Money Store's influence on SBA is questioned Lender is big contributor to both parties' campaigns

November 30, 1997|By NEW YORK TIMES NEWS SERVICE

WASHINGTON -- To many Republicans and Democrats in Washington, the Money Store could not have a better name.

In the past 15 years, it has been not only the nation's largest lender of loans backed by the Small Business Administration (SBA), but one of the biggest campaign donors in the industry.

The company and its executives have contributed and raised more than $400,000 for Republicans and Democrats over the past two years.

In the same period, Money Store Investment Corp. has persuaded lawmakers and Clinton administration officials to block a regulation that senior career officials at the SBA say would reduce the likelihood of a huge taxpayer bailout, should the economy turn sour, and with it the Money Store's fortunes.

The regulation, proposed nearly two years ago and still pending, would require the Money Store to increase certain reserves, which would take a deep bite out of the company's rapidly growing profits.

Its implementation has been repeatedly delayed by SBA leaders appointed by the White House.

SBA officials have promised to put out a final regulation soon. But top career officials say they have become concerned that the politically appointed officials have yielded to the Money Store in a way that could lead to significant taxpayer losses.

In recent days, the career officials have threatened to take the highly unusual step of withholding their signatures from any final rule.

"It is a classic example of the intersection of money, politics and regulation," said Martin D. Teckler, a former SBA official who helped draft the proposed regulation.

"The Money Store has used money, and it has used lobbyists. It's not untoward or improper. It's the process and the way the system works."

The sale of loans has become a vital component of the Money Store's phenomenal growth. The company has burnished its image as a lender of last resort to homeowners and small businesses with poor credit records by using popular advertising pitches that feature the baseball greats Phil Rizzuto and Jim Palmer.

It has more than 220 offices around the nation and in Puerto Rico.

Since 1993, its revenues have more than tripled, to $778 million last year from $219 million in 1993, and it expects to issue about $7.5 billion in commercial, homeowner, student and auto loans this year.

Executives of the Money Store said that their political activity was no different from that of any other big company with important issues pending in Washington.

At issue is a proposed regulation requiring the Money Store to hold back greater reserves than it already does when it sells portions of the government-guaranteed loans.

The sale of those loans is vital for the company to replenish its capital and necessary for its continued growth. The company has already sold more than $759 million in small-business loans in the past five years.

Executives have told some regulators that the proposed rule could shave millions off its quarterly profits.

Since the end of 1995, career regulators at the Small Business Administration have sought the rule to increase the reserves to 5 percent so that the Money Store would have a greater interest in the loans it sells.

The fear, they say, is that the company will issue riskier loans if it has too small an interest in them after they are sold.

Because it is not a bank, the Money Store does not have the traditional capital base of deposits, and because it does not have the resources of other large nonbank lenders, it has had to rely more heavily on repackaging its loans as securities and selling them in the secondary market to refinance new loans.

Pub Date: 11/30/97

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