The following is an excellent article from the September 15 – September 21, 2014 issue of Bloomberg Businessweek on page 44 written by Zeke Faux titled “Borrowing: Payday Lenders at Play On Caribbean Yachts” and I quote:
Payday Lenders at Play on Caribbean Yachts”
Photograph by Quiana L. Adams/Bloomberg
Island life has been good to David Johnson. Photos on the St. Croix resident’s Facebook (FB) page show him fishing in tournaments, partying on his boats, and chugging Fireball Whisky from the bottle. Johnson has won the island’s Christmas boat parade with a 65-foot yacht named Living the Dream, according to the event’s website. His business partner, Kirk Chewning, is also listed as a winner, with a 49-footer called Renewed Interest.
What funds this lifestyle? Payday lending—cash advances against wages that are a last resort for working people who struggle to make ends meet. Johnson and Chewning, along with a third man, Richard Clay, built a network of payday loan sites using corporations set up in Belize and the U.S. Virgin Islands that obscured their involvement and circumvented U.S. usury laws, according to four former employees of their company, Cane Bay Partners. The sites Cane Bay runs make millions of dollars a month in small loans to desperate people, charging more than 600 percent interest a year, say the ex-employees, who asked not to be identified for fear of retaliation.
With most states from California to New York cracking down on payday lending, restricting or even banning the practice to protect consumers, the business has been driven online. Internet payday lending in the U.S. has doubled since 2008, to $16 billion a year, with half made by lenders based offshore or affiliated with American Indian tribes who say state laws don’t apply to them, says John Hecht, an analyst at Jefferies Group.
Ronn Torossian, a spokesman for Cane Bay, said in an e-mail that the company provides services to financial firms and doesn’t make payday loans. “Cane Bay Partners is a management-consulting and analytics company,” wrote Torossian, head of 5W Public Relations. “In the past, the owners held minority positions in some licensed short-term lending businesses, which are no longer in operation.”
Jim DePriest, deputy attorney general of Arkansas, says most of the payday loan stores in his state closed in 2010, when voters passed a ballot initiative capping interest rates at 17 percent. That’s when he started getting more complaints about Internet lending.
One of the websites DePriest says he discovered making illegal loans was CashYes.com. A borrower had claimed that CashYes was calling her to collect more money after she had already paid $3,193.75 on a $775 loan.
DePriest sent a cease-and-desist letter in 2012 to the company, which lists a Belize City address on its website. CashYes replied that it would stop lending in Arkansas, though it maintained state laws didn’t apply. At least three other states sent similar letters. DePriest says he wasn’t able to identify the principals or trace CashYes beyond its Belizean parent, Hong Kong Partners. “If we can pin down who they are, the individuals, we’ll go after them,” he says.
Some 2,000 miles from Arkansas, Johnson, Chewning, and Clay set up Cane Bay in 2009, U.S. Virgin Islands corporate records show. The company, named for a palm tree-lined beach near its offices, took advantage of incentives that reduce corporate and personal taxes by as much as 90 percent.
Photograph by Quiana L. Adams/Bloomberg
From a red-shuttered building across from an old Danish fort, Cane Bay’s programmers, marketers, and data analysts run CashYes.com, CashJar.com, and at least four other payday loan websites, the former employees say. Cane Bay registers the domains, designs the sites, approves the loans, and analyzes the returns to adjust algorithms, according to the ex-employees.
When a state barred one site, Cane Bay would direct customers to another, say the former employees. They say Cane Bay had no business other than running the payday loan websites and that Johnson and Chewning directed operations for all of them. Johnson and Chewning referred questions to Torossian, who wrote in the e-mail that the men wouldn’t agree to an interview. Neither the Belize companies nor the websites returned calls seeking comment.
The cost for a $500 loan is $100 to $150 in interest every two weeks, according to four contracts from the websites obtained by Bloomberg. One contract, for a $700 loan, would result in the borrower paying back $3,675 over eight months unless a quicker payment plan was requested. Customers are asked to provide bank account information, which enables the lenders to deduct payments directly, the contracts show.