News Column

Utah lawmaker attempts comeback after suffering secret payday lender-funded attack

May 12, 2014

By Marty Schladen, El Paso Times, Texas

May 12--AUSTIN -- Brad Daw is incredulous that a payday-lending executive is allowed to oversee regulation of Texas' massive payday-lending industry.

Daw, a conservative Republican from Orem, Utah, lost his seat in the Utah House in 2012 after becoming the target of an intensely negative campaign that was secretly funded by payday lenders. One of those lenders was Fort Worth-based Cash America, whose vice president is chairman of the Texas Finance Commission.

A Utah investigation exposed the secret funding in Daw's race and that of former Attorney General John Swallow, who resigned in 2013 after less than a year in office.

Now Daw is running for his old seat -- and he's demanding more regulations for payday lenders and more transparency in politics.

Texas and Utah have some of the loosest payday-lending regulations and some of the highest costs for customers, according to the Pew Charitable Trusts, which studies the issue.

Critics of the industry -- including Daw -- say that large payday lenders trap low-income borrowers in a cycle of debt by giving them loans they can't afford to repay and often carry annual interest rates well in excess of 500 percent.

"I don't know if all of them are bad," Daw said in a phone interview Thursday. "It's generally the big boys who say to customers, 'Come in, we'll lend you money, we'll keep rolling it over and then we'll garnish your wages.'"

Daw said the industry has an unsavory reputation in Utah. He was astounded to learn that Cash America Vice President William J. White is chairman of the Texas Finance Commission, which oversees the state's watchdog for the industry, the Office of Consumer Credit Commissioner.

"What a conflict!" he said. "That's absolutely, completely inappropriate."

White has been under fire since federal authorities fined his company last year for abusive practices and for trying to stymie their investigation.

In December, White told the El Paso Times that payday customers who can't repay their loans have only themselves to blame for making dumb financial decisions such as buying 60-inch TVs -- a claim that is disputed by Pew surveys, which indicate that most customers borrow to pay monthly expenses.

Prominent Texas Democrats, including state Sens. Wendy Davis, D-Fort Worth, and Jose Rodriguez, D-El Paso, have been calling on Gov. Rick Perry to remove White because of his comments.

In 2012, Cash America contributed at least $10,000 to an effort to elect a Utah attorney general who was friendly to the industry and to unseat Daw, who had filed two bills to clamp down on payday lenders, according to a report by a special investigative committee of the heavily Republican Utah House of Representatives.

The report said that of Cash America's contributions, it voluntarily disclosed $5,000 that it contributed to the Proper Role of Government Education Association -- a tax-exempt organization set up to influence the 2012 races of Daw and Swallow.

Cash America didn't have to disclose the contribution because the association was a 501(c)(4) -- a kind of group that is supposed to primarily engage in "social-welfare" activities. Despite IRS rules to the contrary, "dark-money" groups are political organizations that don't disclose their contributors the way political-action committees do.

The chairman of the Utah House committee, Rep. Jim Dunnigan, R-Taylorsville, on May 1 said that payday lenders didn't cooperate with the probe, which was completed last year.

Cash America Vice President Yolanda Walker was asked on Thursday if her company knew that it was contributing to a dark-money group in 2012. She also was asked if her company knew that its contributions would be used to attack Daw and Sean Reyes, Swallow's opponent in the Republican Primary.

"We report all our contributions," Walker said in an email. "We have no comment."

Dunnigan said industry contributions totaling more than $450,000 were funneled through a "daisy chain" of 501(c)(4)s and other groups set up by Swallow's associates in an attempt to hide from the public that payday lenders were playing a big role in Utah politics.

The investigative committee's report said that Swallow was explicit in his instructions to keep the industry's fingerprints off of the race.

"By his own admission he wanted to avoid having the election become a 'payday race," it said.

"The committee concludes that Mr. Swallow hung a veritable 'for sale' sign on the office door that invited moneyed interests to seek special treatment and favors," the report says.

Swallow began helping the payday-lending industry even before he took office as attorney general in January 2013, only to resign in disgrace 11 months later.

Daw said Utah politics is usually free of the mudslinging that typifies races in some other states.

But in the run-up to the June 2012 Republican Primary, Reyes was the target of attacks on his ethics from unnamed sources. Then, in the weeks before the election, Daw came under fire, too.

Voters in his district got a series of direct-mail pieces that, among other things, falsely portrayed him as pushing for a Utah version of the Affordable Care Act, sometimes referred to as Obamacare. In his conservative district, any association with the president is toxic.

"If you get equated to Obama in any way, shape or form, it's just poison," he said.

In just over a month, Daw's voters were hit with a dozen such mailers along with "push polls" meant to smear him.

The mailers, which cost $52,000, were paid for by the Proper Role of Government Education Association -- the 501(c)(4) funded by Cash America and other payday lenders, the House investigation found.

Irving-based Cottonwood Financial operates as the Cash Store and gives generously to Texas officials. It pledged $10,000 to the dark-money group that paid for the mailers to Daw's Utah constituents, the House report said.

Strangely, every member of the Utah Legislature received them as well.

The investigative committee's report called that fact "particularly interesting."

"Legislators representing other parts of the state were obviously not voters in Rep. Daw's district," the report said. "Unlike mailers sent to potential voters to influence their vote, the committee believes this effort may have been intended to intimidate any other member of the Legislature who attempted to regulate the payday-lending industry."

Payday lending was never mentioned in any of the mailers, but Daw, an eight-year incumbent, said he quickly concluded that the industry had something to do with them. He said they had to be the work "of somebody who has a very skewed moral compass to be dirty enough to do something like this."

Dirty or not, it worked.

Swallow ally Jason Powers, the political consultant who ran the mail campaign, crowed about Daw's defeat on the website of his company, Guidant Strategies.

"Representative Brad Daw was a popular incumbent," the House report quotes the website as saying. "Polling at the beginning of the race showed him with more than a 4:1 favorable-to-unfavorable image, as well as more than a 25-point lead over his opponent. These mailers were instrumental in turning the tide in just over a month and defeating Brad Daw by nearly ten percentage points."

Daw said he believes that if voters had known who was paying for the mailers, the attacks would have boomeranged.

"If (payday lenders) had been out in the open, it would have made me a folk hero," he said. "People in my district don't like payday lenders."

He might have a point.

In a March Republican caucus, Daw finished ahead of Rep. Dana Layton -- who defeated him in 2012 -- by a margin of 56 percent to 44 percent. Under Utah's system, the two now will face each other in a June 24 primary because neither candidate got 60 percent in the caucus.

"We feel pretty good," Daw said of his chances in the primary.

In the wake of the payday-lending fueled scandal, the Utah Legislature has passed laws intended to keep well-funded interests from secretly skewing the results of future elections.

Daw said that if he regains his former seat, he'll file another payday-lending bill when he returns to the Capitol in Salt Lake City.

The Utah Republican doesn't share many positions with Texas Democrats who are pushing payday-lending reform and he might be to the right of moderate Republicans pushing to keep the use of dark money from growing here.

Daw said neither issue should be partisan. Both are meant to protect the public, he said.

Marty Schladen may be reached at 512-479-6606.

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(c)2014 the El Paso Times (El Paso, Texas)

Visit the El Paso Times (El Paso, Texas) at www.elpasotimes.com

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Source: El Paso Times (TX)


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