What Is a Waterpark

In the beginning, there was the Garden of Eden, the first theme park designed as paradise on earth until somebody took a bite of the apple and it was renamed Paradise Lost. Years later, God told Noah, "I wanna build a waterpark, so get ready!" After the Great Flood receded from the earth, the attractions industry started to evolve from pleasure gardens in the 1500s to the amusement parks, theme parks and waterparks of today.

First, there were amusement parks

In 1846, Lake Compounce Amusement Park opened in Bristol CT. Cedar Point in Sandusky OH opened in 1870. At the 1893 Chicago World’s Fair, the Ferris Wheel first appeared, and Paul Boynton created Water Chutes on the south side of Chicago. Two years later, Boynton opened a second Water Chutes on Coney Island in New York. Coney Island became the center of the amusement park industry up until 1920.

Second, there were theme parks

In 1955, Walt Disney opened Disneyland, the nation’s first theme park at a cost of $17 million. It was different than the typical amusement park. It introduced several new themed areas where visitors could feel safe while visiting other lands. Of course, the central focus of Disneyland was always the rides --- you know, the roller coasters that could be found at typical amusement parks. But Disney mixed new concepts with the basic rides --- things like heavy theming, sculptured environments, TV characters, movies sets and water. A paddle wheeler steamed up Mississippi River, a safari boat toured the Amazon River and new technology rides splashed down into water. The theme park era was born.

In 1961, Six Flags Over Texas opened as the first successful regional theme park to 1.3 million visitors. Within two years, a water ride called the Log Flume became the most popular ride and was installed in parks around the country.

Third, theme parks evolved into waterparks

In 1964, George Millay created Sea World and took the idea of sea-life parks to new levels. George Millay is a creative genius and the unchallenged "Father of the Waterpark." In 1977, he challenged the amusement industry forever when he opened the gates of Wet ‘N Wild, the world’s first waterpark. As biographer Tim O’Brien writes, Millay is "a man who has turned water into gold, a modern day Poseidon." He launched today’s waterpark industry.

In 1971, Disney World opened on 27,500 acres in Orlando FL at a cost of $250 million. During the 1970s, many inner city amusement parks closed while corporations invested in larger regional theme parks. Later, the major theme parks added outdoor waterparks.

In the early 1950s, a water ski show debuted in Wisconsin Dells WI and duck tours, using water/land vehicles, became popular. During the 1980s, several outdoor waterparks opened in Wisconsin Dells and grew into huge enterprises. Jack and Turk Waterman built Noah’s Ark and later sold it to current owner Tim Gantz. The Hellands built Riverview Park & Water World and the Matteis built Familyland. Many of the hotel owners constructed slides and built water attractions for their outdoor swimming pools --- making Wisconsin Dells a waterpark haven.

Fourth, outdoor waterparks came indoors

In 1994, Stan Anderson, generally acknowledged as the "pioneer of the first indoor waterpark resort", installed some water gizmo in his indoor pool, and weekend occupancy skyrocketed in his Polynesian Resort. Within a year, Anderson’s partner, Tom Lucke and Peter Helland built an indoor waterpark as part of their new Wilderness Resort. In 1997, Jack and Turk Waterman opened Black Wolf Lodge with an indoor waterpark that was later sold to Great Lakes Companies and renamed Great Wolf Lodge. Tim Mattei opened his 65,000 sf indoor waterpark Treasure Island in 1999. And in 2000, Todd Nelson opened the Kalahari Resort, which now boasts having a 125,000 sf indoor waterpark.

Today, we have indoor and outdoor waterparks that range from a 60-room limited service hotel with a 2,000 sf indoor waterplay area to Typhoon Lagoon and Blizzard Beach at Disney World. We have waterparks that are public & private, chain & independent and big & small. Some are self-standing and others are attached to hotels or integrated into the overall design of ski resorts, golf resorts and conference centers. It’s been a little confusing lately --- until somebody asked the question:

What is a waterpark --- really?

Everybody knows what a swimming pool is, right? You have outdoor swimming pools and indoor swimming pools. So far, that’s pretty easy to understand. But, when you combine Disney World, Sea World, Wet ‘N Wild, Great Wolf Lodge and Kalahari Waterpark Resort & Convention Center, things start to get more difficult to understand.

Recently, Aquatics International magazine editor Gary Thill asked Jeff Coy and Bill Haralson to judge some aquatic facilities for his Best of 2004 Issue. The two consultants had been struggling with categories and definitions for the last three years as part of their industry research for the World Waterpark Association. For example, What’s the difference between a glorified swimming pool, an aquatic center and a waterpark? When does a hotel with an indoor waterpark reach the status of a hotel waterpark resort? Does size really matter?

Here is our answer to those questions --- our attempt to categorize, define and provide a way to think and talk about waterparks and their future adaptations.

Criteria for Waterpark Categories & Definitions

What is a waterpark --- really? When thinking about ways to compare waterparks, several questions emerge:

• Location: Is it outdoors or indoors?
• Ownership: Who owns it? Public or private?
• Management: Non-profit or profit, public or private?
• Features: Low or high entertainment value?
• Size: Small, medium, large or mega-sized?
• Affiliation: Is it part of a national brand/chain or independent?
• Design Integration: Is it self-standing, attached or integrated with lodging and other recreation resort facilities?

Outdoor Vs Indoor Waterparks. Today, the biggest distinction among waterparks is whether they are outdoors or indoors. Outdoor waterparks evolved from theme parks and outdoor swimming pools. Indoor waterparks were an extension of hotels, resorts and indoor swimming pools. Outdoor waterparks are loosely spread over acres. Indoor waterparks are tightly compacted into cubic spaces. There are over 400 outdoor waterparks in the USA compared to about 76 indoor waterparks. Outdoor waterparks stand alone and attract day visitors. Indoor waterparks are attached to lodging and attract overnight guests. Outdoor waterparks are a mature industry while indoor waterparks are a growth industry.

Public Vs Private Ownership. Another major difference in waterparks is ownership. Cities, counties and park districts have long owned both outdoor and indoor swimming pools. Built with taxpayer money, these public swimming pools were pretty austere --- intended for swimming tournaments or community recreation. "In the 1970s, these public facilities became more sexy," according to Judith Leblein of Water Technology Inc. "They called them Community/Family Aquatic Centers, as more programs, services and food were added." In fact, the term aquatic center is used more in the public sector while the term waterpark is used more in the private sector, according to Leblein. With the addition of waterslides, rivers and more thrills, the more competitive municipalities and park districts have adopted the term waterpark. Five of the most effectively-managed public waterparks include: Hyland Hills Water World in Federal Heights CO, NRH2O in N. Richland Hills TX, Magic Waters in Rockford IL, Lake Lanier Island GA and Deep River Waterpark in Lake County IN.

In contrast, small business owners and corporations have owned outdoor and indoor swimming pools, amusement parks, theme parks, hotels and resorts. Built with equity and borrowed money, these privately-owned water attractions were designed to satisfy market demand for recreation and entertainment. Privately-owned waterparks were built with high entertainment value.

Management: Non-profit vs For-Profit. Public facilities tend to be managed by public employees and operate at a deficit subsidized by taxpayer dollars. Very few public waterpark owners have contracted with a private management company --- but the trend is up. The more competitive municipalities and park districts have adopted break-even or profit goals for their facilities and have contracted with professional management. Privately-owned facilities tend to be managed by the owner’s employees or a third-party management company on a profitable basis.

Features: Low to High Entertainment Value. Publicly-owned & managed pools, aquatic centers and waterparks are typically designed for community recreation by local taxpayers. Features include learn-to-swim lessons, seniors’ days, handicapped access, day camps and birthday parties. Facilities are pretty basic. Privately-owned & managed pools, hotels, resorts and waterparks tend to be designed with high entertainment value to attract customers with discretionary dollars to spend. Features include waterslides, activity pools, kiddie pools, hot tubs, lazy rivers, wave pools, water coasters, heavy theming and animated characters. Facilities are state of the art. However, many public facilities have upgraded to better compete with private facilities.

Size: Does It Really Matter? Yes, it does, especially when trying to contrast and compare similar properties. Developers, consultants and lenders all want to know what the apples to apples comparisons are --- you know, the competitors, development costs, operating expense ratios etc. You can’t compare David with Goliath! You gotta know who you are up against. And when WWA, IAAPA and Aquatics International give out their annual awards, you want the contest to be fair, don’t you? Outdoor waterparks are basically measured by their annual attendance. We recommend attendance categories as follows:
.

Outdoor Waterparks With Attendance	Approximate Number in Field	Examples
Under 100,000	200	Rapids on the Reservoir
100,000 to 299,999	100	Discovery Cove, Wild Waters
300,000 to 499,999	50	Six Flags, Hyland Hills Water World, Soak City
500,000 to 999,999	7-8	Raging Waters, Water Country USA, Noah’s Ark
Over 1,000,000	3-4	Typhoon Lagoon, Wet ‘N Wild, Schlitterbahn

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Regarding indoor waterparks, only one is self-standing, not attached to lodging, and that is H2Oasis in Anchorage AK. Some hotels have indoor waterparks that are so small (less than 10,000 square feet) we hesitate to call them waterparks or resorts. We recommend the following categories for hotels with small indoor waterparks:

Hotel Indoor Waterparks With Square Feet	Approximate Number In Field	Examples
Under 5,000	12	AmericInn, Ashland WI
5,000 to 9,999	14	Ramada Airport, Spokane WA

A resort by definition can be a location or a facility. For example, a hotel in a resort location, such as Wisconsin Dells, may be called a resort. Or a hotel waterpark can have such a high entertainment value that the facility is called a resort. In our opinion, hotels with indoor waterparks over 10,000 sf may be called hotel waterpark resorts --- due to their high entertainment value. Therefore, we recommend the following categories for hotel waterpark resorts:
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Hotel Waterpark Resorts With Square Feet	Approximate Number In Field	Examples
10,000 to 19,999	21	Cranberry Lodge, Holiday Inn Amana
20,000 to 29,999	9	Grand Harbor Resort, Arrowood Resort
30,000 to 49,999	13	Great Wolf Lodge, Polynesian Resort
50,000 to 99,999	4	Treasure Island, Castaway Bay Resort
Over 100,000	3	Wilderness, Kalahari, Splash Lagoon

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Affiliation With a National Brand/Chain Vs Independent. Outdoor waterparks affiliated with a national brand include: Disney, Wet ‘N Wild and Six Flags. Chains or large corporations owning multiple outdoor waterparks include: Walt Disney Attractions, Six Flags Inc, Universal Studios Recreation Group, Anheuser-Busch Theme Parks, Cedar Fair Ltd, Paramount Parks, Palace Entertainment, Grupo Magico Internacional, Tussauds Group and Blackpool Pleasure Beach. The largest independents are: Schlitterbahn, Raging Waters, Water Country USA, Noah’s Ark and Soak City.

Indoor waterparks affiliated with a national brand include many hotel brands: AmericInn, Baymont, Best Western, Comfort Suites, Country Inn & Suites by Carlson, Days Inn, Hawthorn Suites, Hilton, Hojo, Holiday Inn, Marriott, Microtel, Quality Inn, Ramada, Sleep Inn and Wingate. Great Lakes Companies of Madison WI is establishing its Great Wolf Lodges as an emerging brand name in the waterpark resort industry. Kalahari Resort of Wisconsin Dells WI is expanding its name to a second location in Sandusky OH. Chains or large corporations owning multiple indoor waterparks include: Great Lakes Companies and the Marcus Corporation of Milwaukee WI. The largest independents include Wilderness Hotel & Golf Resort, Kalahari Resort, Treasure Island and Lodge at Cedar Creek, all in Wisconsin, and Scott’s Splash Lagoon in Erie PA, H2Oasis in Anchorage AK and Castaway Bay Resort in Sandusky OH.

Self-Standing Vs Attached or Integrated. Outdoor waterparks are considered self-standing or self-contained. Some may have lodging on site, adjacent or nearby. Regarding self-standing indoor waterparks, almost all are publicly-owned. There is only one self-standing privately-owned, commercial indoor waterpark --- H2Oasis in Anchorage AK. All other indoor waterparks are attached to hotels or integrated into a resort. Future design trends include a combination of outdoor & indoor waterparks integrated into a larger recreational resort environment.

New Waterpark Categories & Definitions

Finally, under pressure from industry analysts and lenders to achieve some apples to apples comparability in this hybrid water world and to help editors create awards categories, we present our first draft of new categories and definitions for discussion. Here goes:

• Outdoor, publicly-owned, publicly-managed, community swimming pools
• Outdoor, publicly-owned, publicly-managed, family aquatic centers
• Outdoor, publicly-owned, publicly-managed, waterparks
• Outdoor, publicly-owned, privately-managed, waterparks
• Outdoor, privately-owned, waterparks, under 100,000 attendance
• Outdoor, privately-owned, waterparks, 100,000 to 300,000 attendance
• Outdoor, privately-owned, waterparks, 300,000 to 500,000 attendance
• Outdoor, privately-owned, waterparks, 500,000 to 1,000,000 attendance
• Outdoor, privately-owned, waterparks, over 1,000,000 attendance

---

• Indoor, publicly-owned, publicly-managed, community swimming pools
• Indoor, publicly-owned, publicly-managed, family aquatic centers
• Indoor, publicly-owned, publicly-managed, waterparks
• Indoor, publicly-owned, privately-managed, waterparks
• Indoor, privately-owned, self-standing, waterparks
• Indoor, privately-owned, hotel indoor waterpark, under 5,000 sq ft
• Indoor, privately-owned, hotel indoor waterpark, 5,000 to 9,999 sq ft
• Indoor, privately-owned, hotel waterpark resort, 10,000 to 19,999 sq ft
• Indoor, privately-owned, hotel waterpark resort, 30,000 to 49,999 sq ft
• Indoor, privately-owned, hotel waterpark resorts, 50,000 to 99,999 sq ft
• Indoor, privately-owned, hotel waterpark resorts, over 100,000 sq ft

Let the discussions begin!

Data sources we used for this article include: World Waterpark Association; International Association of Amusement Parks & Attractions; Amusement Business, Hotel Waterpark Resort Research & Consulting; US Popular Culture: Project Paper, by Leena Hyttinen, May 8, 1998; National Amusement Park Historical Association; Coney Island History Site, Jeffrey Stanton, 1997; The Ferris Wheel; Guide to World’s Columbian Exposition in Chicago 1893, Bruce R. Schulman, 1996-2002.

Hotel Waterpark Resort Research & Consulting is a collaboration of Jeff Coy & Bill Haralson. Coy heads JLC Hospitality Consulting and is certified by the International Society of Hospitality Consultants. Haralson heads William L. Haralson & Associates and is a Hall of Fame member of the World Waterpark Association. For more info, contact Jeff

swim secrets

With summer in full swing and temperatures rising, many of us turn to the pool as a cool way to get some aerobic exercise without all the sweat. But before you dive in and start counting laps, remember that just because swimming doesn't involve any impact on the joints, that doesn't mean that joint flexibility isn't important.

In fact, swimming performance can be greatly improved if you train for the flexibility needed to smooth out your favorite stoke.

The best swimmers incorporate flexibility training into their regimen for two main reasons. First, as muscles are stretched, the individual fibers lengthen.

A longer muscle fiber can create more force when it contracts. So flexibility training helps to increase the muscle's ability to pull you through the water.

Second, the less turbulence you create as you move through the water, the faster you will go. One of the biggest causes of turbulence is moving your body from side to side as you swim. Flexibility training will increase the range of motion of your joints, which allows you to move the joint instead of your whole body.

This creates a more fluid motion i

n the water and less turbulence. Allysa Lutz, a collegiate swimmer and multiple triathlon winner, believes that, flexibility can make the difference between someone swimming smoothly and efficiently, and someone splashing and making more waves than progress.
A complete stretching program will include the following components:

Proper warm-up: Muscles and tendons stretch easier and stretch farther when they are warmed up. Think of your muscles and tendons as pieces of gum; when gum is cold and you try to bend it, it breaks in half, but if it is warm, it just bends and stretches. So before you start stretching, play around in the water, moving all your muscles, get your heart rate up a little by swimming a few easy laps at an easy pace.

Stretch all the muscles you will use: We tend to think that we will only be using our shoulders and glutes/quads during swimming because those are the muscles that usually get sore after a good swim workout. In truth, you use almost every muscle in your body! Depending on which stroke you swim (freestyle, breast-stroke, back-stroke, or butterfly), you will use some muscles more than others, but they should all be stretched

.
Length of stretch: It's real easy to rush through our stretching program to get to the fun part of the workout; but then we wonder why we don't get more flexible. Each stretch should be held for 15 - 30 seconds to increase flexibility. A shorter stretch may feel like plenty, but it's not. This is one case where more is better. Research has shown that 15 - 30 seconds of stretching will increase flexibility, and holding stretches up to 2 minutes is even better. So take a few extra minutes, and hold those stretches a little longer.

Stretching repetitions: When you strength train, you do more than one repetition of an exercise, so why not do more than one repetition of a stretch? After holding a stretch for at least 15 - 30 seconds, release it, relax a moment, and stretch it again. You will find that the second and third stretches go a lot farther and really make the muscle feel relaxed.

Intensity of stretch: Stretching should not hurt. If it does, you are stretching too far. You should be able to feel a stretch as a slight pull on the muscle and tendon. Hold that position until you no longer feel the stretch, then pull a little more until you feel the tension again. If you feel any pain at all, STOP, you are stretching too far.

The Program
There are many possible stretches you could do to prepare for a hard swim; the following stretches will target all the major muscles you will use during any swim stroke. If you follow each of these stretches, holding each one for 30 seconds, and completing 3 repetitions of each, this program should take you about 15 total minutes to complete.

For such a small amount of time, you will see improvement in your swimming power, speed, and of course flexibility rather quickly.
Shins and Quadriceps

Probably the most overlooked stretch in swimming is the shins. The entire time you are swimming, your foot is plantarflexed (toe pointed). The more pointed your foot is, the sleeker your leg becomes, which means less drag in the water, and more power from the kick. The limiting factor is the flexibility of the anterior tibialis muscle in the shin.

Stand next to a wall for support, grasp your foot around the end of your toes as shown in Figure 1, and pull your leg up behind you, keeping your body upright. You should feel this stretch through the foot and along the front of the shin.

This stretch is slightly different than the quadrice

ps stretch shown in Figure 2, where you grasp your shin instead of your toes. Here you will feel the stretch from the hip to the knee along the front of your leg.
Stretching the shins (fig. 1)
Stretching the quadriceps (fig. 2)

Hamstrings
The hamstrings assist the glutes during the upward lift of the leg (which is where most of your propulsion comes from). To stretch the hamstrings, sit on the floor with one leg extended straight out and the other bent and relaxed (see Figure 3). Lean forward and reach out to try and touch the toes on the extended leg.

Use your other hand to hold your knee down and straight. If you bend the leg, you will not get a good stretch on the hamstring. If you can't quite reach your toes yet, that's OK. Stretch as far as you can and always try to reach your toes. Repeat this stretch with the other leg.
Stretching the hamstrings (fig. 3)

Hip Adductors
The hip adductors help to pull your legs back toward your body, and are prime power providers during the breaststroke. If you have ever felt a "groin pull," these are the muscles that are usually tight.

Sit on the floor with the bottom of your feet together as shown in Figure 4. Hold your ankles and use your elbows to push your knees down toward the floor.
Stretching the hip adductors (fig. 4)
Latisimus Dorsi and Back
The muscles of the back provide the majority of the power needed during most swim strokes. These muscles are the ones you use to pull yourself through the water. To generate good power, the back muscles must be able to move though their full range of motion with ease. The upper back and latisimus muscles can be stretched as shown in Figure 5.
Stand on the upper rung of the pool ladder or on the edge of the pool (be careful: slippery when wet), grasp both sides of the ladder rails, and lean back, dropping your head below your arms. As you relax your back muscles, let the weight of your body pull on your arms. This will produce a stretch that is felt through the length of your arms, down the back of your shoulders, and along the sides of your torso (latisimus dorsi muscles).
Stretching the latissimus dorsi and back (fig. 5)
Chest and Shoulders
The chest and shoulder muscles provide power during the pull phase of most swim strokes, but they also help with the recovery movement, or the portion of the stroke when you reach out ahead of you for the next stroke. The chest and shoulder muscles are stretched by standing on a lower rung of the pool ladder, facing the water, while holding onto the rails with your arms behind you, hands facing out (Figure 6).
Bend you knees and let the weight of your body stretch the chest and shoulder muscles. You will feel this across the top of your chest, through the shoulder and down your biceps. If you experience pain in your shoulder, a variation on this stretch is to keep the elbows bent at a 45 degree angle throughout the stretch.
Stretching the chest and shoulers (fig. 6)
Triceps
The triceps muscle is active during swimming when it contracts to extend your arm out in front of you to begin a stroke, and as it contracts to help extend your arm underwater to propel you forward.
Stretch the triceps by reaching over your head, and down your back like you have an itch you can't reach. Grasp the elbow of the arm you are stretching with the other hand and pull to provide a deeper stretch.
About The Author
Patrick Hagerman, Ed.D., CSCS*D, NSCA-CPT*D, USAW Club Coach, teaches in the department of Athletic Training and Exercise Science at the University of Tulsa, and owns Quest Personal Training Inc. in Oklahoma City, OK. He trains clients from all walks of life, from the high-school athlete to the stroke survivor.
Dr. Hagerman edits the One-on-One Column for the Strength and Conditioning Journal, and is a contributor to Personal Fitness Professional, Pure Power, and Men's Health magazines. He can be reached via e-mail at patrickhagerman@aol.com.
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Fighting for the Consumer

Attorneys representing debtors in bankruptcy court are probably more exposed to a wider gamut of consumer law issues than any other sub-set of attorneys. Bankruptcy debtors are often a desperate and yet unsophisticated lot that are subject to many abuses not visited upon sophisticated, middle class consumers with prime credit ratings. Being short of money and convinced that conventional lending sources are unavailable, debtors who file for bankruptcy protection are more likely, in my experience, to seek payday loans with interest rates that commonly exceed 500%, apply for auto title loans with interest rates in excess of 100% and to be subject to yo-yo spot deliveries of automobiles. Likewise, such debtors are often treated, both before and after bankruptcy, as “second chance finance” customers who are more likely to be sold automobiles with odometer rollbacks and undisclosed wreck damage and to be sold products on the “back end” such as credit life insurance, credit disability insurance and third-party extended warranties which are usually over-priced and rarely provide the promised benefits without litigation. In addition, this class of consumers are more vulnerable to wrongful repossessions, improper attempts at foreclosure, deceptive attempts at credit repair and outrageous debt collection tactics.

What follows are my ruminations on a number of practical consumer and debtor issues that can be addressed by consumer protection laws.

A. Abusive or Predatory Lending

1. Payday Loans

Payday loans are the modern version of salary-buying. Typically, a company advertises that it offers personal loans of $100 to $500 (or even $1000) “without a credit check.” Assuming the loan applicant has worked for the same employer, lived at the same residence and maintained a checking account for a minimum period of time without any pending hot check charges, these lenders will make loans without actually pulling any credit report. Until recently, the consumer would be required to provide one or two checks for the amount of the loan plus a fee of 15-20%, and the lender promised not to deposit the check or checks for 14 days, or after the next payday, and only if the consumer failed to pay off the full amount or fails at least to pay the fee and to roll over the loan. Now, payday lenders usually obtain authorization to debit the consumer’s checking account if no cash payment is made by the due date. In effect, these are one-payment term loans that are secured by postdated or undated checks or by an authorization to seek electronic payments from the consumer’s bank account. Many consumers are unable to pay off the full amount of the loan in 14 days, so they “renew” the loan and pay the fee repeatedly until they are able to come up with the full amount or they tire of paying and simply cease their payments. A number of surveys have shown that consumers renew these loans, due to an inability to pay off the loan in full, 10 to 12 times. At 15% every two weeks, the annualized cost of this credit is 26 X 15 or about 390%. At 20% every two weeks, the annualized cost of this credit is 26 X 20 or about 520%.

Given the high rate of interest, the absence of any reduction of the principal amount owed unless the full sum is repaid, and the financial tight-wire walked by many consumers who take out these loans, many of these loans eventually fall into default. To induce payment, payday lenders explicitly state, or at least implicitly suggest, that if a check is deposited or a debit is made, the practice when no other payment is received, and then bounces, the consumer has committed a criminal offense and could be arrested on the job. In fact, however, the consumer has not passed a hot check or committed theft, because the lender knows when it receives the check or the debit authorization that there will be insufficient funds in the account at the time the transaction is done. See Jones v. Kunin, 2000 U.S. Dist. LEXIS 6380, *3-4 (S.D. Ill. 2000); Turner v. E-Z Check Cashing, 35 F.Supp.2d 1042, 1051-1052 (M.D. Tenn. 1999); Hartke v. Ill. Payday Loans, Inc., 1999 U.S. Dist. LEXIS 14937, *9 (C.D. Ill. 1999). Otherwise, why would a consumer be seeking the loan? Likewise, there can be no presumption of criminal intent if the check is post-dated and probably not if it is undated. In practical terms, I have not heard of a criminal hot check or theft prosecution arising out of a payday loan transaction brought against a consumer in the Houston area, even in J.P. Court, in over 10 years. In effect, the explicit or implicit threat of criminal prosecution which induces many consumers to renew loans and to pay fees has no teeth. What can be done about such loans? In the best of all worlds, all of these transactions would be considered usurious, any failure to give credit disclosures would be treated as a Truth-in-Lending Act (TILA) violation and much of the efforts at collection would be viewed as violations of the Fair Debt Collection Practices Act (FDCPA) and/or the Texas Debt Collection Act (TDCA). Every loan transaction has to be reviewed differently. The validity of potential claims varies a great deal, depending upon the business model utilized by the lender. See § 7.5.5 of the 2004 Supplement to The Cost of Credit (NCLC 2004).

a. Rent-a-charter transactions

Until recently, the most difficult payday loan transactions to attack were those involving a purported principal-agent relationship between the actual lender, usually a state bank in Delaware, South Dakota, Illinois or Kentucky, and companies with local offices that purport to be acting as loan brokers. Many of the larger payday loan operations purported to act as brokers of payday loans and arranged for loans from banks, such as the County Bank of Rehoboth Beach, that were located in states in states with no usury limits. Since federal banking law allowed the exporting of rates permitted in the jurisdiction where banks were located, these loans facially appeared to be immune to attack for usury, even though the disclosed APR exceeded 500%. Nevertheless, a number of public and private suits were filed, arguing that the payday lender chains were carrying all of the risk, being required to buy back all notes in default, and that, in substance, the true lender was the purported local broker. In effect, these suits argued that the banks whose names were on the notes were only renting their charters to permit the purported brokers to evade local usury laws. The one case in which the plaintiffs prevailed involved a settlement. Purdie v. Ace Cash Express, 2002 U.S. Dist. LEXIS 20910, 2002 WL 31730967 (N.D. Tex. 2002)(case dismissed), 2003 WL 21447854 (N.D. Tex. 2003)(dismissal vacated), 2003 U.S. Dist. LEXIS 22547, 2003 WL 22976611 (N.D. Tex. 2003)(class certified and settlement approved). While Congress has not acted on this issue, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the FDIC issued policies to discourage such arrangements. When the FDIC issued its policy directive in 2005, all of the lenders using this model in Texas switched to a new model, relying on the Texas Credit Services Organizations Act (“CSOA”).

b. Use of the CSOA as a dodge

When the rent-a-charter model failed in 2005 due to policy directives from federal bank regulatory authorities, all of the payday lenders using this model had some time to find a new model. In Texas, all of the larger payday lending operations switched to a CSOA model. Entities like Advance America, Cash America and Ace Cash Express all follow this model. Under this model, the company with local offices registers as a “credit services organization” (“CSO”) with the Texas Secretary of State and provides the disclosures required by the CSOA, Tex. Fin. Code § 393.001 et seq., and lists a separate entity as the lender on the actual loan documents. Since there is no limit on the fees that can be charged by CSO’s for acting as loan brokers, the theory is that the passage of the CSOA in the early 1980's constituted an implied repeal of a portion of the usury laws that would permit broker fees to be treated as interest when the broker was a “general agent” of the lender. In effect, the payday loan operations argue that the CSOA was passed in part to serve as a tort reform measure. While I strongly disagree with this theory, I lost in the one case in which this theory was challenged. See Lovick v. Ritemoney, Ltd., 378 F.3d 433 (5th Cir. 2004).

Practice Pointer: While the CSOA usury defense theory is subject to attack in state court, an action can only be filed in state court if the omni-present arbitration clauses are invalid and unenforceable. Since courts in Texas are loath to refuse enforcement of arbitration agreements, there may be no practical means of attacking this theory of usury avoidance by any means other than a public enforcement action by the State of Texas. Unfortunately, I doubt that any such action will ever be filed. If there is a claim in these cases, it is most likely to involve the payday loan brokers’ collection activity. Since the big operators are all registering as CSO’s and claiming to be loan brokers, they are clearly third-party debt collectors who are subject to the FDCPA as well as the Texas Debt Collection Act. Thus, for example, explicit threats of criminal prosecution or arrest could be subject to attack under those statutes. See section A.1.c. below.

c. Lenders pretending not to be lenders

Another sub-set of payday lenders pretend to be selling a product or a service when, in fact, they are only making a loan. For example, some payday lenders have unsuccessfully claimed to be selling catalog gift certificates, Cashback Catalog Sales, Inc. v. Price, 102 F.Supp.2d 1375 (S.D. Ga. 2000) and Upshaw v. Ga. Catalog Sales, 206 F.R.D. 694 (M.D. Ga. 2002)(class certification granted), advertisements, Henry v. Cash Today, Inc., 199 F.R.D. 566 (S.D. Tex. 2000)(class certification granted), and internet service, State of North Carolina v. NCCS Loans, Inc., 620 S.E.2d 697 (N.C. App. 2005), Department of Financial Institutions v. Mega Net Services, 833 N.E.2d 477 (Ind. App. 2005) and Short on Cash.Net of New Castle, Inc. v. Department of Financial Institutions, 811 N.E.2d 819, 2004 Ind. App. LEXIS 1210 (Ind. App. 2004). See also Austin v. Alabama Check Cashers Ass’n, 2005 Ala. LEXIS 197 (Ala. 2005)(covering catalog gift certificate and telephone calling card schemes). The issue in all of these cases is whether, in substance, the transactions are loans or sales or, in other words, whether the form of the transaction as a sale is merely a guise or sham to evade the usury laws. See Tex. Fin. Code §§ 342.008 and 342.051. Since § 342.008 explicitly states that “[c]haraterization of a required fee as a purchase of a good or service in connection with a deferred presentment transaction is a device, subterfuge or pretense” to evade the law, there may be no factual issue when such transactions are completed in Texas.

For a long time in Houston, many payday lenders engaged in sale-leaseback transactions whereby they would purchase a consumer’s television or refrigerator, e.g., for $200 and then agree to lease the property back for 2 weeks in return for a “rental” fee of 20-25% with an option price of $200. With amendments to the Finance Code effective September 1, 2001, however, the Legislature specifically declared that these transactions were to be treated as loans and the rentals as interest. See Tex. Fin. Code § 341.001(10). That led many of the sale-leaseback operations to change their business model.

Besides usury, payday lenders that pretend to be sellers often violate the Truth-in-Lending Act as well. Since the Federal Reserve Board’s issuance of an official interpretation on March 24, 2000, 65 Fed. Reg. 17129 (2000), it has been undisputed that TILA applied to deferred presentment transactions as extensions of credit. Arrington v. Colleen, 2000 U.S. Dist. LEXIS 20651 (D. Md. 2000). Even if this official interpretation need not be followed until October 1, 2000, Clement v. Amscot Corp., 176 F.Supp.2d 1292 (M.D. Fla. 2001), there is no doubt that all payday loan transactions consummated on or after that date must comply with TILA. Nevertheless, it has been my experience that those businesses pretending to be sellers instead of being lenders fail to give any TILA disclosures, exposing themselves to federal jurisdiction and statutory damages equal to twice the finance charge not to exceed $1000 and not less than $100. Koons Buick Pontiac GMC, Inc. v. Nigh, 2004 U.S. LEXIS 7979 (2004).

The operations pretending to be sellers may also violate the Texas Debt Collection Act by threatening hot check arrest or criminal prosecution when the check or checks, serving as security, are deposited and then bounce. See, e.g., Turner v. E-Z Check Cashing, 35 F.Supp.2d 1042 (M.D. Tenn. 1999). Such threats by a third-party, such as an attorney, violate the federal Fair Debt Collection Practices Act, assuming the third party meets the statutory definition of a “debt collector.” Nance v. Ulferts, 282 F.Supp. 2d 912 (S.D. Ind. 2003). At least one payday lender based in a foreign country has attempted to threaten defaulting Texas borrowers with wage garnishment, and that is the subject of a private lawsuit in Harris County District Court.

Practice pointer: One way for payday lenders to discourage claims is to place an arbitration agreement in the loan documents. These arbitration agreements, however, are not always enforced, particularly in bankruptcy court when there is a core proceeding involving the payday loan. See The Cost of Credit § 10.6.10 (NCLC, 2004 Supplement); Consumer Arbitration Agreements § 5.2.3 (NCLC, 4th ed.).