About 300 Chattanooga employees are out of jobs today after layoffs at seven companies affiliated with local entrepreneur Carey Brown’s payday lending operations.
“Due to the current regulatory environment and a contraction of the financial industry’s support of [online] lending, we have determined that the ongoing viability of these companies is unsustainable,” Brown said in a statement Friday. “We appreciate the commitment and hard work of our colleagues, and we wish them well.”
Account Pros Inc., AREA203 Digital, Cloudswell, Credit Payment Services Inc., Credit Protection Depot, Eclipse in Action and SupportSeven are the seven companies impacted by the layoffs.
-About 300 in Chattanooga were impacted by layoffs from seven different companies: Account Pros Inc., AREA203 Digital, Cloudswell, Credit Payment Services Inc., Credit Protection Depot, Eclipse in Action and SupportSeven.
-The companies are still technically in existence for now.
-Employees were notified Friday. Leadership met about it Thursday evening.
-Leaders have no comment on severance packages.
-About 100 people in Costa Rica were also impacted.
-Click here for more information on Brown.
The companies cover industries including IT, marketing, financial services and customer service support.
The layoffs impacted about 400 people-100 employees affected are in Costa Rica, while the rest are in Chattanooga.
The seven businesses provided services to Brown’s online lending companies, which have received a letter from officials in the state of New York.
The letter said that Brown’s lending companies were in violation of the law.
Despite the layoffs, there are still some people employed at each company, but leaders didn’t want to say how many.
So as of Friday, the companies still technically exist, according to a spokeswoman.
As recently as Aug. 7, AREA203 partnered with the Downtown Council of the Chattanooga Area Chamber of Commerce for a morning networking event.
Employees at the seven companies got the news Friday morning, the company spokeswoman said.
Leadership of the companies met Thursday night, and the spokeswoman said the move to make layoffs was a sudden one and a last resort.
There is no comment on severance deals.
The company’s clients have been informed of the changes. Leadership will do everything they can to help those impacted by layoffs find other jobs, officials said.
As of Friday afternoon, some laid-off employees had already found jobs elsewhere, and some members of the business community began talking about organizing networking events to help others impacted.
The spokeswoman said there is also the possibility of some of the companies rebounding. It’s unclear how that might happen.
J. Ed. Marston, vice president of marketing and communications for the chamber, said he knew Friday was a difficult day and that chamber leaders’ thoughts were with those impacted by layoffs.
“This further shows the continuing need for the chamber and our partners to proactively pursue job creation opportunities for the local economy,” he also said.
In February, Nooga.com ran a story about Cloudswell, which was formerly Terenine.
At the time of that article, the company was shifting from using physical servers to storing data in the cloud.
The company, which had about 80 employees, had been storing data for area companies in large servers in four rooms at their Riverside Drive location, according to archives.
But leaders changed the company’s name when they decided to move information to the cloud and continue their application development services. At that time, leaders also had plans to focus on data security and compliance.
Leaders said that the name change had nothing to do with allegations against Brown’s companies, according to archives.
Nooga.com also reported in February that SupportSeven was one of this year’s nominees for Small Business of the Year.
SupportSeven employed about 150 people who worked with clients in a variety of industries, according to Nooga.com archives.
At that time, leaders said they had plans to add 500 new jobs and create another Chattanooga office.
After some confusion, leaders with Sovee, a company that specializes in translation and video technology, said they are not impacted by Friday’s layoffs.
Brown has some ownership interest in Sovee, but the company’s leaders said it is a separate business and has no connection to the payday loan business.
“Sovee is not experiencing or planning any layoffs,” President Scott Gaskill Sovee said via email. “While we are blessed that our company continues to grow and expand, we feel sadness for the families impacted by layoffs at other companies.”
Brown and his companies have given money to area causes, such as local STEM education.
He also co-founded the Covenant Values Foundation, which is a nondenominational Christian organization that gives grants to help orphans, youth, widows, the unborn and those who cannot help themselves, officials said, according to archives.
In March 2012, the organization pledged to make $1 billion in grants to worthy causes.
At that time, the group awarded its first grant to the On Point youth development program for teens and pledged up to $625,000 in additional grants.
A spokesperson for Brown said none of the foundation’s grants will be impacted because the organization only makes grants with funds already available to the foundation.
Background, payday lending connection
In 2011, the Chattanooga Times Free Press ran an article that said companies such as AREA203 were a front for illegal payday lending services.
Brown is reportedly behind payday lending sites PayDayMax.com, DiscountAdvances.com and MyCashNow.com, which have been charging fees beyond the legal state limit and operating without a license, which is against the law, according to the Times Free Press.
Brown’s defense is that his payday websites are operated from servers that are not in the country and thus not subject to state law.
The seven companies impacted by Friday’s layoffs provided an array of services for the payday lending sites.
The three lenders that Brown is reportedly connected to are on a list of lenders that recently received a letter from Benjamin Lawsky, the superintendent of financial services with the state of New York.
That letter informed recipients of an ongoing investigation the New York State Department of Financial Services is conducting into illegal online payday lending.
“Payday loans are short-term loans, typically in advance on a future paycheck or other income source,” according to the letter.
The letter also said that the department had discovered dozens of out-of-state lenders, including those Brown is affiliated with, that had used the Internet to solicit and provide illegal payday loans to consumers in New York.
“To address their unlawful activity, [the department] sent letters to 35 payday lenders directing them to cease and desist offering to lend and lending monies at usurious rates in New York,” according to the letter.
The Justice Department has recently been cracking down on questionable payday lenders, according to The Wall Street Journal.
The Justice Department started targeting banks and other institutions that handle electronic payments for an array of organizations, including payday lenders.
That’s a shift in the department’s strategy from targeting just illegal lenders to targeting the infrastructure that allows the lenders to operate, according to The Wall Street Journal.
The illegal transactions are done through the Internet and must go through the Automated Clearing House network, which banks have access to.
State leaders in New York also sent the letter to banks to let them know that “even if unintentionally” they may be playing a part in the illegal loan process.
The letter requested that bank leaders work to create a new set of model safeguards and procedures to prevent illegal lenders’ access to the clearinghouse network.
The Wall Street Journal reported that a group of 16 American Indian tribes that offer short-term loans sent a letter to Lawsky saying they wouldn’t comply with his orders to stop operating.
Updated @ 5:09 p.m. on 8/16/13 to add more information as it became available.