When lawyers with the Texas Attorney General's Office looked for a test case of the questionable sale-leaseback industry in 1991, all they had to do was listen.
A 35-year-old entrepreneur named Gary Elkins was using radio advertisements with the lure of fast cash to reel in credit-starved consumers:
"Yankee Doodle came to Houston looking for some money / Called a friend to get some cash because he had no money," was one ad song heard on the radio. "Poor Yankee Doodle -- if only he would have called 523-CASH, he could have had the cash he needed."
Another audio spot targeted that Yule shopping season. "Deck the halls with cash for Christmas, fa la la la la, la la la la. / We can get you cash this Christmas, fa la la la la, la la la la."
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But it suddenly seemed that the company promising all that money would never ring in the new year.
An employee of the local Better Business Bureau had been sent into Personal Rental, an Elkins company that offered fast cash and no credit check, to scout the operation. State attorneys swooped in soon after, leveling charges that the company violated state usury laws.
Seven days before Christmas in 1991, state attorneys gained a temporary injunction to stop Personal Rental's operations.
It wasn't a big story, but state Consumer Credit Commissioner Al Endsley garnered headlines when he accused the man behind Personal Rental of loan-sharking.
In clear, unequivocal language, Endsley charged that Elkins was hiding outrageously high loan rates behind the fine print of a lease contract. He alleged that Elkins, relying on widespread ad campaigns to reel in business, duped customers into thinly disguised loans that carried interest of more than 780 percent, a flagrant violation of usury laws limiting the amount of interest charged to customers.
Elkins got the injunction lifted the next morning, but attorneys in the A.G.'s office were already starting to congratulate themselves, feeling they were well on the way to shutting down an industry they believed to be operating outside the law.
But the state's strategy backfired badly.
The test case blew up in the A.G.'s face. Elkins bankrolled a half-million-dollar legal counterattack -- suing the state and even the individual state's attorneys in the case. After a grueling, no-holds-barred tangle that stretched over two years, a jury took 40 minutes to find in favor of Elkins.
By the time it was over, burned state attorneys would swear off any attempt to crack down on sale-leaseback operations.
And a year after his day in court, Elkins, who once busily lobbied the Texas Legislature through former House Speaker Billy Clayton, would go on to win the Texas House seat in a squeaker election for one of Houston's stolidly conservative westside districts.
Today, he sits on a House committee that oversees the same state office that once pursued him in a Houston court. As a legislator and committee member, Elkins can also guard against consumer advocates trying to reform laws affecting his business and the sale-leaseback industry.
Says Elkins about the earlier state prosecution: "They picked the wrong company."
Safe from the A.G.'s office, sale-leaseback companies have sprung up all over Texas over the past few years, holding out the offer of easy money in one hand and a pen in the other. Just sign here, and the cash is available, for whatever purpose.
But despite what many people believe, these aren't loans. They're sale-leasebacks, a decades-old, commonly used device in the financial world. In paper transactions, customers sign away ownership of cars, appliances or other possessions for fast cash, and obligate themselves for extended payments to "lease" them back from the company.
Consumer-protection groups say companies have twisted such deals into a Texas-sized loophole to skirt usury laws -- not that there's anything they can do about it.
Ask any consumer activist about sale-leasebacks and the conversation almost immediately turns back to the Personal Rental case.
"We think they [sale-leasebacks] are illegal under existing laws," says Rob Schneider, staff attorney for the Consumer Union. "But because of the loss of the lawsuit in Houston, we think we need legislation."
However, even as the industry comes under repeated fire, few like to openly take on the affable, free market Republican.
"Ooooooh, that's dangerous," croons one consumer advocate. "A lot of our bills end up before his [Elkins's] committee."
It's a position he fought for, and he's not about to apologize for keeping an eagle eye on any new move regarding sale-leaseback companies. Every time reformers started talking to the press in the last few months about legislating the business, they found themselves in direct touch with Representative Elkins from the 135th District.
But with the sudden explosion of new sale-leaseback companies in the state have come new complaints about business practices of some operators, and the long stalemate over sale-leasebacks shows signs of eroding. Even though the state has stepped aside, the Houston Press has learned that Harris County Attorney Michael Fleming recently started an investigation of those local companies to see if any operate beyond the law.
And the line of the law may be about to move. A few legislators are starting to voice opposition to sale-leasebacks, including one Dallas rep who is beginning to draw up new legislation to rein in these firms. For the first time in years, area consumer advocates see signs that the long official silence over a business they despise just may be about to end.
There are several variations on the theme in sale-leaseback deals, but they all use the lure of fast cash to bring in their next customer.
Sharron Mitchell found her part-time work dwindling at a local private investigations firm in 1996, and realized her monthly $800 Social Security check was not going far enough to pay the bills.
The mother of three children needed money, and needed it fast. She went into the MG Capital firm, not affiliated with Elkins, which offered quick cash and no credit check.
Mitchell walked out with what she thought was a $500 loan. All it took was signing over the title to her car -- a 1988 Buick Century she had bought the year before for $2,500. She found out later that the MG contract obligated her to make 52 weekly lease payments of $32 each, a total of $1,664 -- more than three times the amount she had obtained.
By December, she was far behind on her weekly payments and says her life was turned into a living hell, with collection calls and demands for her to find another loan to repay the company. At about 9 one night, she and her children heard a noise outside as they watched television in their Houston apartment complex. She went out and found a tow-truck operator hoisting her car.
"They were nasty. I asked them to get my children's school supplies out of the car. They just said no." Mitchell never saw her car again.
Monica Baird, operations manager for MG, says the company made every effort to work with Mitchell, even after the customer was 27 weeks delinquent in her payments. Only after Mitchell refused to return phone calls did they repossess the car, Baird said.
Later, when Mitchell was circulating complaints to the BBB, the A.G.'s office and anyone else who might be interested, the company offered to waive all late charges and return the car if if she would resume payments. Mitchell refused.
"I'm not denying we're expensive, but we're no more expensive than any other sale-leaseback company out there," says Baird. Most people who come to MG agree to repay about twice what they take, says Baird, adding that the actual amount is dictated by the level of risk -- which runs very, very high for most of their clients.
And, in a common refrain for the industry, she says that MG's clients get a better deal than any offer they'll get from a pawn shop.
MG Capital, for its part, maintains in company literature that it never uses the word "loan" in any of its transactions. But Mitchell disputed that. "You signed a contract, and that's it. They say this is a loan. They don't tell you, this car is our car."
She needed the money, and MG Capital makes it as easy as possible to get the money, and get it fast.
It's company policy.
"Never sound too restrictive with the customer," says an internal MG Capital memo titled "Buy-leaseback telephone procedure." "If he is missing one or two stips [stipulations], then we can always find some other stips or do some other verification work to justify the lease deal. If he is asking for an unrealistic amount of money, tell him that we probably may not be able to get him that much money, however, we welcome him to come in to see what we can do and we will try to do the best we can to get him the most money possible."
The three-page document carries a May 1996 trademark -- one month before Mitchell showed up at their doorstep. It says, "Do not discuss rates or how much the weekly payments would be on say [$]1,000 or so." This program, says the memo, is for people who "Do not have the perfect credit," can't buy full-coverage insurance or qualify -- or wait for -- bank financing.
MG Capital gave that memo to the BBB when its vice president, Dan Parsons, asked the company to demonstrate how they deal with consumers.
As far as Parsons is concerned, it's just another example of why MG Capital and other sale-leaseback companies have not and will not be allowed to become members of the Bureau.
"We see consumers being harmed. And as a category of business, we're not allowing them to be members of the Better Business Bureau," says Parsons, who has been fielding occasional complaints on local sale-leaseback companies for years. "In well over half of the cases, the consumer says, 'I got a loan.' They believe this is a loan. Their contracts spell it out, but they don't understand it.
"While they are legal, we question if they are good for the community. I think that they take advantage of consumers that are vulnerable and down and out.... These people are desperate. They go into a financial deal when they don't have any options. You can read that into their complaints."
The Consumers Union Southwest Regional Office is equally damning: "These are usurious loans made under abusive terms, and the rates are outrageous," says staff attorney Schneider.
Bunk, says Elkins.
"They're completely misinformed. They refuse to recognize the value we're offering consumers. They believe that consumers are better off not doing business with us. I don't believe that consumers are better off not having access to money."
After all, he says, many of the people who come to his office have a credit record that would give most bankers a heart attack. Cut off from traditional lending sources, their choice is down to a pawn shop, a garage sale or a sale-leaseback company. It's just a short-term solution to a financial problem, he says, but it is a solution.
It's hard to tell whether consumer-protection groups in the state hate sale-leaseback companies more than they hate their powerlessness, so far, to do anything about them. Every day they see these outfits advertising in the Greensheet or Yellow Pages or on local radio holding up the offer of a wad of cash. The ads, they say, are a simple trap, targeting minorities and the poor with an offer they can't refuse and threats they can't ignore.
Some face repossessions or even criminal hot check charges if they break their agreement. Others keep paying, and paying and paying, long after the money's spent, in a never-ending attempt to keep the wolf from the door.
Many companies, like Personal Rental, offer money on all kinds of household appliances such as refrigerators, stereos, washers and dryers. It's a simple transaction at the office of Elkins. Someone getting $300 for an appliance sale-leaseback pays $90 for the first two weeks. Two weeks later, if the $300 cannot be repaid, the customer is required to pay $90 more at that time. And so on -- over and over and over again, with no limit on the amount that one person pays.
But if consumers ever want to end the deal, Elkins says, all they have to do is return the appliances and void the leases. He has a room full of the stuff, he says, and sells it on to a pawn shop. As for the lack of a cap, Elkins says that under state law he can't put a limit to the amount a person pays in installments without running the risk of violating usury laws.
Others in the business have adopted a simple twist that can land customers in jail if they don't pay up.
Consumers can walk into some sale-leaseback operations and get $200, for example, for a refrigerator. They sign documents selling their appliances to the company and sign over two checks, one for a fee of $35 and the other for the $200 they take the first day. The larger check is postdated to two weeks and the $35 is kept as a leasing fee.
After the two weeks go by, the consumer has a choice: Let the company cash the check, or, if there's not enough money in the checking account, send over another $35 to buy more time. Two weeks later, the same scenario repeats itself, sometimes over and over and over again.
But these companies have an ace up their sleeves when those customers fall behind on their payments. They can take the signed checks and cash them, and when they bounce, the companies can turn them over to a Justice of the Peace on hot check charges -- a Class A misdemeanor that carries a fine of up to $4,000 and up to a year in jail.
The route to small claims courts has been taken so many times in the Dallas area that some of the judges are getting fed up with being used as a state-run collection agency for sale-leaseback companies.
Their complaints spurred state Representative Dale Tillery, a Dallas Democrat, to direct his staff down the road to provide some new legislation controlling their activities.
"It's obviously usury," says Shannon Perez, Tillery's legislative assistant. "We think we're going to bring this in line with pawn shops. That would close the loophole they're going through."
Getting to that loophole, Perez concedes, will probably take a trip to the House Committee on Financial Institutions, where they'll come face to face with Houston Rep Gary Elkins.
As it turned out, Tillery didn't have to wait that long to hear from Elkins.
It was a weary Gary Elkins who called to initially decline a Press interview. Reporters, he said, had lied to him in the past, airing and writing stories that were unfair both to him and his business. There were two sides to this story, he said, and his was never told. This was a good business that offered a real, valuable service to consumers who needed some ready cash, not that anybody cared to report that. Why, people loved his service! A few questions later, Elkins was perking up. He wasn't necessarily opposed to new legislation, he said. If a state rep wanted a new law, he would consider it. How about Tillery's decision to get his staff working on new legislation?
"Tillery?" he said. "Dale Tillery?"
A few minutes later, he changed his mind and agreed to an interview. But before that happened, Elkins put in a call to his fellow legislator, preparing for yet another fight on behalf of his industry.
In his first war, with the A.G.'s office, Elkins filed a countersuit, claiming the state was illegally persecuting him. He wasn't content with just a return salvo. In an unusual twist, Elkins also sued individual attorneys on the case. Elkins's attorney, John Dwyre of San Antonio, quickly gained a reputation inside the A.G.'s office for aggressive tactics, keeping the state's attorneys tied up for days at a time over the legal wrangling.
It's a memory few on the state side reflect on without a groan. Just recalling the fight still makes Elkins angry. His voice rises as he points to one edge of his office on the West Loop. "They literally put me in that corner, and said, 'You have one choice, come out fighting.' "
His counterattack continued with his political campaign in 1994. Elkins announced for the state's 135th district, a quiet, suburban area on the city's west side, so solidly Republican few Democrats have ever bothered to pursue the seat. The action was all in the GOP primary.
Elkins credits the A.G.'s office for inspiring his run at public office. "I was so ticked, so hacked off that I made a commitment that no other Texan would have to endure what I went through. This was the greatest travesty I have ever seen in my life."
His Republican opponent, an energy attorney named Patricia Curran, got high marks from the Houston Chronicle. In the prelude to the runoff vote, Curran fired a shot at what she felt was Elkins's Achilles heel: Personal Rental.
She called it, "The Business Gary Elkins Doesn't Talk About." Curran reviewed the allegations in the state's lawsuit and listed a group of people who had complained of the business that took back several times what they had originally borrowed:
"Patricia Swift was threatened with the Sheriff and/or constable by Elkins's company when she was late paying her fees...," Curran's campaign stated. "After a series of harassing phone calls, Elkins's company threatened to go to her employer, when Clentice Marie Tucker was late paying."
On the eve of the primary, in what was becoming a familiar tactic, Elkins, using his attorney Dwyre, sued her, too, saying the flier was slanderous and full of lies.
Four years after the ordeal with the state began, Elkins could claim triumphs on every front.
A jury of his peers cleared him of the state charges, finding his clients signed lease contracts and owed the money. Months later, Elkins dropped his case against the state. Elkins beat Curran by 126 votes in the primary and rolled over a Libertarian candidate -- even after the Chronicle opted against making any endorsements in the general election.
Eight months after the election, Elkins dismissed his suit against Curran. He ran unopposed two years ago and faces no opponents for re-election this fall.
Endsley retired, and after two other cases involving sale-leaseback companies sank in defeat, the A.G.'s office never tried to restrict sale-leaseback companies again.
Elkins is one of eight legislators on the House Committee on Financial Institutions. Part of their responsibility is to oversee the activities of Elkins's old nemesis, the Texas Consumer Credit Commissioner.
Elkins isn't known for his legislation. One of the few bills he sponsored in the last session boosted speed limits on toll roads to 70 miles per hour. He's also put his name to several pieces of conservative legislation, including one proposal to require teens to notify parents prior to an abortion and another that would forever ban same-sex marriages.
Beyond that, Elkins offers no apologies for his reluctance to introduce bills.
"There's three kinds of legislation," he declares. "It regulates you, taxes you or takes away your freedom. And honestly, my constituents don't want any of the three."
Elkins describes himself as a free market conservative, distrustful of state controls on businesses and against any effort to create new regulatory "bureaucracies."
His conservative creed dates back a long way. Elkins chipped in $1,100 to David Duke, the former Grand Dragon of the Ku Klux Klan, in his 1991 run for Louisiana governor. Elkins says he regrets the contribution to Duke, a "friend of a friend," who had a "conservative philosophy" of workfare and individual responsibility.
Observers say that Elkins may be inactive in authoring bills, but has his finger on the pulse of new consumer-protection laws from his committee perch on Financial Institutions and the House Committee on Business and Industry. And when the subject is sale-leasebacks, he's been known to get busy.
This past spring, a Dallas TV station aired a report on sale-leaseback companies, with a clip that included this comment from Leslie Pettijohn, the current Texas Consumer Credit commissioner: "Generally, I believe that they [sale-leasebacks] are an arrangement to get around something that otherwise might be a loan."
Soon after, Representative Elkins was knocking on her door. Elkins says he only paid a call on Pettijohn to reassure her that existing laws could cover all the abuses described in the TV story. If companies refused to take back appliances and terminate a lease, he says, they're in violation of the law and should be put out of business.
All Pettijohn will say now is that she and Elkins had some "generic discussions" after the news report. "I meet with him regularly," says Pettijohn. But the state's champion for consumer credit issues refused to answer specific questions on the meeting and referred all comment to Elkins.
"You've got to be very, very careful when it comes to Gary Elkins," says one consumer-protection advocate about incurring the legislator's wrath.
His position in the Legislature has also shielded him from any criticism by Curran, only recently appointed by Governor George W. Bush to the Public Utility Commission.
"I'm now a public official, and he's an elected member of the Legislature," explains Curran as she begs off any comments on her former political opponent and courtroom foe.
With the Attorney General's seat up for election this fall, few in the consumer-protection field feel that there will be any state action until that race is settled.
Surprisingly, though, Harris County Attorney Fleming has assigned Roberta Lloyd in his office to review the industry to see, for the first time in years, if any laws are being broken. Over the past two months, they have quietly begun to put out feelers to others in the consumer-protection field to learn about sale-leasebacks.
"We are involved in a preliminary look at it, how they function, and whether it's legal or not," says Fleming. Both Fleming and Lloyd emphasize the word preliminary.
"We just want to see what's going on," says Lloyd. "We want to make sure there's nothing harmful to consumers." Adds Fleming: "Some may be operating legally and some not legally." Some doubt that anyone could make a case against any sale-leaseback company in Texas without new legislation, legislation that would have to go through Elkins's committee.
Elkins smiles like a Cheshire cat in response to references to his committee seat on Financial Institutions.
"The only thing I regret," he says with a laugh, "is that Al Endsley wasn't consumer credit commissioner when I got there."
Actually, he says, regulating sale-leaseback companies could only be in his favor.
"All regulation is for is to control competition," says Elkins. "Texas is one of the few states in the country to regulate pawn shops. And why?" So the big boys in the business, he answers, can eliminate competition.
The same, he says, would be true for sale-leasebacks. Sponsor new regulations, he says, and "I'd be the only one in business."
Tillery's primary concern is about unscrupulous sale-leaseback companies turning in hot checks for criminal prosecution. All that would take, Elkins says, is a piece of legislation limiting the actions to civil cases. Besides, he adds, cashing a check you know isn't good is against the law already.
No one disputes that these are very lucrative businesses. "Millions and millions and millions of dollars," says one former member of the A.G. team that first went after sale-leasebacks.
Elkins would agree. By his own account, his company pays $15,000 to $20,000 a month in sales tax, 8.25 percent of a total take that can reach more than $200,000 a month. Multiply that by 14 other Houston sale-leaseback companies and dozens more around the state, he says, and you have a sizable industry.
In fact, says the state rep, the business is so lucrative that it could cause a severe impact on state finances to lose the sales tax paid by these companies.
Elkins may have won against the state, but in the files of the BBB is evidence that one adversary has yet to concede to him.
On the surface, there was nothing unusual about the 1990 renewal application by Elkins for BBB membership. He listed his Personal Rental as a "rental company -- appliances -- TVs -- furniture" and his previous business employment as a "credit specialist -- loan co."
Even though BBB employees never received a complaint about Personal Rental, they rejected his application. And if he sent it in today, he would get the same response. The bottom line:
As far as the BBB is concerned, Representative Elkins and others who run sale-leaseback companies just don't pass the Bureau's smell test.
Part of the bureau's file is a photocopy of the $295 check he wrote out to the BBB on January 23, 1990, for his proposed membership dues. For the king of fast money, it was one check never cashed.
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