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October 24, 2001

Host: Michael Grant
Topic: World Series Fever!
Payday Lenders
Producer: Mike Sauceda
In-Studio Guests: Joe Garagiola, Sr., TV broadcaster for the Diamondbacks and Former major league catcher;
Phil Gordon, Phoenix Councilman;
Scott Allen, owner of a local payday loan store called "Cash Time"

MICHAEL GRANT: Tonight on "Horizon," as the celebration continues, Joe Garagiola, sr., steps up to the plate to talk about the upcoming world series. And should payday loan centers be required to charge lower fees for their services? A phoenix city councilman thinks so. Good evening, I'm Michael Grant. He's a former major league catcher, with World Series experience, a hall of fame broadcaster, who does TV broadcasts for the Arizona Diamondbacks. The team is dear to his heart, primarily because his son is vice president and general manager. Joining me now is the man who spent his career behind the plate and in front of the microphone, Joe Garagiola senior. Joe, it's good to see you.

JOE GARAGIOLA, SR.: It's good to see you, Michael. It's great, isn't it? Everywhere you go, everybody says "how about those Diamondbacks!" it's wonderful.

MICHAEL GRANT: Have you gotten in your brain yet around the concept of phoenix and the World Series?

JOE GARAGIOLA, SR.: No, I really haven't because it happened so fast. I remember those early days when we tried the first time to get a franchise here and get our head handed to us and we took a tremendous beating. I thought oh, man, that's it. But Joe and Jim Bruner hung in there, talked Jerry into and look at what has happened. I think it's so great for the city, it's great for the state and everybody is friendly and it's great to go anywhere in this town right now.

MICHAEL GRANT: You were telling the story about the quote that was in the paper a couple of days ago when they clenched, and the guy's standing in line and he hugs the guy next to him, total stranger.

JOE GARAGIOLA, SR.: Doesn't even know him. Today I'm standing at the Osco drug store getting a flu shot and guys are saying "how about those Diamondbacks?" If you want to be an instant baseball fan, that's all you have to say is "how about those Diamondbacks" and just shut up and the guy you're talking to is going to go. It's great.

MICHAEL GRANT: How is Joe junior feeling right now?

JOE GARAGIOLA, SR.: He's feeling great, obviously, because the thing that gets me, Michael, and I guess I'm an underdog guy because I've always loved scouts. Those are the guys who go out. It's Jerry's money, and god love him for backing 'em the way they did. But the guys who pull the trigger, the guys who make the deal, I remember when Mark Grace came here, everybody said, oh, mark grace, he's too old.

MICHAEL GRANT: Past his prime.

JOE GARAGIOLA, SR.: He's past his prime. And Craig Counsell, that's the most -- it's one of the warmest stories going for me, because Joe knew Counsell's father at Notre Dame when Joe tried out for freshman baseball and didn't make the team. In fact, I kid him all the time. I said, Joe, you signed Counsell on genes is what you did, because this kid is just a scrapper and Joe hung with him and he's very honest about it. He said, hey, did I think he was going to be this good a ball player? No, but look what happened. And Luis Gonzalez, that trade. And then Miguel Batista, I mean, it was a simple statement by the scouting department. Joe said he told the guys, look, bring back this year's Durazo, and they brought back Batista, and trading Danny Bautista for Andy Fox, I mean, I love Andy Fox, but he must be in the witness protection program somewhere. We never hear about him.

MICHAEL GRANT: Brenly seems to be just a guy that goes with his gut and really doesn't care if he's going to get second-guessed the next day.

JOE GARAGIOLA, SR. Well, he knows that goes with the turf. He's going to do that thing. Even with the Brian Anderson, he's saying, well, I've got a hunch. Well, I'm taking that with a grain of salt. There's more to it than that. Bob Brenly knows baseball. He knows Yankee Stadium's a big stadium. Anderson doesn't walk many people. If Anderson keeps the ball from right center to left center, Finley and Bautista will run it down and it will stay in the ballpark. So there is some thought going into it. Some of the moves that he made, he knew he was going to get second-guessed. Hey, that squeeze play, everybody second-guessed. I was sitting in front of Joan Brenly. I said, Joanie -- after the game, I said, if we don't win this game, your husband is barbecued tonight, on 44th and Camelback, they'll barbecue him, but we won, and everybody forgot it. You're going to make moves that people are going to wonder about. But I'll tell you what he's done. He put fun in the clubhouse, let the guys play, and it's not a clubhouse where you think the manager is looking over your shoulder every minute.

MICHAEL GRANT: You played in the 1946 World Series. Do these guys who haven't been there before, and there is a lot of them, do they know what they are getting into at this point?

JOE GARAGIOLA, SR.: Not really. If I had one thing I'd say to the Diamondbacks -- but you see you've got a veteran ball club. A lot of these guys have been at Yankee Stadium. I hear this thing about Yankee mystique. I told a guy the other day, I said, hey, wait a minute, Babe Ruth is not going to play here. Lou Gehrig is on the disabled list. He's not going to play either. I mean, the mystique, I said if the Diamondbacks have never been to Yankee Stadium, I would say, go to the ballpark early. Walk around that ballpark. Go out and look at monuments. And then when you see it and drink it all in, because when the game starts, I don't care if it's little league, I don't care if it's World Series, it's still Willie Mays' game. When they throw the ball, I hit it, and when they hit it, I catch it. It's as simple as all of that. I think the Diamondbacks have enough veterans on the ball club, Michael, that's the way they'll be. I don't think -- we're going to see great pitching. I mean, I don't want to hear that the offense stayed home. Because the Yankees have great pitching and so do the Diamondbacks. It's going to be a battle, a gunfight.

MICHAEL GRANT: It's tough. The old saw, of course, is good pitching beats good hitting.

JOE GARAGIOLA, SR.: Constantly.

MICHAEL GRANT: But in this case, you've got good pitching on both sides.

JOE GARAGIOLA, SR.: Both sides, absolutely.

MICHAEL GRANT: Don't you have to give the hitting -- I hate to say this -- don't you have to give the hitting side of the equation to the Yankees?

JOE GARAGIOLA, SR.: Well, you'd have to match it. Can you measure the intangible of a Counsell? Womack is so focused. When you see it --

MICHAEL GRANT: Finley?

JOE GARAGIOLA, SR.: Finley, Gonzalez, who's been a little bit cool, but you know he can hit. He's got a great swing, and the unsung of unsung heroes to me is Damian miller, not so much with the bat, although he's been very effective with it.

MICHAEL GRANT: Tremendous behind the plate.

JOE GARAGIOLA, SR.: I mean when he blocks those balls, it gives Schilling and Johnson a chance to throw that ball and dodge into the dirt. Because if a pitcher doesn't have confidence that his catcher is going to block it. He's going to elevate it, it's going to be a strike and that's what the broadcasters call a mistake. It always gets me, when the other guy hits a home run it's a mistake. When the hometown guy hits the home run, great piece of hitting.

MICHAEL GRANT: You've made the comment before we went on the air that you've been getting calls from, number one, all over the country and, number two, from people you haven't heard from for years. Are the diamondbacks maybe not getting a lot of national respect?

JOE GARAGIOLA, SR.: Well, when you talk about respect, you would expect it. You would expect the Yankees, the eastern press, they are not going to heap any praise. They think we still got camels out here and tumbleweeds running down the street. I told one guy today, I said we've got indoor plumbing this year. I mean, it just gets me what they think about it. And you're going to get that. That's part of the distraction. But you know what? I always say, in 1946, the cardinals were supposed to been run out of town by the Boston Red Sox. We beat 'em in seven games. You don't believe what you read in the paper. You don't listen to the talk shows that have all of the answers, and you go out and play. It's a game you play on grass. You just go out there and play.

MICHAEL GRANT: You came out pretty big in that series. You had four hits in one game.

JOE GARAGIOLA, SR.: Yes, I did. I've got the films if you want to see them. That was a great series. It was my first year in the big leagues.

MICHAEL GRANT: You know, you were making the comment, you talk about sports legends and certainly the Yankees being the premier franchise, but you made the comment -- did I understand you correctly, the Yankees won a world series before Arizona became a state?

JOE GARAGIOLA, SR.: I just learned that. Yes, that's what I heard. Before Arizona became a state, the Yankees won a World Series. So I mean, you see, that's what gets me. That's tradition. You should say, well, those guys are old, like they talk about the diamondbacks. I mean, that's another thing that gets me. The eastern press, especially, the diamondbacks are old. No, no, no, when you win in baseball, you look at the person, you're a veteran, and if you win your pennant, you're a crafty veteran and a guy like Counsell becomes gritty. But if you lose, you're old and you can't do anything. No, I think it's going to be a great series.

MICHAEL GRANT: Obviously the valley has caught diamondback fever right now. The past four seasons, it seems to me -- I mean, the team has done tremendously, but it also seems to me that Arizona has not engaged with this team the way I would have expected to. Do you think that'll change now that this has happened?

JOE GARAGIOLA, SR.: Well, I almost beg to differ. And I'll tell you, I have a theory. First of all, I think maybe the ballpark was built too big. I mean, if it had been a 40,000 capacity ballpark -- like the other day, there were 40,000 people there. 35,000 people come to the ballpark, and they say there were 15,000 empty seats. That's ridiculous. I mean, to me, it's like the fella from St. Louis called me and wanted to know why is St. Louis, why are they the best fans in the world? I said, wait a minute, qualify that. What makes them best fans? Selling out the ballpark? Does that make you a best fan? Do you have tests to talk about whether they are knowledgeable? What makes them -- it's merchandising. I hate this negative thing of, well; Phoenix only supports a winner. That's any town in America supports a winner. I mean, we all love winners. I think phoenix is a good sports town. And I hate it when I see 35,000 people in the ballpark, and they say, well, they should have sold out, like the Monday night when Johnson's pitching. Come on, its Monday night. How many people can go to the ballpark on a Monday night?

MICHAEL GRANT: Uh-huh. In any event, do you think this is --?

JOE GARAGIOLA, SR.: I think -- I think Phoenix is a great sports town, and it will get a big boost with the World Series. Because I think you've got people who are gonna be exposed to it and say, wow, what have I been missing? And they really have because baseball is a simple game. It's not like football where you've got 11 guys trying to fool 11 guys in front of them. I'm in the stands, how can I follow them. But in baseball, you follow the ball.

MICHAEL GRANT: It's mano a mano.

JOE GARAGIOLA, SR.: Regardless of what the broadcasters say, just follow the ball. That's all you have to do, and the clock can't run out on you.

MICHAEL GRANT: Joe Garagiola, the clock's run out on us. We appreciate it.

JOE GARAGIOLA, SR.: I appreciate being here.

MICHAEL GRANT: Say hi to Joe junior for me.

JOE GARAGIOLA, SR.: I sure will. Thank you.

MICHAEL GRANT: Five years ago, payday loan centers started popping up in the valley. Now, there's just about one on every corner. Two years ago, the state legislature passed a measure legalizing and regulating the stores. The law capped the fee at $15 per hundred borrowed, but one city councilman thinks that's still too high. We'll talk to him, and a payday store owner, but first mike sauceda tells us more about payday loans.

MIKE SAUCEDA: Over the past year, Linda Willoughby of phoenix has turned to a local payday loan store on several occasions when her month outlasted her money.

LINDA WILLOUGHBY: Just single parent, bill crunching, and things of that nature. Found that, you know, looked around at other options and decided this might be the option to go.

MIKE SAUCEDA: Under state law, Willoughby pays $15 for every $100 she borrows. She can borrow up to $500.

LINDA WILLOUGHBY: I guess I've put myself in the frame of mind that I know what it's going to cost me per hundred, and I know what I need to do to come up with the money to pay it off and call it even.

MIKE SAUCEDA: With those costs in mind, Willoughby says she's been happy with the service she feels is needed.

LINDA WILLOUGHBY: Simply, but importantly, I think there's -- I believe there is a need for companies like this, because I believe that there are people who have no place else to go for the money, and they do realize the amount of money that they are going to have to pay back.

MIKE SAUCEDA: Just who does borrow money from a payday loan company? According to a Georgetown university study placed on the web site of a payday loan industry association, more than half of payday loan customers report annual incomes between $25,000 and $50,000 a year. Two-thirds of payday advance customers are under 45 years. About 66% of payday loans were used to cover an unexpected expense or a temporary reduction in income. While 34% were used for planned expenses or other discretionary uses.

LINDA WILLOUGHBY: From my perspective, no. And again, it really comes down to the frame of mind and the personal financial situation you're in. Unfortunately, there's a lot of people who either can't go to a bank to get a loan or won't go to a bank or, you know, don't have relatives, et cetera. I mean, many, many reasons or places they can't go, but if the car breaks down, and that's the only means of transportation of getting to the job that's going to pay for everything else, that's the mindset that you're put in.

MIKE SAUCEDA: Although there's definitely a market for payday loans, the rates can exceed 700% if calculated on an annual basis, but state law allows the loans to be kept 31 days, although they can be renewed. Hugh Hegyi testified when the law was created by the state legislature two years ago to make payday loan centers legal.

HUGH HEGYI: When we were testifying about this at the legislature, one of the lobbyists asked that question and said, you know, gosh, this is like a taxi ride. Some people would prefer to walk five miles. Some people would like to take the bus. Some people want to take their own car or bicycle. Some people want to just get a taxicab, and even though it's expensive, they would prefer to pay for a cab ride out. But really, that's not the case. This is a lot more like an ambulance ride. Most people don't get these loans unless they are in real trouble.

MIKE SAUCEDA: The $15 charge is considered a fee, which keeps it from exceeding state usury law caps of 36% on interest rates.

HUGH HEGYI: The statute expressly says that for purposes of usury statutes, and those are the statutes that cap interest rates in our state, this is not interest for those purposes. So in other words, it's saying, whether it's interest or not, we're not going to look at it as interest in determining whether someone is engaging in essentially loan sharking. You know, that's not something that we're going to consider this. That's not something we're going to look at for these purposes. Now, for purposes of the federal truth in lending act, which payday lenders do have to comply with in our state, it is what you or I would refer to as interest.

MIKE SAUCEDA: There is an effort to reduce the fee to $12, but payday loan centers say that could put them out of business, because they loan money with no collateral, only requiring a post-dated check. But Hegyi says based on information he's been able to obtain, the companies don't have huge losses.

HUGH HEGYI: The only thing we can look to are public filings because that's -- those are the only companies that are required to make that information available. And as I say, those public filing indicate a 3% to 5% net loss. If the business is really that risky, I'd love to see some evidence of it, but I've asked for it repeatedly and haven't ever seen it.

MICHAEL GRANT: Here now to talk about a proposal to cap fees at $12 per hundred are phoenix Councilman Phil Gordon, who is pushing the change. Also with us is Scott Allen, owner of a local payday loan store called "cash time." Gentlemen, good to see you. Scott, I want to make sure that both the audience and I understand what's going on here. I want to borrow $100, and I walk into your store. What happens?

SCOTT ALLEN: You fill out an application. We review the application, verify the information on it as accurate. We ask for a copy of a paycheck stub, proof that you have a current and active checking account. Once the loan is approved, you issue a check, which is generally post-dated, for your next payday. We deposit that check on your next payday. And the loan is consummated.

MICHAEL GRANT: And if I want to borrow my $100, I write you the check for $115?

SCOTT ALLEN: $115.

MICHAEL GRANT: I don't pay you $15 on the spot?

SCOTT ALLEN: No, you do not.

MICHAEL GRANT: Okay. What's wrong with that, Phil?

COUNCILMAN PHIL GORDON: Michael, the very basic foundation of what we're doing is in effect disguising what we're talking about, and that's what's so objectionable, so morally wrong. $15 on $100 for two weeks expressed, as an interest rate is over 450%, close to 500% interest on an annualized basis. That's outrageous. It's morally outrageous. It's preying on the people who can least afford it, the working poor, on grandparents, on young adults, on military personnel. If people are paying those types of rates, they can't get out. They can't get out of the debt after a few weeks. After two weeks it's $115. Then the law allows it to be rolled over, extended another two weeks, for another $15 fee. But again, that compounding interest starts to bring it into the 500% rate, and then for another two weeks, you can roll it over up to three times or a total up to eight weeks and you're up over 500% annualized percentage rate interest. If you look at any of the other industries, whether it's small loan companies at 30% or 40% up to a thousand dollars. Credit cards, where you take advances of 18% or 22%, it is so disproportionate. People are getting outraged for bank transfer fees of $1 or $2 when you go to take money out of a machine. I'm asking people to take a look at what's happening to people that are borrowing $100 or $200.

MICHAEL GRANT: Scott, the rate does -- I mean $15 on $100 doesn't sound all that bad, but when you do the math of it, annually, the way most of us think of interest rates, it's a pretty exorbitant interest rate. Why isn't it, as he puts it, immoral?

SCOTT ALLEN: Well, first I'd like to talk about our consumers. These aren't the poor and downtrodden, as many would like to characterize. The majority of them have incomes of $25,000 to $50,000. 25% percent of the customers have incomes over $50,000. Three out of four of our customers either have a high school diploma or some college. Nearly all of these customers state that they have other sources of credit available. They use payday lending because it's fast, efficient and easy, and it gives them a sense of privacy. These facts that I'm stating are out of a payday analysis that was done by the McDonough School of business, which is part of Georgetown University, and it's approximately a 100-page report. It's very comprehensive. They surveyed 78 payday loan offices, over 5,000 customers, and some of the facts that I just stated are in this report. Also, only one point --

MICHAEL GRANT: Okay, but let's assume -- let's assume they know what they're doing. Still, 450%, why isn't that exorbitant to the extreme?

SCOTT ALLEN: Because you're taking what is a two-week -- generally a two-week transaction. It's a payday loan. Most people get paid every 14 or 15 days. You're taking a two-week transaction and you're extrapolating it into an annual interest rate. It would be like saying, okay, I take a taxi for one hour and it costs $40. If I take it for 24 hours, it costs 800-and-some-odd dollars if I take it for 365 days a year; it costs thousands of dollars. Let's lower the price on taxis because they are too expensive. It's designed for short-term usage. Extrapolating out over a one-year annual interest rate is very misleading.

MICHAEL GRANT: All right. Are you mixing apples and oranges?

COUNCILMAN PHIL GORDON: I mean, you know, this is sort of the wolf in sheep's' clothing. Come on. I mean, interest rates are interest rates. That's why the federal government and most states and Arizona used to require that it be spelled out what the interest rate is. The fact of the matter, Michael, is that it's still over 500% interest for 8 weeks. Literally, that is morally outrageous. We fought as a country against the equivalent of loan sharking for those types of rates, and now this state legalized it, I think because no one realized what interest rates were. Everyone is still trying to talk of it in terms of a fee. The fact of the matter is, because a sentence says don't count it as interest, everybody knows it's interest. It is interest that is 500%. Not 20%. Not 30%. Not 50%.

MICHAEL GRANT: Does the loan store have to give the consumer the same kind of disclosures on what the annualized APR is, that I think most of us are familiar with?

SCOTT ALLEN: The law in Arizona clearly states that you have to give the federal disclosures, which would be your truth-in-lending disclosures, which would include your annual percentage rate.

MICHAEL GRANT: So in other words at the top of this paper that I signed, I'm going to get a thing that says your annual percentage rate is 452%?

SCOTT ALLEN: Yes, there's a set of boxes that are part of the truth-in-lending disclosure. Those have to be on every contract. The state referred to it as a fee because it's not designed to be used on an annualized basis. It's designed for short-term usage.

MICHAEL GRANT: Phil, if the consumer is being told precisely what the annualized interest rate is and the consumer is still willing to borrow money on that basis, why does government interfere with that?

COUNCILMAN PHIL GORDON: Two flaws in those assumptions. Number one, a lot of individuals aren't being told what it is. Aren't informed. The industry has reputable individuals and, unfortunately, a lot of irreputable individuals. Number two, despite what Scott said, there is a significant amount of the population, while working, isn't educated, can't read or can't write, and are signing things that they don't understand. I will tell you, I have a son that is now 21 in the coast guard, and just got through a process, not with respect to the payday loan, but with a car loan, that didn't understand it at all. I'm just refinancing my house, and despite a law degree and everything, I have to go through it and really be careful. We're talking about something that people really don't understand. The fact is, it is being rolled over, and then people are being -- going from store to store and getting on this treadmill and getting in debt that they can't get out of, Michael.

MICHAEL GRANT: Is your proposal to drop it to a $12 service fee or something else?

COUNCILMAN PHIL GORDON: The proposal would be, why don't we get it to a $12 initial fee, interest, which is for those first two weeks, and then after that, let's have a reasonable, a conscionable interest rate. I don't care, name a rate. Are you telling me that the industry can't make a profit at 30%? 35%? 40%? 50%? But 500%?

MICHAEL GRANT: Can you make money at $12, plus 30%?

SCOTT ALLEN: We feel if policy makers are genuinely interested in achieving lower rates for these types of products, that their efforts ought to be focused on promoting competition and encouraging other companies to offer this product. There's over 10,000 payday loan stores in the United States.

MICHAEL GRANT: How many in Phoenix?

SCOTT ALLEN: I don't know how many in the phoenix or Arizona market but it are sizable.

MICHAEL GRANT: I've been told it's 70?

COUNCILMAN PHIL GORDON: Michael, over the last year, it's gone up to 70 in phoenix proper. The reason it is is because no other industry in the lending business can charge 500% interest legally.

SCOTT ALLEN: But 92% of the people in this survey had a favorable attitude towards payday loans. They agreed it provides a useful service. He talks about people getting on the debt treadmill. Only 1.9% of the people in this survey who were dissatisfied with the product-stated difficulty getting out of debt as the reason for dissatisfaction. So certainly the numbers in this survey don't bear out what Councilman Gordon is stating.

COUNCILMAN PHIL GORDON: And Michael, you know, number one, there's a lot of surveys out there. If you read the consumer credit council survey, you'll find the opposite. I don't know who paid for that survey. I don't know what it says. The fact of the matter is I'm dealing with what the phoenix individuals and statewide individuals are dealing with, people that are being taken advantage of, and it is so unconscionable that there is a role for government to step in. we're not talking about stopping. We're not talking about preventing a profit. I'm saying let's do something reasonable. Let's come up with a fair - and let's educate, let's create education so people know what they are getting into and let them make a free choice.

MICHAEL GRANT: Phoenix City Councilman, Phil Gordon, on that note, we're out of time. Thank you very much. Scott Allen, we appreciate your participation. To view a transcript of tonight's show, visit channel 8's web site at www.kaet.asu.edu, click on "horizon" in the lower left corner of the screen and follow the links. Tomorrow on "Horizon," we'll have more on the World Series, with a look at the economic impact it will have on Arizona. Then on Friday, the most recent recipient of ASU's Walter Cronkite award for excellence in journalism and telecommunication, Bob Woodward, assistant managing editor for investigative news for "the Washington post." Thank you very much for being here on a Wednesday evening. I'm Michael Grant. Have a good one. Good night.