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«OHIO STATE LAW JOURNAL VOLUME 66, NUMBER 4, 2005 Predatory Lending and the Military: The Law and Geography of “Payday” Loans in Military Towns ...»

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2005] PREDATORY LENDING AND THE MILITARY 695 analysis of Manchester’s gay village in the United Kingdom as a vehicle to explore heterosexism in law.272 Moreover, the landmark case Shelley v.

Kraemer, which struck down legal enforcement of racially restrictive covenants, is perhaps best thought of as a critical “law and geography” motivated opinion.273 Other law and geography scholars use geographic tools to tease out otherwise imperceptible legal inefficiencies or to track troubling spatial results of law. For instance, Robert Ellickson has argued that if we used municipal codes of conduct regulating panhandling and other chronic nuisances that varied spatially from street to street, we might better balance rights of homeless people and other city dwellers.274 Geographic analysis of the Organ Transplant Act showed pockets of inadequate organ distribution and missed opportunities for organ harvesting in rural areas and among ethnic minorities.275 Erik Luna has advocated the use of crime mapping in developing more transparent, efficient, and fair policing.276 Robert Goldstein has argued that recent advances in mapping technology have the potential to better measure and conceptualize the success and failures of environmental law.277 Interdisciplinary law and geography analysis has also produced influential consumer financial services scholarship. Most prominently, several authors have used geographic analysis of home mortgage lending patterns to demonstrate racial bias in approval of credit applications.278 Moreover, geographic analysis 272 Leslie J. Moran, The Queen=s Peace: Reflections on the Spatial Politics of Sexuality in Law, in LAW & GEOGRAPHY, supra note 266, at 85, 99–107.

273 Shelley v. Kraemer, 334 U.S. 1 (1948).

274 Robert C. Ellickson, Controlling Chronic Misconduct in City Spaces: Of Panhandlers, Skid Rows, and Public-Space Zoning, 105 YALE L.J. 1165, 1171–72 (1995); cf.

Don Mitchell, The Annihilation of Space by Law: The Roots and Implications of AntiHomeless Laws in the United States, 29 ANTIPODE 303, 310–12 (1997) (arguing that laws seek to erase the homeless through outlawing activities connected to their existence in the only spaces available).

275 Tom Koch & Ken Denike, Geography: The Problem of Scale, and Process or Allocation: The U.S. National Organ Transplant Act of 1986, Amended 1990, in LAW & GEOGRAPHY, supra note 266, at 109, 122–23, 127–29.

276 Erik Luna, Transparent Policing, 85 IOWA L. REV. 1107, 1177–1193 (2000) (conducting spacial analysis of drug arrests along the north coast of San Diego County, California).

277 Robert J. Goldstein, Putting Environmental Law on the Map: A Spatial Approach to Environmental Law Using GIS, in LAW & GEOGRAPHY, supra note 266, at 523, 536–37.

278 See Joe T. Darden, Lending Practices and Policies Affecting the American Metropolitan System, in THE AMERICAN METROPOLITAN SYSTEMS: PRESENT AND FUTURE 93 (Stanley D. Brunn & James O. Wheeler eds., 1980); Steven R. Holloway, Exploring the Neighborhood Contingency of Race Discrimination in Mortgage Lending in Columbus, Ohio, 88 ANNALS ASS’N. AM. GEOGRAPHERS 252 (1998); Michael Reibel, Geographic Variation in Mortgage Discrimination: Evidence from Los Angeles, 21 URBAN GEOGRAPHY 696 OHIO STATE LAW JOURNAL [Vol. 66:653 convinced Congress that in some specific neighborhoods and communities, banks accepted deposits but did not give out equivalent amounts in loans—a process sometimes called “disinvestment.”279 Accordingly, Congress adopted the Community Reinvestment Act (CRA) requiring that depository institutions make efforts to lend in low- and moderate-income neighborhoods within the contiguous geographic area surrounding their office or group of offices.280 Finally, there is compelling evidence suggesting that check cashers, pawnshops, and payday lenders all disproportionately locate their branches in poor and minority neighborhoods.281 Our current Article draws on and expands this law and geography literature.

Our empirical investigation explores what lessons the spatial relationship between payday lending operations and military personnel might hold for today’s policy makers. In particular, this Article seeks to provide a definitive resolution to the national debate over whether payday lenders target military service members. Payday lenders, like most businesses, carefully locate near their targeted customers. For instance, in its Securities and Exchange Commission filing, one national lender disclosed that its stores are located within three miles of their intended market.282 Accordingly, mapping payday lender locations can reliably determine the extent to which payday lenders target military personnel. Moreover, if payday lenders do target service members, we 45 (2000).

279 Community Credit Needs: Hearings on S. 406 Before the S. Comm. on Banking, Housing, and Urban Affairs, 95th Cong. 17 (1977); S. REP. NO. 95-175, at 33 (1977); Robert G. Boehmer, Mortgage Discrimination: Paperwork and Prohibitions Prove InsufficientCIs It Time for Simplification and Incentives?, 21 HOFSTRA L. REV. 603, 622 (1993).

280 12 U.S.C. ' 2903 (2000). Under the CRA, banking regulators are required to conduct periodic law and geographic analyses of depository institutions potentially denying permission to merge or open new branches to institutions receiving poor evaluations. See Jonathan R. Macey & Geoffrey P. Miller, The Community Reinvestment Act: An Economic Analysis, 79 VA. L. REV. 291, 300–01 (1993) (describing this process).

281 Steven M. Graves, Landscapes of Predation, Landscapes of Neglect: A Location Analysis of Payday Lenders and Banks, 55 PROF. GEOGRAPHER 303, 312 (2003) (studying payday lender location patterns in urban Illinois and Louisiana); KENNETH TEMKIN & NOAH


PROVIDERS 11–26, http://www.fanniemaefoundation.org/programs/pdf/021904_altfin_servproviders.pdf (last visited Oct. 17, 2005) (studying check casher, pawnshop, and payday lender location patterns in Chicago, Atlanta, Houston, Kansas City, Los Angeles, Miami, Memphis, and Washington, D.C.).

282 Payday lenders themselves candidly admit that they take great pains to find locations close to their target demographic. See, e.g., Check Into Cash, Inc., Registration Statement Form S-1, at 33 (July 31, 1998), http://www.sec.gov/Archives/edgar/data/1067289/0000931763-98-001978.txt [hereinafter Check Into Cash S-1 Registration Statement] (explaining importance of proximity of store location to target market).

2005] PREDATORY LENDING AND THE MILITARY 697 consider the extent to which various state legal environments have held this targeting in check. Specifically, we ask what legal approaches, if any, have demonstrated promise in preventing targeting of military personnel for tripledigit interest rate payday loans.

B. Empirical Methodology

1. Study Overview: Sample, Scales of Resolution, and Control Group Our study analyzes the locations of payday lenders in 20 states. We chose our sample of states based on several criteria. First and foremost, we looked for states that are home to what might best be described as “military towns.” By this we mean places where military personnel are the clear consumer demographic, due to either the large population of the military base, the small size of the surrounding communities, or both. Studying payday lender outlet locations in these areas reduces the chance that observed commercial retail patterns would be unduly affected by other demographic variables, such as race or poverty.

Second, we sought to analyze military bases in states with a wide variety of legislative and regulatory strategies for addressing payday lending issues. This was necessary to discover whether variation in state regulation created any demonstrable effect on the spatial relationship of payday lenders and military installations. Accordingly, in some cases we also considered states with military installations where military personnel are a less predominant component of local business demographics. Third, we attempted to include states with bases of special military importance as well as bases from all the branches of the armed forces. Thus, San Diego, California and the Greater Norfolk, Virginia regions were included because of the significant military population residing in those locales, despite the potential for causal noise from their large coextensive civilian populations. States with little or no military presence were not included in our study.

For each of these 20 states, we attempted to construct maps and statistical analyses based on four levels of geographic resolution. First, for each state we made several generalizations about the intensity of payday lending in that state as compared to others. Second, we conducted countywide statistical analyses.

County-level analysis enables comparison of the distribution and density of payday lenders within a state, and it provides an important scale by which to examine industry density locations relative to military installations. Because military bases are often as large as counties themselves and may have several scattered off-base retail and service districts, the county-level resolution sometimes catches concentrations that disappear at more local scales. Third, we 698 OHIO STATE LAW JOURNAL [Vol. 66:653 analyzed every ZIP code region in each of the 20 states.283 Maps at this scale are especially useful because ZIP code regions frequently replicate the market range and threshold parameters used by site location analysts who very likely figure heavily into the final location of banks and payday lenders.284 In other words, most local ZIP code regions contain those consumers whom payday lenders operating in that ZIP code hope to attract. And fourth, several military installations were chosen as focal points for more detailed, street-level case analyses of payday lending. At this “neighborhood” scale, specific street addresses were mapped for an entire county or counties in which the base(s) is located. Not only does this allow us to know the absolute location of payday lenders throughout a county, but it also allows us to track the distance from base gates and service member quarters.

To further refine the validity of our study, we also mapped all bank and bank branch locations in all 20 states. The bank control group allowed us to compare the number of payday lenders with the number of banks in a given state, county, ZIP code region, or neighborhood. And mapping banks also allowed us to compare the distance separating payday lenders and military bases with the distance separating banks and military bases. These comparisons are important because they provide spatial context, giving us something of a barometer of commercial activity in an observed locale. Mapping banks also helps account for variations in zoning regulations. For example, it is theoretically possible that current or past zoning ordinances might force payday lenders into geographic areas in close proximity to military bases, even though military personnel are not making relatively greater use of payday lender services. This becomes a much less plausible explanation of payday lender locations if payday lenders are clustered near military bases, but banks, who face similar zoning rules, are not. By mapping banks, we gain some insight into where retail and service activity is permissible in the towns and cities we are analyzing and get a good idea of where consumers are likely to be found.

283 Matching addresses to ZIP code polygons is highly reliable, and over 98% of all addresses used in the study reported a ZIP code that could be located and placed on a map.

Banks and payday lenders reporting a point location, such as those assigned a university, mall, or P.O. Box address, were assigned the ZIP code region containing the ZIP code point in question. Less than two percent of the addresses were reported as points.

284 Range refers to the distance a consumer will travel to obtain a good or service.

Threshold refers to the minimum population necessary to maintain solvency for a given business. Location analysts commonly conduct geographic market range and threshold parameter studies on behalf of businesses seeking locations and forming business plans. See


POLICY, ENVIRONMENT 247 (1997) (discussing theoretical issues in market range evaluation).


2. Data Sources and Mapping Techniques

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