When lenders sue - part 4

January 27, 2014
Story by Paul Kiel, ProPublica. Mayeta Clark, Mike Tigas and Eric Sagara contributed to this report.

In Mississippi, the poorest state in the country, the largest installment lender is Tower Loan.

Mississippi laws prevent installment lenders from charging the triple-digit rates common in some other states, but Tower has ways of magnifying the cost of borrowing. The company, for instance, packages expensive but nearly useless insurance with the loans and encourages its customers to renew their loans over and over – both common industry practices.

The company’s ideal customer is someone “who can’t ever get out of debt,” said Josh Lewis, who worked at a Tower store in rural Yazoo County in 2010.“It was sad watching low-income people get in that hole,” said John Barfield, who worked at a store last year. “It’s very, very common at Tower Loan.”

For many borrowers, the cycle of debt ends with a lawsuit – and more profit for Tower. Tower commonly sues borrowers and obtains judgments that allow it to continue to charge more than 30 percent interest, court records show. In Hinds County, home to Jackson, the state capital, Tower has filed at least 3,235 suits since the beginning of 2009, according to a ProPublica analysis. That’s about half of all suits filed by high-cost lenders in the county during that time.

In a statement, Tower said it only sues as a last resort and that its stores in the Jackson area have a “much larger than average customer base.”

“We value our customers and it is our desire to contact them and work through their financial problems,” the company said. “Unfortunately, for the risk we take making small loans it is necessary to file suit sometimes to collect the money we have loaned.”

But the company has found another way to make money through such judgments.

According to Hinds County Court records, Tower often retains an attorney named John Tucker to represent it against delinquent borrowers. Tower sets his fees at one-third of the amount owed – a $3,000 debt would bring a $1,000 fee, for example – and asks courts to compel borrowers to pay Tucker for suing them.

Tucker is an executive at Tower Loan, its vice president and general counsel. Though he files suit after suit on the company’s behalf, he does not frequently appear in court in Hinds County. In fact, said Judge Melvin Priester, who sits on the County Court there, “I’ve never met him.”

Tucker need not appear in court to collect the fee. He needn’t do much work at all. “The fact of the matter is, collection work is a forms practice,” Priester said. “And by that I mean every form that they need, they already have on their computer.”

Tower only seeks Tucker’s fee when the borrower doesn’t raise a defense, making victory automatic, Priester said. In the rare case that a consumer contests one of Tower’s suits, Tucker is routinely replaced by another, outside attorney, who handles the case, court records show.

Still, Tower defended its practice of charging borrowers for Tucker’s services. The company said it retained Tucker because, “We are unaware of attorneys in our state who not only have the skill and extensive experience in this area that Mr. Tucker has, but who can also perform this service for less.”

Priester said that, while such practices concern him, there is little he can do: Tower’s loan contracts specify that if the company is required to sue to collect, it is entitled to “a reasonable attorney’s fee of 33 1/3% of the amount delinquent.”

Mississippi law allows lenders like Tower to define what’s “reasonable.” Other states cap attorney fees at far lower rates. Missouri, for instance, restricts them to 15 percent of the delinquent amount. Oklahoma caps them at 10 percent in most cases.

“Something should be done about that,” said Paheadra Robinson, director of consumer protection at the nonprofit Mississippi Center for Justice. “On top of the inflated interest that consumers are paying, you have this inflated legal fee.”

Mississippi’s laws make it easy for creditors like Tower to pursue debtors and inflate their obligations, and Tower takes advantage, said Priester. “If a person falls behind, [Tower is] very quick to come into court and take a judgment.”

Tower, which has a total of 181 locations across five states in the South and Midwest, also often sues its customers in Missouri. There, it filed more suits in the past five years than all but Speedy Cash, according to ProPublica’s analysis. Tower is owned by the publicly traded Prospect Capital Corp., which invests in more than 120 mid-sized companies across a range of industries. Among those companies are Speedy Cash and two other high-cost lenders.

Lewis, the former Tower employee, said he was struck by how routine filing suit against customers and seizing a portion of their wages can be. “It destroys people’s lives.” To work there, he said, you “have to be very thick-skinned.”