Payday Loan Times

In 1999, all over Pennsylvania, thousands of people strapped for cash lined up at the storefront offices of a short-term loan company.

They got money, fast, from a bank called Crusader, headed by a self-made millionaire named Tom Knox.

The cash loans averaged $250 apiece. But the interest was so steep that community activists cried foul, and federal regulators zeroed in on the bank. Eighteen months after it began making these so-called payday loans, Crusader, under pressure from regulators, agreed to stop.

Now, the man who ran Crusader is running for mayor of Philadelphia, and his wealth has transformed the race.

Knox’s role in the much-criticized payday advance lending industry is only a brief chapter in his career - “a very small part” of his earnings, as his wife, who was a Crusader director, put it. Knox, who was a millionaire before he bought Crusader, has made his rags-to-riches life story the center of his campaign.

But as polls show Knox surging into second place in the five-way Democratic field, his rivals are already hinting that they’ll make an issue of “predatory lending,” as candidate U.S. Rep. Bob Brady said last month, and Knox is facing questions about his past involvement with no faxing payday loans.

Knox, who served briefly as a $1-a-year deputy mayor under Mayor Ed Rendell in the early 1990s, said in an interview last week that he had no regrets about having gotten into payday lending in 1999 and 2000.

But the longtime insurance executive also acknowledged that it was not one of his best business decisions - and said he “did the right thing” by getting out of fast payday advance lending.

Knox acknowledged that federal thrift regulators - “they’re like Gestapo” - had pushed Crusader to stop this practice. He said the bank wanted out, having tired of criticisms from “social groups, do-gooder types” and federal regulators.

“They wanted us out of the business. We wanted to extricate ourselves,” Knox said. “We got out.”

At the time, he said, he thought the cash advances served working-class people well. “I thought at the time it was a service to the community,” Knox said.

He said he did not realize at first that the loans, if unpaid and renewed again and again, could lead lower-income people into spiraling debt.

“When we went into this business, we weren’t aware that people were rolling over these loans and it was costing them this money… . We were going to make a couple of dollars [per loan]. As it turned out, there were these rollover loans, and that was what all the regulators and all the people who were criticizing us were talking about.”

While taking pains to say his bank’s loans had not been improper, Knox said that if he became mayor, he would ask banks to offer cheaper short-term payday advances at no profit.

“I’d like to see the city require some of the banks that we do business with provide what we call ‘micro loans’ to people that need them, and to do it on a break-even basis,” Knox said.

He said his concern now, as then, is to help people who have no place to turn for small loans - much like the situation in which Knox said he found himself after joining the Navy at 17. When returning home, he said, he had to borrow $3 and pay back $5 to afford a round-trip bus ticket from Norfolk, Va., to Philadelphia.

“I believe people in that situation should not be ignored,” Knox said.

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