LIT COMMENTARY

As the CFPB is a ‘hot political topic’ as an ‘unconstitutional agency’ which is supposed to protect consumers, but is actually anti-consumer, the current case at the Fifth Circuit between All American Check Cashing and the Consumer Financial Protection Bureau (CFPB or BCFP) is ongoing and part of the mix – a very important part of the mix.

On the 4th of December, 2019, what we at LIT referred to endearingly as FRAZZLED II, is the second round of ‘oral arguments’ before the 3-panel of Judges Higginbotham, Higginson and Jerry Smith. Representing All American, and it’s owner who has now sold the company and is ‘retired’ from the industry, is represented by Gibson Dunn & Crutcher. Oral arguments were presented by Ms Walker, who was absolutely incinerated in the first oral arguments in March of 2019 by Judge Patrick E. Higginbotham. That’s why we called it FRAZZLED I.

We’ve now had the opportunity to listen to FRAZZLED II’s oral audio and have to take issue with Ms Walkers description of Michael Gray as a ‘small business owner from Mississippi’. One certainly cannot be described as a SMB when you’ve earned tens of millions of dollars off of the poor by charging mafia-level interest pay-day loans with 14 day repayment periods.

Secondly, you have the resources to retain a top Washington law firm for the past five years with a charge out rate that’s probably in the region of $1,200 an hour for Ms Walkers time.

And finally,  there were allegations that Mr Gray was purchasing favors from lawmakers and to affirm those allegations, the laws that were subsequently passed certainly were of great financial benefit to Mr Gray.

Read the Original Complaint by CFPB (2016)

5th Circuit, Oral Hearing Audio, 4th Dec., 2019 (Full Version)

Former All American exec, regulators draw contrasting portraits of company owner

19 May., 2016

Kelvin Hall left a three-year stint as the top deputy to All American Check Cashing owner Michael Gray with a single impression of the check cashing/payday lending company: An ethical business with an ethical owner in Michael Gray.

“I just know in my heart we didn’t do the things the Banking Department said we did,” said Kelvin Hall, who resigned as All American Check Cashing’s general supervisor in April 2015.

“I know we didn’t train them to do that,” Hall said of federal and state allegations that Gray instituted deceptive tactics for employees to follow in cashing checks and illegal practices in rolling over short-term, low-dollar loans.

The Michael Gray described by Hall is a much different individual than the person federal and state investigators portray in legal filings. Gray, they say, built All American into a $20 million a year operation through companywide policies designed to deceive customers, cheat them out of refunds and, on the payday lending side, trap them in a cycle of debt.

The out-of-bounds practices Gray initiated gave him an edge over competitors who followed the rules, investigators say. The edge ultimately led to Gray’s dominance of the sector in Mississippi and a way to acquire a handful of businesses unable to compete with him, say regulators with the state Banking Department, which has ordered Gray to pay a $3 million fine and to cease operations of its Mississippi stores.

Gray directed employees of the 43 stores in Mississippi and the handful of other ones in Louisiana and Alabama on what to say and do in each opportunity to take advantage of customers, investigators say.

“Mr. Gray has promoted the use of deceptive statements at AACC (All American Check Cashing),” the Consumer Financial Protection Bureau said in a suit filed May 11 in the U.S. District Court for the Southern District of Mississippi.

Addressing deception used to keep hundreds of customers from getting refunds to which they were entitled, the Bureau’s suit states: “Mr. Gray knew and directed AACC’s practice of retaining overpayments by consumers and deleting credit balances from their accounts.”

Gray controlled all aspects of the check cashing and payday lending operations and “received personal financial gain from the illegal practices,” the CFPB suit alleges.

Often, those financial gains came on a whim, the Bureau said. “Mr. Gray withdraws money from AACC at will with no formal process or predetermined regularity,” the suit claims.

Kelvin Hall, the former AACC general supervisor, is still in the business of check cashing and short-term lending. He said that makes him reluctant to accuse state and federal regulators of government “thuggery” as lawyers for Gray have done.

“I know the Banking Department has a job to do,” Hall said. “I worked there for three years and not one time did we train anyone to do a rollover on a payday loan. It was not part of the culture.”

In a rollover, the borrower pays just the fees associated with the loan and receives a new loan (and new fees) to cover the old loan. The practice is illegal in Mississippi.

All American Check Cashing “is really a good company,” Hall added of the 17-year-old business. “I can’t stress that enough.”

Hall conceded that some loan rollovers may have occurred. “We can’t control rogue employees,” he said, and described the rollovers as an arrangement typically done as a “favor” to a customer who could not pay a loan off when due.

“I never witnessed it,” he said of rollovers.

What he didn’t witness, according to the Mississippi Department of Banking Consumer Finance, occurred at least 1,600 times at the stores he supervised and involved 6,500 customers.

Alan Crancer, who served as All American’s chief administrative/compliance officer until Gray fired him in June 2014, claimed he got his pink slip over a refusal to engage in illegal activities that included under-the-table payments to Mississippi legislators.

Crancer’s allegations came in a still-active wrongful job termination suit Hattiesburg lawyer Daniel Waide filed on his behalf.

While Crancer claims refusal to take part in loan rollovers Gray ordered caused his firing, Gray claims it was Crancer who masterminded the rollovers.

For his part, Crancer has repeatedly denied having any role in setting lending policies and practices during his four years as CAO and later compliance officer at All American. He said other company managers pushed employees to maximize borrower fees no matter what it took to do so.

Crancer has given lengthy depositions to both state and federal banking regulators. He has declined to talk publicly about his tenure as an executive at All American.

However, he makes serious allegations against Gray in his employment lawsuit. The suit alleges:

»  Gray fired him over refusals “to participate” in “All American’s practice of making cash ‘payments’ to state legislators in exchange for favorable legislation.”

» Gray fired him because he complained and refused to participate in All American’s “practice of paying (owner) Michael Gray in cash to avoid tax consequences.”

» Gray fired him for complaining about and refusing to participate in “All American’s practice of ‘erasing’ refunds to customers who had overpaid.”

» Gray fired him for complaining about and refusing “to participate in All American’s practice of using Hailey Holdings (a limited liability company for which Gray is the registered agent) to avoid tax liability.”

» Gray fired him for complaining about and refusing to participate in “All American’s practice of discriminating against minorities.”

» Crancer “refused to participate and complained of All American’s practice of rolling fees and entangling customers in debt, in violation of the banking laws in Mississippi.”

Waide filed the employment suit in September 2014. Gray’s Jackson lawyer Dale Danks Jr. denied each of Crancer’s allegations.

Danks called the allegations “ridiculous” and said they “are the result of a disgruntled employee who was fired with cause and is attempting to strike back.”

Gray’s spokeswoman Serena Rasberry Clark said Tuesday neither Gray nor his lawyers will speak publicly while in litigation with the federal and state agencies continues.

In the only interview Gray has given the Mississippi Business Journal, the payday lender said in September 2014 he “absolutely did not” buy favors from legislators.

However, legislators did leave a provision in the 2012 check cashing/payday lending renewal bill  that greatly benefits All American Check Cashing and its practice of making only two-week loans.

In what was supposed to be a trade off in the legislation renewing the state’s check cashing and payday lending law, legislators raised the amount the lenders could loan by $100 in exchange for a provision giving borrowers 30 days – not the customary 14 – to pay off the loans.

Lawmakers later conceded they left a glitch in the law that allows Gray and other payday lenders to make a series of $100 loans up to the maximum of $500 (including fees) that requires the borrower to repay within 14 days. The 30-day repayment period applies only to loans of $250 or more.

Issuing a series of loans below the $250 gives Gray and other lenders the same amount of fees on a two-week loan as they would get on a 30-day loan.

Equally important, the glitch improves the payday lender’s cash flow by not having money out for 30 days at a time.

In reporting on their investigations, both the Consumer Financial Protection Bureau and State Banking Department say All American is the only payday lender in the state that does not do 30-day loans.

Rep. Adrienne Wooten, a Hinds County Democrat, has introduced legislation each of the past three legislative sessions to fix the glitch. Legislators have killed her bill each time.

Read LIT Article on How All American’s Counsel was “Frazzled by Judge Higginbotham of the 5th Circuit during Oral Argument

Helgi Walker of Gibson Dunn Argues Against CFPB in Frazzled I and Frazzled II

Gibson, Dunn & Crutcher partner Helgi Walker will challenge the Consumer Financial Protection Bureau’s independent, single-director design in March as a federal appeals court in New Orleans  (Fifth Circuit) hears arguments on the agency’s long-contested constitutionality.

In the U.S. Court of Appeals for the Fifth Circuit, Walker (pictured above) is representing All-American Check Cashing, a company the CFPB accused in 2016 of trying to conceal the cost of its check-cashing services and misleading consumers about the benefits of its payday loans.

Walker and the team at Gibson Dunn—including appellate partner Ted Olson—elevated the case to the Fifth Circuit after a federal judge in Mississippi upheld the CFPB’s constitutionality and refused to dismiss the agency’s case against All-American Check Cashing and its owner, Michael Gray.

The stakes will be high at the March 12 argument. A decision from the Fifth Circuit striking down the CFPB’s constitutionality would create a divide among the federal appeals courts. The U.S. Court of Appeals for the D.C. Circuit in January 2018 upheld the agency’s structure in a challenge that also brought by Gibson Dunn. Olson argued that case, PHH Corp. v. CFPB, in the D.C. Circuit.

Walker, a top appellate partner and former clerk to Justice Clarence Thomas, will make the case in the Fifth Circuit. “Ted obviously loves these issues. He’s, after all, the Olson in Morrison v. Olson,” Walker said in a recent interview, referring to a separation of powers case that has been cited in challenges to the CFPB. “But he’s just so supportive of the next generation of lawyers at the firm. We discussed it, and he said he’d like me to have the opportunity. He knew I would love to do it, and the clients were supportive.”

The CFPB is defending itself in the Fifth Circuit, but there is conflict on the horizon. The Trump administration’s leaders at Main Justice—including Noel Francisco, the U.S. solicitor general and former Jones Day partner—are looking for a chance to challenge the single-director structure of the consumer bureau. And the All-American Check Cashing case might be that vehicle.

Conservatives and business advocates have long criticized the agency head as wielding too much power. Jeffrey Wall, Francisco’s chief deputy at the SG’s office, recently told the justices that the government supports the argument that the restriction on the president’s power to remove the bureau’s director violates the Constitution’s separation of powers clause.

The SG’s office asked the justices to turn down a petition arising from the D.C. Circuit because Justice Brett Kavanaugh, who presided over the case earlier on the lower court, would need to recuse himself. Wall noted “there are other cases currently pending in the courts of appeals that raise similar challenges.”

The SG’s office identified the All-American Check Cashing appeal, along with pending challenges in the Second Circuit and Ninth Circuit, as cases that “may not present the same obstacles that could impede the full court from considering the merits of this important issue.”