Tennessee Regulators Approve Mixture of Sports Gambling And High-Risk Loans

In what feels akin to zoning for a liquor store next to an alcohol abuse rehabilitation center, Tennessee sports betting regulators on Wednesday approved a lender of high-risk “flex loans” — with up to 279.5% annual interest rates — to simultaneously serve as a store where you can deposit gambling funds into the company’s affiliated sportsbook, Action 24/7.

The Nashville, Tenn.-headquartered company, Advance Financial, operates in 13 states and has over 100 physical storefronts in Tennessee, a state where the payday and “flexible” lending regulatory environment is uniquely favorable, and culturally more acceptable.

Tina Hodges is both the CEO of Advance Financial and president of the licensed sportsbook Action 24/7, which launched online in Tennessee Nov. 1 alongside national players BetMGM, DraftKings, and FanDuel. But only Action 24/7 has juxtaposed the ability to fund a sports gambling account in the same location where you can apply for the kind of high-interest loan commonly obtained by desperate, distressed borrowers who often become trapped in a cycle of debt.

During a two-hour meeting Wednesday, the board of the Tennessee Education Lottery Corporation’s (TELC) sports wagering committee quickly approved 11 other applications to become registered vendors before TELC board Chairperson Susan Lanigan said that some discussion was in order about Advance’s application.

“It feels a little bit awkward that somebody could so easily use borrowed money to put money into a sports wagering account,” said board and committee member Will Carver, a partner at the law firm Kramer Rayson LLP in Knoxville. “Because of where it’s located, it gets some pause.”

Advance’s application did get about seven full minutes of pause before it was approved by Carver and committee member Lanigan in 2-0-1 vote to allow the company to act as a one-stop shop for high-risk borrowing and the deposit and withdrawal of sports gambling bucks. The one abstention came from John Crosslin, who also renders accounting services to Advance Financial. While the full board is made up of seven members, the committee consists of those three.

But the story doesn’t start on Wednesday. Since at least November of last year, Advance Financial has been issuing flyers advertising cash deposit/withdrawal services for its affiliated sportsbook.

What makes Action 24/7 unique

Sports Handle obtained a copy of one such flyer, which multiple sources said has appeared at several (perhaps most or all) of the company’s 100-plus Advance Financial locations across the state.

(Action247 flyer)

It appears that the company acted first in distributing the flyers and then sought a regulatory blessing, or perhaps it was prompted to register as an official vendor. Based on the language at the bottom of this flyer, it appears that the company has been using its storefronts as deposit and withdrawal locations since legal sports gambling began in Tennessee on Nov. 1, 2020. (“Advance Financial is not a licensed sports gaming operator and does not offer gambling services. Advance Financial offers account load and withdrawal services only.”)

Action 24/7 has also blanketed local radio airwaves and television, highlighting the ability to deposit/withdraw cash at “over 100 retail locations,” referring to the Advance Financial buildings. A search shows that the sportsbook’s social media account has not explicitly referenced Advance Financial by name.

Action 24/7’s sportsbook offers most of the same betting markets as its competitors with comparable pricing. It uses Sportradar for its oddsmaking/risk-management like most others, and software/tech supplier Amelco, which powers other U.S. and European sportsbooks, including FOX Bet.

On balance, it appears that Action 24/7 is mainly attempting to leverage two things in order to distinguish itself from the Tennessee sportsbooks licensed by the TELC so far — a roster that now includes Churchill Downs, whose BetAmerica/TwinSpires platform is expected to launch in the coming weeks after receiving its license Wednesday.

In multiple media interviews, Tina Hodges has touted the sportsbook’s local roots and the ability to make cash deposits and withdrawals at its lending locations. Hodges told ESPN Chalk on Monday about how Action 24/7 differentiates itself from the competition.

One of the biggest things that our players have started to really love lately, especially in the last two or three weeks, is our cash deposits and cash withdrawals. We’re the only sportsbook in Tennessee that doesn’t require you to have a bank account. I didn’t realize how unique that was. It just seems a no-brainer that some people like to use their bank account for these sorts of things, some people don’t.

We have over 100 partner locations across Tennessee, where people can go load and unload their sports gambling account in cash.

Online sportsbook visitors, whether logged in or not, can find any of these Advance Financial 100 locations directly on the Action 24/7 website. “Cash Locations” is the center tab on the sportsbook’s homepage, which generates the map shown at top.

In other interviews, Hodges has noted the ability to deposit cash at the sportsbook’s partner locations, pointing out that some people may not wish to link a bank account with a sportsbook account. “If you don’t want to link it to your bank account, that’s okay,” Hodges told the Tennessee Star in December. “We understand that. You can do it in cash.”

There are also people who don’t have bank accounts, or don’t have any funds in their bank accounts, or may wish to hide banking transactions from spouses or others with access to the account.

Contrary policies on lending and gambling

When the Tennessee legislature legalized sports betting in 2019, it tasked the TELC with regulation of sports betting, including the ability to approve operators and vendors. The lottery gained that responsibility in part because there are no casinos in the state, and thus no prior gaming entity existed to potentially manage the newly approved gambling.

[Disclosure: Better Collective Tennessee, LLC owns the website Sports Handle and is a registered vendor in Tennessee. It is an affiliate marketing company that receives commissions when persons sign up for legal sportsbooks that include, among others, BetMGM, DraftKings, and FanDuel.]

Previously, the TELC portfolio involved the sale of traditional lottery tickets, scratch-offs, drawings, and the like. The agency has licensed scores of businesses throughout the state to sell these tickets for no less than a 6.5% commission, according to state law.

But that same Tennessee code specifically forbids certain locations from selling lottery tickets. The statute says:

… the corporation shall not issue, sell or authorize the sale of lottery tickets at any location licensed to provide deferred presentment services pursuant to title 45, chapter 17, part 1, or to any pawnshop …

Deferred presentment services are also known as payday lenders, where people typically in financial distress, perhaps medical emergencies, take loans with high fees and/or interest and frequently get trapped in never-ending debt. Usually in these arrangements, loans become due on a person’s next payday. No doubt, some people have benefited from these loans at the minimum cost. But no doubt, the Tennessee legislature felt it necessary to put a clear barrier between lending to high-risk borrowers, and sales on behalf of the Tennessee Lottery. Similarly, in Tennessee, as in 28 other states, the law expressly forbids the purchase of lottery tickets with credit cards.

Payday lending has long been in the crosshairs of the Consumer Protection Finance Bureau and is not allowed in certain states. For this reason, in around 2016 Advance Financial deliberately moved away from payday lending in favor of issuing “flex loans,” which are structured differently, but likewise are generally taken by people in financial emergencies. They can result in horrific, long-lasting financial consequences for many borrowers who attempt to outrun the 279.5% APR that Tennessee law does indeed legally permit.

advance financial action247
(Screencap via Advance Financial website)

“The bottom line is that flex loans are just another name for a payday loan — and a payday loan by any name is just a debt trap,” Diane Standaert of the Center for Responsible Lending told NewsChannel5 Nashville in February 2016. “A 279% annual rate is absolutely excessive. [The loans] are designed to generate fees for the payday lenders while leaving borrowers far worse off.” The Center for Responsible Lending also offered this example for NewChannel5:

“Under the term allowed in Tennessee, if you took out a $500 flex loan and made the minimum payments, you would have paid over $2,600 in fees and interest after three years and would still owe $167 in principal.”

Another area where payday loans and flex loans differ is that payday loans are capped much lower — around $500 — whereas Advance Financial can offer up to $4,000 in a flex loan to certain borrowers that may be deemed at lower risk to default.

Another contrary policy

Advance Financial’s competitors include Ace Cash Express, which offers payday, installment, and title loans in Tennessee (but not flex loans, it appears).

At Ace Cash Express, customers can use a service called PayNearMe, which is similar to MoneyGram and Western Union, for a same-day payment transaction. Perhaps to pay a credit card bill, a landlord, or a friend overseas. Multi-state sportsbooks such as BetMGM, FanDuel and FOX Bet in some states enable people to use PayNearMe stations — located at large chains including 7-Eleven convenience stores and CVS — to deposit cash funds into a legal sportsbook account. Thus the ability to use cash to deposit money into a modern online sportsbook is not unique to Action 24/7.

What is different is that at Ace Cash Express, which is contracted with and offers PayNearMe services, customers are expressly forbidden from loading sportsbook accounts. While not identifying Ace Cash Express specifically, Connor McNulty, regulatory counsel for PayNearMe, confirmed the company’s policy in a phone call with Sports Handle on Wednesday.

“One of our authorized agents is involved in lending,” McNulty said. “We have an internal policy and a practice of not allowing any gaming ‘loads’ at those locations. And through our systems, we can prevent any such loads from happening. So even if someone wanted to do it, they wouldn’t be able to.”

A call to a Nashville Ace Cash location corroborated this. I asked a store employee if I could come in and use PayNearMe to load funds into a FanDuel Sportsbook or DraftKings Sportsbook account. The clerk searched the system for both, but said neither entity appeared as an option for receipt of funds.

“[Our policy] is based on the simple fact that, if you’re going for payday loans, you shouldn’t be gambling,” said McNulty. “I think that’s pretty evident in and of itself.”

One more difference between using PayNearMe versus Advance Financial to transmit funds is that you can, as Hodges and the sportsbook’s social media notes, withdraw funds from your Action 24/7 account at an Advance Financial location, even on the same day that bets are placed.

Persons using PayNearMe would have to withdraw using a variety of alternatives, such as an ACH transfer, online banking, a paper check, or PayPal (so long as one deposit was made via PayPal).

Thus, while there are no physical sportsbooks in Tennessee — the first state to permit sports betting online exclusively — Action 24/7 is unique in that you obtain cash withdrawals in-state. Of course, at any physical sportsbook located in Iowa or Nevada, where large bags of cash are commonplace, it is no novelty to bet with cash, or redeem winning bets in cash, even just minutes after a game or a wager is decided.

Discomfort fills apparent gap in regulations

During the brief discussion on Wednesday about whether or not to issue Advance Financial vendor registration, thus sanctioning the deposit/withdrawal of funds to Action 24/7 sportsbook (inside the 100+ Advance Financial, locations patrons can put funds only into an Action 24/7 account, not any other sportsbook), both Carver and Lanigan seemed hesitant to endorse the application.

“It feels a little funny to me from a public policy perspective,” Lanigan said, before pointing to the fact that, unlike the Tennessee code prohibition against payday lenders selling lottery tickets, the law does not prohibit the type of “service” that Advance Financial is offering in connection with the sportsbook.

“There’s nothing like that with regard to sports betting,” Lanigan said. “There’s no limitation in the Sports Gaming Act, so nothing about this violates any part of the legislation.”

Carver pointed out that there is little or nothing that could stop someone from taking a payday loan and using it to fund an account at any of Tennessee’s sportsbooks.

“This is something that happens with mobile sports wagering already,” Carver said. “Someone can go to Advance, then to CVS and PayNearMe, and do the exact same thing. From a responsible gaming [perspective], it feels a little off, but it complies with statute.”

Carver and Lanigan sounded hesitant and noted the “funny feeling” on record, but suggested they were not empowered to halt or reject the application.

“I don’t think the concern is one that we are to be the arbiters of,” Carver said, referring to the TELC’s role in regulation. “It complies with statute.”

High stakes ahead

Now that Advance Financial is a registered vendor, the flyers should become more abundant around the state, and perhaps this relationship between high-risk lending and sports gambling, apparently unique to Tennessee, will become more commonplace.

But the relationship is concerning to many, including Lanigan and Carver, as well as Brianne Doura-Schawohl, vice president of US Policy and Strategic Development for EPIC Risk Management, which advises on problem and responsible gambling strategies, among other things.

“I have grave concerns around the implications of any relationship between a flex or payday lender and gambling. Gambling is meant to be enjoyed as a form of entertainment and accessed only by the utilization of disposable and discretionary income,” Doura-Schawohl said.

“Individuals seeking to borrow money are already struggling to make ends meet and meet their basic needs. Any insinuation that gambling is a way to solve these problems or make money is predatory and misleading. It is never advisable to be gambling on borrowed money and remains a red flag within the addiction community that someone using borrowed funds, especially at incredibly high interest rates, has an unhealthy relationship with their gambling.”

The curious linkage of a flex-loan lender and an online sportsbook also raises questions not only about how Advance Financial is targeting its own lending clientele at physical locations, but how it may be grooming new clients of the sportsbook to consider high-risk loans. The new registration now links the businesses formally. Will business flow from the lender to sportsbook, or sportsbook to lender, and what is the intention if any?

The biggest U.S. sports betting events of the season are coming soon with Super Bowl LV slated to take place in Tampa Bay on Feb. 7, and the NCAA men’s basketball tournament, also known as March Madness, to be played exclusively at venues in Indianapolis, coming weeks later.

When Hodges was asked by ESPN why she got into the bookmaking business, she said, “Loaning money to high-risk consumers is a risk business, so I’m very comfortable with risk.”

It appears the TELC is comfortable enough mixing high-risk consumers and gambling, as well.

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