension of around $2,600 plus another $1,800 or so from Social Security-more than $50,000 a year. His house was paid for. But he was an inveterate gambler and always broke. Every month he would borrow the $500 maximum-and then $800 starting in 2005, after the legislature increased the ceiling on a payday loan. It had been costing him $900 a year in fees to borrow $500 a month and then $1,400 a year once he was able to borrow $800.

Browning would plead with him to borrow less. "We really need to get you out of this," she would tell him. It was too late, though. He owed money to stores all around town. When Browning ran into him at the local Walmart in the fall of 2007, a few months after she was fired, he confessed to her that he was juggling loans at seven stores. She figured that in the ten years and three months she served as a manager with Check 'n Go, David had paid $9,150 in fees on 115 loans. That, of course, didn't count the tens of thousands of dollars he was paying to other stores. And he was hardly alone. Browning said she did the math. In the final two years she ran her store, six in every ten people she would see in a given week were customers she saw at least once a month.

She fantasized about quitting. The job was affecting her sleep and making her irritable. "No one in my family was happy with me," Browning said. "I was tense. I was upset. I was depressed. I had fifty thousand different kinds of emotions I did not like." It seemed so tempting when the managers at rival stores were always quitting. "I know of a few who just got up and walked out the door," she said. "They'd wait for their supervisor to make a visit and then literally say, 'That's it, I'm done.'"