Media

In July, a month before Germany's controversial copyright law requiring search engines to pay for featuring snippets of content was set to take effect, Google sent German newspaper publishers a letter asking whether they wanted to opt in to Google News.  Rather than prepare to pay publishers when the law took effect on July 31August 1, Google, which dominates the...

Top brass at AOL's hyperlocal network, Patch, have been saying since at least the beginning of 2013 that they aim to achieve profitability by the end of this year. And during Wednesday's second-quarter earnings call, CEO Tim Armstrong announced that Patch would undergo some drastic cuts to reach that goal in addition to a 25-percent decrease in expenses already instituted...

Let's say you've suddenly found yourself working for a boss who's more steeped in tech culture than in journalism. As the veteran of a publication that was founded by men with a tech-startup mentality, I can attest that there's bound to be some miscommunication. To help ease the transition, I've compiled some sample questions you may start hearing around the...

by Theodoric Meyer

A recently published study by researchers at the University of Texas at Arlington found elevated levels of arsenic and other heavy metals in groundwater near natural gas fracking sites in Texas’ Barnett Shale.

While the findings are far from conclusive, the study provides further evidence tying fracking to arsenic contamination. An internal Environmental Protection Agency PowerPoint presentation recently obtained by the Los Angeles Times warned that wells near Dimock, Pa., showed elevated levels of arsenic in the groundwater. The EPA also found arsenic in groundwater near fracking sites in Pavillion, Wyo., in 2009 — a study the agency later abandoned.

ProPublica talked with Brian Fontenot, the paper’s lead author, about how his team carried out the study and why it matters. (Fontenot and another author, Laura Hunt, work for the EPA in Dallas, but they conducted the study on their own time in collaboration with several UT Arlington researchers.) Here’s an edited version of our interview:

 

What led you guys to do the study?

We were sort of talking around lunch one day, and came up with the idea of actually going out and testing water in the Barnett Shale. We’d heard all the things that you see in the media, all the sort of really left-wing stuff and right-wing stuff, but there weren’t a whole lot of answers out there in terms of an actual scientific study of water in the Barnett Shale. Our main intent was to bring an unbiased viewpoint here — to just look at the water, see if we could find anything, and report what we found.

 

What kind of previous studies had been done in this vein?

The closest analog that I could find to our type of study are the things that have been done in the Marcellus Shale, with Rob Jackson’s group out at Duke University. Ours is set up very similarly to theirs in that we went out to private landowners’ wells and sampled their water wells and assayed them for various things. We decided to go with a list of chemicals thought to be included in hydraulic fracturing that was actually released in a congressional report. Our plan was to sample everyone’s water that we could, and then go through that list of these potential chemical compounds within the congressional list.

 

How did you do it?

We were able to get a press release put out from UT Arlington that went into the local newspapers that essentially called for volunteers to be participants in the study. For being a participant, you would get free water testing, and we would tell them our results. We were upfront with everyone about, you know, we don’t have a bias, we’re not anti-industry, we’re not pro-industry. We’re just here to finally get some scientific data on this subject. And we had a pretty overwhelming response.

From there we chose folks that we would be able to get to. We had to work on nights and weekends, because we had an agreement with EPA to work on this study outside of work hours. So we spent quite a few weekend days going out to folks who had responded to our call and sampling their water. But that wasn’t quite enough. We also had to get samples from within the Barnett Shale in areas where fracking was not going on, and samples from outside the Barnett Shale where there’s no fracking going on, because we wanted to have those for reference samples. For those samples we went door to door and explained to folks what our study was about.

We have people that were pro-industry that wanted to participate in this study to help out — saying, you know, ‘You’re not going to find anything and I’m going to help you prove it.’ And we also had folks that were determined to find problems. We have the whole gamut of folks represented in our study.  

We would take a water well, and we would go directly to the head, the closest we could get to the actual water source coming out of the ground, and we would purge that well for about 20 minutes. That ensures that you’re getting fresh water from within the aquifer. So we didn’t take anything from the tap, and nothing that had been through any kind of filtration system. This was as close to the actual groundwater as we could get. We took some measurements, and then we took several samples back to UT Arlington for a battery of chemistry analyses. That’s where we went through and looked for the various volatile organic compounds and heavy metals and methanols and alcohols and things like that.

 

What did you find?

We found that there were actually quite a few examples of elevated constituents, such as heavy metals, the main players being arsenic, selenium and strontium. And we found each of those metals at levels that are above EPA’s maximum contaminate limit for drinking water.

These heavy metals do naturally occur in the groundwater in this region. But we have a historical dataset that points to the fact that the levels we found are sort of unusual and not natural. These really high levels differ from what the groundwater used to be like before fracking came in. And when you look at the location of the natural gas wells, you find that any time you have water wells that exceed the maximum contaminate limit for any of these heavy metals, they are within about three kilometers of a natural gas well. Once you get a private water well that’s not very close to a natural gas well, all of these heavy metals come down. But just because you’re close to a natural gas well does not mean you’re guaranteed to have elevated contaminate levels. We had quite a few samples that were very close to natural gas wells that had no problems with their water at all.

We also found a few samples that had measureable levels of methanol and ethanol, and these are two substances that don’t naturally occur in groundwater. They can actually be created by bacterial interactions underwater, but whenever methanol or ethanol occur in the environment, they’re very fleeting and transient. So for us to be able to actually randomly take a grab sample and detect detectable methanol and ethanol — that implies that there may be a continuous source of this.

 

You found levels of arsenic in areas with fracking that were almost 18 times higher than in areas without fracking or in the historical data. What would happen to someone who drank that water?

Arsenic is a pretty well-known poison. If you experience a lot of long-term exposure to arsenic, you get a lot of different risks, like skin damage, problems with the circulatory system or even an increased risk of cancer. The levels that we found would not be a lethal dose, but they’re certainly levels that you would not want to be exposed to for any extended period of time.

 

What about the other stuff you found?

The heavy metals are a little bit different because they are known to be included in some fracking recipes. But they’re also naturally occurring compounds. We think the problem is that they’re becoming concentrated at levels that aren’t normal as a result of some aspect of natural gas extraction.

It’s not necessarily that we’re saying fracking fluid getting out. We don’t have any evidence of that. But there are many other steps involved, from drilling the hole to getting the water back out. A lot of these can actually cause different scenarios whereby the naturally occurring heavy metals will become concentrated in ways they normally wouldn’t. For example, if you have a private water well that’s not kept up well, you’ll have a scale of rust on the inside. And if someone were to do a lot of drilling nearby, you may find some pressure waves or vibrations that would cause those rust particles to flake out into the water. Arsenic is bound up inside that rust, and that can actually mobilize arsenic that would never be in the water otherwise.

Methanol and ethanol are substances that should not be very easy to find in the groundwater naturally. We definitely know that those are on the list of things that are known to be in hydraulic fracturing fluid. But we were unable to actually sample any hydraulic fracturing fluid, so we can’t make any claims that we have evidence fluids got into the water.

 

Have you talked with the homeowners whose wells you sampled?

We have shown those homeowners the results. I think most of the folks that had high levels of heavy metals were not necessarily surprised.  You hear so much I think maybe they were expecting it to come back with something even more extreme than that. I don’t want to say they were relieved, but I think they all sort of took the news in stride and realized, OK, well, as a private well owner there’s no state or federal agency that provides any kind of oversight or regulation, so it’s incumbent on that well owner to get testing done and get any kind of remediation.

 

Do you think fracking is responsible for what you found?

Well, I can’t say we have a smoking gun. We don’t want the public to take away from this that we have pegged fracking as the cause of these issues. But we have shown that these issues do occur in close relation, geographically, to natural gas extraction. And we have this historical database from pretty much the same exact areas that we sampled that never had these issues until the onset of all the fracking. We have about 16,000 active wells here in the Barnett Shale, and that’s all popped up in about the last decade, so it’s been a pretty dramatic increase.

We noticed that when you’re closer to a well, you’re more likely to have a problem, and that today’s samples have problems, while yesterday’s samples before the fracking showed up did not. So we think that the strongest argument we can say is that this needs more research.

Writing about newspapers and the Internet, Matthew Yglesias manages to be both crushingly obvious and wrong at the same time. Quite a feat. Here's his headline: Online News Hasn't Killed Newspapers--It's the Death of Advertising And lede: Hearing some coverage of the Washington Post's sale on radio and television over the past couple of days, I heard a lot of...

This month, CJR presents "Required Skimming," a daily miniguide to our staffers' beats and obsessions. If we overlooked any of your must-read destinations, please tell us in the comments. The Nerdist: A warm, witty geekfest, with host Chris Hardwick roping in everyone from Billy Crystal to Buzz Aldrin as guests. Expect chatter about Starfleet, Jedi, superheroes, and hobbits, as well...

by Jake Bernstein

The Securities and Exchange Commission appears to be concluding its investigation of Magnetar, a hedge fund that played a pivotal role in the disastrous mortgage bond market that helped fuel the financial crisis. Citing anonymous sources, the Wall Street Journal reported this morning that SEC staff had decided not to recommend filing civil charges against the Illinois-based hedge fund.

The SEC declined to comment to ProPublica. Magnetar did not respond to requests for comment.

As we detailed in 2010, Magnetar worked with investment banks to build mortgage-backed securities called collateralized debt obligations – CDOs – that the hedge fund also bet against.

Magnetar would buy the riskiest part of the CDO, which gave it influence in picking which bonds would be included in the CDO. In turn, the hedge fund pushed bonds that would make the investment more likely to fail.

Magnetar has always denied that it had a strategy of betting against the deals it helped created. The hedge fund says it was “market neutral,” meaning it designed a deal where it would profit whether housing rose or fell.

In less than two years Magnetar helped create more than $40 billion worth of CDOs.

What made Magnetar an elusive candidate for enforcement action is that it never marketed these CDOs to outside investors. All it did was convince banks to construct the CDOs, for which the banks received millions in fees. The banks in turn sold the CDOs to investors who were not aware that a hedge fund was betting against deals it had helped create.

To date, most of the SEC’s enforcement over CDOs has focused primarily on banks. It appears those cases have still not concluded. In a recent securities filing, Bank of America revealed that it is still under investigation by the SEC over a CDO, created by Merrill Lynch, which Bank of America purchased in 2009.

As we have previously noted, Magnetar had a particularly active role in the creation of that CDO, called Norma. The hedge fund invested less than $50 million in Norma. Magnetar also placed a $600 million bet against the deal. Norma was initially worth $1.5 billion but collapsed, costing investors hundreds of millions of dollars. Magnetar has never disclosed what it made from the deal.

I was optimistic that the publication of Peggy Orenstein's fabulous New York Times Magazine piece on pinkwashing and the dysfunction of breast cancer culture in April would change the conversation and diminish misleading coverage of the disease. Apparently not. Wednesday morning, Slate urged its readers to "Reconsider the Mammogram" (with no apparent apologies to David Foster Wallace). The piece, about...

For the Discovery Channel, Shark Week, an annual week devoted to shark-related programming, is prime time for ratings and, supposedly, a moderate win for science. After all, underneath all the gore, a week of documentaries about marine life is presumably a vehicle drumming up interest in science, right? But Discovery aired a program on Sunday chronicling the search for a...

Steve Coll, the new dean of Columbia's Journalism School, spent 20 years as a reporter and editor at The Washington Post, serving as the paper's managing editor from 1998-2004. CJR spoke to him about the sale of the Post to Jeff Bezos, the founder of Amazon. What are some of the bigger strategic mistakes the Post made in recent years?...

by Kara Brandeisky

When the House of Representatives recently considered an amendment that would have dismantled the NSA’s bulk phone records collection program, the White House swiftly condemned the measure. But only five years ago, Sen. Barack Obama, D-Ill. was part of a group of legislators that supported substantial changes to NSA surveillance programs. Here are some of the proposals the president co-sponsored as a senator.

As a senator, Obama wanted to limit bulk records collection.

Obama co-sponsored a 2007 bill, introduced by Sen. Russ Feingold, D-Wis., that would have required the government to demonstrate, with “specific and articulable facts,” that it wanted records related to “a suspected agent of a foreign power” or the records of people with one degree of separation from a suspect. The bill died in committee. Following pressure from the Bush administration, lawmakers had abandoned a similar 2005 measure, which Obama also supported.

We now know the Obama administration has sought, and obtained, the phone records belonging to all Verizon Business Network Services subscribers (and reportedly, Sprint and AT&T subscribers, as well). Once the NSA has the database, analysts search through the phone records and look at people with two or three degrees of separation from suspected terrorists.

The measure Obama supported in 2007 is actually similar to the House amendment that the White House condemned earlier this month. That measure, introduced by Reps. Justin Amash, R-Mich., and John Conyers, D-Mich., would have ended bulk phone records collection but still allowed the NSA to collect records related to individual suspects without a warrant based on probable cause.

The 2007 measure is also similar to current proposals introduced by Conyers and Sen. Bernie Sanders, I-Vt.

As a senator, Obama wanted to require government analysts to get court approval before accessing incidentally collected American data.

In Feb. 2008, Obama co-sponsored an amendment, also introduced by Feingold, which would have further limited the ability of the government to collect any communications to or from people residing in the U.S.  

The measure would have also required government analysts to segregate all incidentally collected American communications. If analysts wanted to access those communications, they would have needed to apply for individualized surveillance court approval.

The amendment failed 35-63. Obama later reversed his position and supported what became the law now known to authorize the PRISM program. That legislation — the FISA Amendments Act of 2008 — also granted immunity to telecoms that had cooperated with the government on surveillance.

The law ensured the government would not need a court order to collect data from foreigners residing outside the United States. According to the Washington Post, analysts are told that they can compel companies to turn over communications if they are 51 percent certain the data belongs to foreigners.

Powerpoint presentation slides published by the Guardian indicate that when analysts use XKeyscore — the software the NSA uses to sift through huge amounts of raw internet data — they must first justify why they have reason to believe communications are foreign. Analysts can select from rationales available in dropdown menus and then read the communications without court or supervisor approval.

Finally, analysts do not need court approval to look at previously-collected bulk metadata either, even domestic metadata. Instead, the NSA limits access to incidentally collected American data according to its own “minimization” procedures. A leaked 2009 document said that analysts only needed permission from their “shift coordinators” to access previously-collected phone records. Rep. Stephen Lynch, D-Mass., has introduced a bill that would require analysts to get special court approval to search through telephone metadata.

As a senator, Obama wanted the executive branch to report to Congress how many American communications had been swept up during surveillance.

Feingold’s 2008 amendment, which Obama supported, would have also required the Defense Department and Justice Department to complete a joint audit of all incidentally collected American communications and provide the report to congressional intelligence committees. The amendment failed 35-63.

The Inspector General of the Intelligence Community told Senators Ron Wyden, D-Ore., and Mark Udall, D-Co. last year that it would be unfeasible to estimate how many American communications have been incidentally collected, and doing so would violate Americans’ privacy rights.

As a senator, Obama wanted to restrict the use of gag orders related to surveillance court orders.

Obama co-sponsored at least two measures that would have made it harder for the government to issue nondisclosure orders to businesses when compelling them to turn over customer data.

One 2007 bill would have required the government to demonstrate that disclosure could cause one of six specific harms: by either endangering someone, causing someone to avoid prosecution, encouraging the destruction of evidence, intimidating potential witnesses, interfering with diplomatic relations, or threatening national security. It would have also required the government to show that the gag order was “narrowly tailored” to address those specific dangers. Obama also supported a similar measure in 2005. Neither measure made it out of committee.

The Obama administration has thus far prevented companies from disclosing information about surveillance requests. Verizon’s surveillance court order included a gag order.

Meanwhile, Microsoft and Google have filed motions with the Foreign Intelligence Surveillance Court seeking permission to release aggregate data about directives they’ve received. Microsoft has said the Justice Department and the FBI had previously denied its requests to release more information. The Justice Department has asked for more time to consider lifting the gag orders.

As a senator, Obama wanted to give the accused a chance to challenge government surveillance.

Obama co-sponsored a 2007 measure that would have required the government to tell defendants before it used any evidence collected under the controversial section of the Patriot Act. (That section, known as 215, has served as the basis for the bulk phone records collection program.) Obama also supported an identical measure in 2005.

Both bills would have ensured that defendants had a chance to challenge the legalityof Patriot Act surveillance. The Supreme Court has since held that plaintiffs who cannot prove they have been monitored cannot challenge NSA surveillance programs.

Those particular bills did not make it out of committee. But another section of the Foreign Intelligence Surveillance Act requires that the government tell defendants before it uses evidence collected under that law.

Until recently, federal prosecutors would not tell defendants what kind of surveillance had been used.

The New York Times reported that in two separate bomb plot prosecutions, the government resisted efforts to reveal whether its surveillance relied on a traditional FISA order, or the 2008 law now known to authorize PRISM. As a result, defense attorneys had been unable to contest the legality of the surveillance. Sen. Dianne Feinstein, D-Calif., later said that in both cases, the government had relied on the 2008 law, though prosecutors now dispute that account.

On July 30, the Justice Department reversed its position in one bomb plot prosecution. The government disclosed that it had not gathered any evidence under the 2008 law now known to authorize sweeping surveillance.

  

But that’s not the only case in which the government has refused to detail its surveillance. When San Diego cab driver BasaalySaeedMoalin was charged with providing material support to terrorists based on surveillance evidence in Dec. 2010, his attorney, Joshua Dratel, tried to get the government’s wiretap application to the Foreign Intelligence Surveillance Court. The government refused, citing national security.

Dratel only learned that the government had used Moalin’s phone records as the basis for its wiretap application — collected under Section 215 of the Patriot Act — when FBI Deputy Director Sean Joyce cited the Moalin case as a success story for the bulk phone records collection program.

Reuters has also reported that a U.S. Drug Enforcement Administration unit uses evidence from surveillance to investigate Americans for drug-related crimes, and then directs DEA agents to “recreate” the investigations to cover up the original tip, so defendants won’t know they’ve been monitored.

As a senator, Obama wanted the attorney general to submit a public report giving aggregate data about how many people had been targeted for searches.

Under current law, the attorney general gives congressional intelligence committees a semiannual report with aggregate data on how many people have been targeted for surveillance. Obama co-sponsored a 2005 bill that would have made that report public. The bill didn’t make it out of committee.

Despite requests from Microsoft and Google, the Justice Department has not yet given companies approval to disclose aggregate data about surveillance directives.

As a senator, Obama wanted the government to declassify significant surveillance court opinions.

Currently, the attorney general also gives congressional intelligence committees “significant” surveillance court opinions, decisions and orders and summaries of any significant legal interpretations. The 2005 bill that Obama co-sponsored would have released those opinions to the public, allowing redactions for sensitive national security information.

Before Edward Snowden’s disclosures, the Obama Justice Department had fought Freedom of Information Act lawsuits seeking surveillance court opinions. On July 31, the Director of National Intelligence released a heavily redacted version of the FISA court’s “primary order” compelling telecoms to turn over metadata.

In response to a request from Yahoo, the government also says it is going to declassify court documents showing how Yahoo challenged a government directive to turn over user data. The Director of National Intelligence is still reviewing if there are other surveillance court opinions and other significant documents that may be released. Meanwhile, there are severalbills in Congress that would compel the government to release secret surveillance court opinions.

This month, CJR presents "Required Skimming," a daily miniguide to our staffers' beats and obsessions. If we overlooked your favorite too cool for school food mag, please tell us in the comments. Lucky Peach The patient zero of cool-eats, David Chang's quarterly journal is perhaps the only food magazine that could successfully run a gender issue (and...

I'm a huge admirer of Jeff Bezos, and the way in which he has managed to dodge the biggest pitfall facing the managers of public companies: rather than maximize short-term profits, he instead has concentrated -- with enormous success -- on building long-term value. Amazon is now worth about $140 billion, or more than 500 Washington Posts -- more, indeed,...

In a boffo performance that won't come soon to a theater near you, Nicolas Cage appeared before the Nevada Senate Finance Committee early in May to support a state tax credit for film production in Nevada. The actor, who lives in Las Vegas and won a best actor Oscar for his performance in the 1995 film, Leaving Las Vegas, delivered...

In his "Stories I'd like to see" column, journalist and entrepreneur Steven Brill spotlights topics that, in his opinion, have received insufficient media attention. This article was originally published on Reuters.com. 1. How the Guardian protects America's national security: Last week, the Guardian released another Edward Snowden-procured red-hot document--a "top secret," 32-page National Security Agency training manual for a program...

The Web is still reeling from the news that The Washington Post is being sold to Amazon founder Jeff Bezos for $250 million. Within minutes of the announcement, Twitter feeds lit up with the inevitable jokes about Bezos' ubiquitous online retail company: Jeff Bezos buys Washington Post. News to be delivered within 3-5 days.— Albert Brooks (@AlbertBrooks) August 5, 2013...

FAIRWAY, KS -- On Feb. 8, Amy Meyer, a 25-year-old activist, recorded cell-phone video of activities at a slaughterhouse in a Salt Lake City suburb. Eleven days later she was informed, much to her surprise, that she was being prosecuted for a Class B misdemeanor under a new Utah state law prohibiting "agricultural operation interference"--an offense that could mean up...

No one in their right mind claims to know how this is all going to go, but all agree that the landmark purchase of The Washington Post by Amazon billionaire Jeff Bezos ushers in a brave new world for the American press. Billionaire John Henry just bought the Boston Globe for a song and will fold it into his sports...

by Paul Kiel

.content-right { display: none; } .ad.added { float: right; margin-right: -340px; margin-top: -50px; } .content-main { float: none; width: 100%; } .article { width: 610px; } .custom-chart { font-size:10px; font-family:Arial,helvetica,sans-serif; margin-bottom:0; width: 480px !important; border: 0px; padding-top: 10px; } .custom-chart .value { font-size: 12px; } .custom-chart .inner-bar { box-shadow: 0 0 3px #cecece;margin-right: 2px !important; width: 98%; } .custom-chart .label { text-align: center; margin-left: 0px; border-top: 1px solid #CECECE; margin-top: 0px; padding-top: 5px; width: 98%; font-size: 11px; line-height: 13px; } #homeowner-categories .custom-chart .label { width: 92%; font-size: 11px; padding-left: 5px; text-align:left; } .article p.custom-chart-hed { font-size: 16px; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; margin-bottom: 6px; font-weight: bold; line-height: 21px; } .custom-chart-wrapper { width:480px; background-color: #F3F3F3; padding: 20px 20px 5px; margin-right: -340px; float: right; margin-left: 30px; } .custom-chart-wrapper hr { margin: 20px 0; } .custom-chart-caption {font-family:Helvetica,arial,sans-serif;color:#000;font-style:normal;margin-bottom:20px !important;font-size: 11px; } .custom-chart-caption-sub {margin-top: 3px;display: block;color:#999999;font-style: italic;} .custom-chart-subhead {margin-top: 3px;display: block;color:#777777; line-height: 16px; font-size: 14px;} .custom-chart-wrapper .axis-label { font-family:Helvetica,arial,sans-serif; font-size: 13px; } h3.descriptive-hed {width: 400px;} .descriptive-container {width: 630px;margin: 0 12px 12px 0;border-bottom: 1px solid #c3c3c3;float:left;} #google-callout { display:none; } .article p.custom-chart-main-hed { font-size: 23px; font-weight: bold; line-height: 26px; font-family: "ff-meta-serif-web-1","ff-meta-serif-web-2","Georgia",serif; margin: 5px 0 10px; } @media screen and (max-width: 800px) and (min-width: 481px) { .custom-chart-wrapper { margin: 20px auto; float: none; } .ad.added { display: none; } .content-right { display: block; } } @media screen and (max-width: 480px) { .custom-chart-wrapper { width: 290px; margin: 20px 0px 20px -15px; float: none; } .custom-chart { width: 290px !important; } .content-right { display: block; } }

A version of this story was co-published with the St. Louis Post-Dispatch.

In 2009, consumer advocates in Washington State decided to try a new approach to regulating payday loans. Like reformers in other states, they’d tried to get the legislature to ban high-cost loans outright — but had hit a brick wall. So, instead, they managed to get a law passed that limited borrowers to no more than eight payday loans in one year.

Lenders would still be free to charge annual rates well into the triple digits, but the law would eliminate what critics say is the worst aspect of payday loans: borrowers caught in a cycle of debt by taking out loans over and over.

Lenders Reaped a Majority of Their Fees From a Minority of Repeat Borrowers

Two-thirds of borrowers in 2009 took out eight or fewer loans...

Total Borrowers, by number of loans in 2009

1-4 loans","5-8","9-12","13-16","17-20","21+"]" data-type="vertical" data-values="[183404,87725,67159,32950,18664,20139]">

...but two-thirds of all loans went to borrowers who took out nine or more loans.

Total Loans Issued, by number of loans per borrower in 2009

Source: 2009 Payday Lending Report, Washington State Dept. of Financial Institutions

At least in Washington, most payday loan borrowers didn’t take out eight loans in a year. Data from 2009, the last year before the reform bill went into effect, shows how many people in 2009 took out one to four loans, five to eight loans, and so on. Two-thirds of these borrowers took out eight or fewer loans in 2009.

But the people who take out only a few payday loans do not drive industry profits. That becomes clear when, instead of looking at the number of people, one looks at the number of loans. Then the trend flips: About two-thirds of loans went to borrowers who took out nine or more loans in 2009.

In other words, one-third of payday loan borrowers accounted for two-thirds of payday loans made in Washington State in 2009.

The Consumer Financial Protection Bureau found a similar imbalance when it studied a national sample of payday loans earlier this year: Lenders reaped three-quarters of their loan fees from borrowers who had more than 10 payday loans in a 12-month period.

As expected, Washington’s reform has not affected most borrowers. According to the 2011 report from state regulators, only about 24 percent of borrowers had taken out the maximum eight loans over a 12-month period.

But the total number of payday loans has plummeted. In 2009, Washington borrowers took out more than 3.2 million payday loans. In 2011, the last year for which data is available, the number had plunged to 856,000.

During the same time, the number of payday loan stores in the state dropped by 42 percent.

The law “worked way better than we expected,” said Marcy Bowers, director of the nonprofit Statewide Poverty Action Network.

Meanwhile, the industry, which opposed the 2009 law, has recently pushed legislation to allow high-cost installment loans in the state. As we report, that’s a typical response by the industry to unwanted legislation.

googletag.display('google-Rt_Sdbr_Non-Mobile-Only300x250');

Washington’s law has proven a model for other states. Delaware passed a law in 2012 that limited payday loans to five in a 12-month period. Earlier this year, consumer advocates pushed a similar law in California, but it stalled.

Asked for comment about Washington’s law, Amy Cantu, a spokeswoman for the Community Financial Services Association, the payday lenders’ trade group, said lenders work closely with state regulators and cited the group’s best practices, which include offering customers a payment plan when they want more time to repay a loan.

by Paul Kiel

A version of this story was co-published with the St. Louis Post-Dispatch.

In 2008, payday lenders suffered a major defeat when the Ohio legislature banned high-cost loans. That same year, they lost again when they dumped more than $20 million into an effort to roll back the law: The public voted against it by nearly two-to-one.

But five years later, hundreds of payday loan stores still operate in Ohio, charging annual rates that can approach 700 percent.

It’s just one example of the industry’s resilience. In state after state where lenders have confronted unwanted regulation, they have found ways to continue to deliver high-cost loans.

Sometimes, as in Ohio, lenders have exploited loopholes in the law. But more often, they have reacted to laws targeted at one type of high-cost loan by churning out other products that feature triple-digit annual rates.

To be sure, there are states that have successfully banned high-cost lenders. Today Arkansas is an island, surrounded by six other states where ads scream “Cash!” and high-cost lenders dot the strip malls. Arkansas’ constitution caps non-bank rates at 17 percent.

But even there, the industry managed to operate for nearly a decade until the state Supreme Court finally declared those loans usurious in 2008.

The state-by-state skirmishes are crucial, because high-cost lenders operate primarily under state law. On the federal level, the recently formed Consumer Financial Protection Bureau can address “unfair, deceptive or abusive practices,” said a spokeswoman. But the agency is prohibited from capping interest rates.

In Ohio, the lenders continue to offer payday loans via loopholes in laws written to regulate far different companies — mortgage lenders and credit repair organizations. The latter peddle their services to people struggling with debt, but they can charge unrestricted fees for helping consumers obtain new loans into which borrowers can consolidate their debt.

Today, Ohio lenders often charge even higher annual rates (for example, nearly 700 percent for a two-week loan) than they did before the reforms, according to a report by the nonprofit Policy Matters Ohio. In addition, other breeds of high-cost lending, such as auto-title loans, have recently moved into the state for the first time.

Earlier this year, the Ohio Supreme Court agreed to hear a case challenging the use of the mortgage law by a payday lender named Cashland. But even if the court rules the tactic illegal, the companies might simply find a new loophole. In its recent annual report, Cash America, the parent company of Cashland, addressed the consequences of losing the case: “if the Company is unable to continue making short-term loans under this law, it will have to alter its short-term loan product in Ohio.”

Amy Cantu, a spokeswoman for the Community Financial Services Association, the trade group representing the major payday lenders, said members are “regulated and licensed in every state where they conduct business and have worked with state regulators for more than two decades.”

“Second generation” products

When unrestrained by regulation, the typical two-week payday loan can be immensely profitable for lenders. The key to that profitability is for borrowers to take out loans over and over. When the CFPB studied a sample of payday loans earlier this year, it found that three-quarters of loan fees came from borrowers who had more than 10 payday loans in a 12-month period.

But because that type of loan has come under intense scrutiny, many lenders have developed what payday lender EZCorp chief executive Paul Rothamel calls “second generation” products. In early 2011, the traditional two-week payday loan accounted for about 90 percent of the company’s loan balance, he said in a recent call with analysts. By 2013, it had dropped below 50 percent. Eventually, he said, it would likely drop to 25 percent.

But like payday loans, which have annual rates typically ranging from 300 to 700 percent, the new products come at an extremely high cost. Cash America, for example, offers a “line of credit” in at least four states that works like a credit card — but with a 299 percent annual percentage rate. A number of payday lenders have embraced auto-title loans, which are secured by the borrower’s car and typically carry annual rates around 300 percent.

The most popular alternative to payday loans, however, are “longer term, but still very high-cost, installment loans,” said Tom Feltner, director of financial services at the Consumer Federation of America.

Last year, Delaware passed a major payday lending reform bill. For consumer advocates, it was the culmination of over a decade of effort and a badly needed measure to protect vulnerable borrowers. The bill limited the number of payday loans borrowers can take out each year to five.

“It was probably the best we could get here,” said Rashmi Rangan, executive director of the nonprofit Delaware Community Reinvestment Action Council.

But Cash America declared in its annual statement this year that the bill “only affects the Company’s short-term loan product in Delaware (and does not affect its installment loan product in that state).” The company currently offers a seven-month installment loan there at an annual rate of 398 percent.

Lenders can adapt their products with surprising alacrity. In Texas, where regulation is lax, lenders make more than eight times as many payday loans as installment loans, according to the most recent state data. Contrast that with Illinois, where the legislature passed a bill in 2005 that imposed a number of restraints on payday loans. By 2012, triple-digit-rate installment loans in the state outnumbered payday loans almost three to one.

In New Mexico, a 2007 law triggered the same rapid shift. QC Holdings’ payday loan stores dot that state, but just a year after the law, the president of the company told analysts that installment loans had “taken the place of payday loans” in that state.

New Mexico’s attorney general cracked down, filing suits against two lenders, charging in court documents that their long-term products were “unconscionable.” One loan from Cash Loans Now in early 2008 carried an annual percentage rate of 1,147 percent; after borrowing $50, the customer owed nearly $600 in total payments to be paid over the course of a year. FastBucks charged a 650 percent annual rate over two years for a $500 loan.

The products reflect a basic fact: Many low-income borrowers are desperate enough to accept any terms. In a recent Pew Charitable Trusts survey, 37 percent of payday loan borrowers responded that they’d pay any price for a loan.

The loans were unconscionable for a reason beyond the extremely high rates, the suits alleged. Employees did everything they could to keep borrowers on the hook. As one FastBucks employee testified, “We just basically don’t let anybody pay off.”

“Inherent in the model is repeated lending to folks who do not have the financial means to repay the loan,” said Karen Meyers, director of the New Mexico attorney general’s consumer protection division. “Borrowers often end up paying off one loan by taking out another loan. The goal is keeping people in debt indefinitely.”

In both cases, the judges agreed that the lenders had illegally preyed on unsophisticated borrowers. Cash Loans Now’s parent company has appealed the decision. FastBucks filed for bankruptcy protection after the judge ruled that it owed restitution to its customers for illegally circumventing the state’s payday loan law. The attorney general’s office estimates that the company owes over $20 million. Both companies declined to comment.

Despite the attorney general’s victories, similar types of loans are still widely available in New Mexico. The Cash Store, which has over 280 locations in seven states, offers an installment loan there with annual rates ranging from 520 percent to 780 percent. A 2012 QC loan in New Mexico reviewed by ProPublica carried a 425 percent annual rate.

“Playing Cat and Mouse”

When states — such as Washington, New York and New Hampshire — have laws prohibiting high-cost installment loans, the industry has tried to change them.

A bill introduced in Washington’s state senate early this year proposed allowing “small consumer installment loans” that could carry an annual rate of more than 200 percent. Though touted as a lower-cost alternative to payday loans, the bill’s primary backer was Moneytree, a Seattle-based payday lender. The bill passed the state senate, but stalled in the house.

In New Hampshire, which banned high-cost payday loans in 2008, the governor vetoed a bill last year that would have allowed installment loans with annual rates above 400 percent. But that wasn’t the only bill that high-cost lenders had pushed: One to allow auto-title loans, also vetoed by the governor, passed with a supermajority in the legislature. As a result, in 2012, New Hampshire joined states like Georgia and Arizona that have banned triple-digit-rate payday loans but allow similarly structured triple-digit-rate auto-title loans.

Texas has a law strictly limiting payday loans. But since it limits lenders to a fraction of what they prefer to charge, for more than a decade they have ignored it. To shirk the law, first they partnered with banks, since banks, which are regulated by the federal government, can legally offer loans exceeding state interest caps. But when federal regulators cracked down on the practice in 2005, the lenders had to find a new loophole.

Just as in Ohio, Texas lenders started defining themselves as credit repair organizations, which, under Texas law, can charge steep fees. Texas now has nearly 3,500 of such businesses, almost all of which are, effectively, high-cost lenders. And the industry has successfully fought off all efforts to cap their rates.

Seeing the lenders’ statehouse clout, a number of cities, including Dallas, San Antonio and Austin, have passed local ordinances that aim to break the cycle of payday debt by limiting the number of times a borrower can take out a loan. Speaking to analysts early this year, EZCorp’sRothamel said the ordinances had cut his company’s profit in Austin and Dallas by 90 percent.

But the company had a three-pronged counterattack plan, he said. The company had tweaked the product it offered in its brick-and-mortar outlets, and it had also begun to aggressively market online loans to customers in those cities. And the industry was pushing a statewide law to pre-empt the local rules, he said, so payday companies could stop “playing cat and mouse with the cities.”

Jerry Allen, the Dallas councilman who sponsored the city’s payday lending ordinance in 2011, said he wasn’t surprised by the industry’s response. “I’m just a lil’ ol’ local guy in Dallas, Texas,” he said. “I can only punch them the way I can punch them.”

But Allen, a political independent, said he hoped to persuade still more cities to join the effort. Eventually, he hopes the cities will force the state legislature’s hand, but he expects a fight: “Texas is a prime state for these folks. It’s a battleground. There’s a lot of money on the table.”