«OHIO STATE LAW JOURNAL VOLUME 66, NUMBER 4, 2005 Predatory Lending and the Military: The Law and Geography of “Payday” Loans in Military Towns ...»
712 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 713 Zip code regions reveal further evidence of high payday lender density near military installations. For example, the 9000 soldiers and civilian employees343 at the Army’s Redstone Arsenal in Huntsville only have to travel a little more than a mile up General Patton Road before they run into the heaviest concentration of payday lenders in all of Alabama. Ranking first on our composite statistic is ZIP code 35816, which contains at least fourteen payday lenders, roughly ten more than one would expect based on Alabama’s already high state average and the ZIP code’s population of about 15,000 people.
Fifth in our payday lender composite density ZIP code ranking is 36201 in Anniston, home to Anniston Army Depot and Fort McClellan, a recently closed Army base. About 3500 people still work for the Department of Defense in Anniston, most of them in civilian capacities. Anniston (36201) has sixteen payday lenders and only nine banks. This is about eleven more payday lenders than statistically expected. In a pattern we shall see repeated elsewhere, many towns that have suffered the loss of a military base within the last fifteen years, though disposed of the economic benefit of the base, nevertheless retain a high density of payday lenders.
Enterprise, Alabama ranks ninth in the state on the list of payday lender density by ZIP codes with eighteen payday lenders for its 31,000 people and 5000 soldiers at nearby Fort Rucker. Daleville, the tiny town at the entrance to Fort Rucker, has only one payday lender. However, about twelve miles from Daleville, Dothan (ZIP 36303), where many Fort Rucker soldiers are likely to shop for goods and services, has 24 payday lenders, thereby giving it the third highest composite ZIP code density of payday lenders in Alabama.
Other high ranking ZIP codes in Alabama include Montgomery (36109) and Phenix City (36867). Montgomery, home to Maxwell Air Force Base (Gunter Annex), is ranked twelfth and is only a few miles from the main base. Phenix City, located across the river and about ten miles from Fort Benning, Georgia, ranks twentieth. Its fifteen payday lenders exceed the statistical expectation by 10.56, and many of these lenders are located on the road that leads to Fort Benning.
Arizona’s payday lending legislation is similar to Alabama’s. Payday lenders who are licensed with the state may charge a “fee” of 15% of the face amount of a borrower’s check, which is the equivalent of an annual interest rate of about 459%.344 Licensed payday lenders are permitted to extend a payday loan up to three times, and the lender may assess a new 15% fee each time.345 The statute also prohibits borrowers from entering into more than one payday loan transaction at the same time. However, there is little or no guarantee that payday lenders will actually comply with these time and volume limits. The statute merely instructs lenders to “take reasonable measures to ensure that no customer has more than one deferred presentment loan outstanding at any time with any” payday loan lender in Arizona.346 However, all the lender must do to comply with the rule is ask every borrower whether he or she has loans with other lenders, and the lender can rely on the borrower’s answer in order to satisfy the statute’s requirements.347 Under this law, Arizona has developed approximately 538 payday lenders and 1056 banks for its 5.1 million people.348 These figures place Arizona toward the middle of the states in our survey in terms of the density of payday lending per capita at 10.5 per 100,000. There are four mid-sized military installations in the state, three of which are air stations. Unlike most states, Arizona is divided into only fifteen relatively large counties. These large counties make it difficult to draw generalizations about payday lender proximity 344 ARIZ. REV. STAT. ANN. § 6-1260(F) (Supp. 2004). Section 6-1260(H) states that a payday lender fee is “not interest” for purposes of any other Arizona state law. Id. § 6H). This attempt at redefining the concept of interest is at odds with any coherent notion of commercial reality, as well as with a standard interpretation of the federal Truth in Lending Act. White v. Check Holders, Inc., 996 S.W.2d 496, 500 (Ky. 1999) (holding deferred check presentment fees should be “interest” for purposes of state usury law); Smith v. Cash Store Management, Inc., 195 F.3d 325 (7th Cir. 1999) (applying TILA to deferred presentment check cashing). A fee of 15% of the face amount of the check allows a lender to charge $17.65 for every $100 loaned (i.e., if a borrower desired to borrow $100, he or she would need to write a check for $117.65). Assuming a loan duration of fourteen days, a fee of $17.65 is the equivalent of an APR of 459%.
345 ARIZ. REV. STAT. ANN. § 6-1260(I) (Supp. 2004). The lender may also charge a bad check fee of $25 in addition to any charge assessed by the financial institution that dishonored the check. Id. §§ 6-1259(B)(10).
346 Id. § 6-1259(B)(10).
347 Id. § 6-1260(C).
348 For Arizona payday lender data, see OFFICIAL WEBSITE OF THE ARIZONA STATE
BANKING DEPARTMENT, DEFERRED PRESENTMENT COMPANIES,http://www.azbanking.com/Lists/DPC_List.HTML (last visited Oct. 17, 2005).
716 OHIO STATE LAW JOURNAL [Vol. 66:653 to military bases.349 Nevertheless, at the ZIP code level, a more workable analysis is possible. As illustrated in Table 3, two sites of interest are Luke Air Force Base in Phoenix and the recently closed Williams Air Force Base in Mesa. In the ZIP codes adjacent to Luke A.F.B., we found only a few banks and zero payday lenders.
Yet, about ten miles from the base is the ZIP code with the worst payday lending rank in the state. Although the former Williams A.F.B. area exhibits a similar pattern with very little activity near the base, the second worst ZIP code in the state is located about ten miles down the freeway.
This same pattern shows up in several Air Force bases in our survey. We speculate that, due to security concerns and the noise associated with military jet aircraft, the distance between Air Force bases and the surrounding commercialretail districts is, on average, a few miles greater than it is at bases affiliated with other branches of the military. We have also noticed that Air Force personnel seem to have a more diffused housing pattern than service persons in the other branches of the Armed Forces and tend to live further from the base.
Davis-Monthan Air Force Base in Tucson is not as isolated from its local commercial districts as are the Luke and the former Williams bases. The 6000 airmen and support personnel associated with the base are located next to two ZIP codes (85713 and 85714) that together have at least eighteen payday lenders and nine banks. These ZIP codes rank fifth and tenth worst for the greatest density of payday lenders by ZIP code in Arizona. Based on the combined population of these ZIP codes, there are twelve more payday lenders than one would expect based on statewide averages.
The Army’s Fort Huachuca (5000 troops) near the Mexican border is relatively free of payday lending. Yet the neighboring town of Sierra Vista has eight banks and five payday lenders. Although this is nearly double the number of payday lenders than one would predict based on the town’s population, it hardly seems impressive considering the densities near other bases.
349 For example, in Maricopa County, the most populous county in the state and home to Luke Air Force Base, we identified 347 payday lenders and 660 banks. While this is a large aggregate number, given that there are over three million people in the county, the number and density of payday lenders is outstanding compared to other large metropolitan counties. The size of the county does not permit an inference as to whether or not the payday lenders in the state are targeting military personnel.
2005] PREDATORY LENDING AND THE MILITARY 717 718 OHIO STATE LAW JOURNAL [Vol. 66:653
California’s Constitution includes an interest rate cap of ten percent per year for money loaned for personal, family, or household purposes.350 Moreover, the state’s civil and criminal usury laws impose a maximum annual interest rate of 12% for loans of money to be used for other purposes.351 Nevertheless, the California Deferred Deposit Transaction Law (CDDTL) charges the Department of Corporations with licensing payday lenders, who then receive safe harbor exemption from constitutional and statutory usury laws.352 The CDDTL currently authorizes payday lenders to charge “15 percent of the face amount of [a] check,” which equates to an annual percentage rate of about 459%.353 Lenders are not supposed to allow their borrowers to pay off some or all of a payday loan with the proceeds of another payday loan,354 nor may they use the borrower’s original check for a subsequent payday loan.355 The statute also forbids lenders from entering into multiple payday loans with the same customer during any one period of time.356 However, the statute provides little guarantee that lenders will follow these guidelines because there is no procedure or system for verifying whether a borrower has multiple loans from multiple lenders.
California’s leaders have largely stood on the sidelines as the state’s payday lending industry flared in the late 1990s. According to the Associated Press, the industry did not take root in California until 1997, but thereafter “tripled in size each year” until 2002.357 California’s regulation has been held hostage while the legislature has debated and negotiated what to do about the problem for over three years.358 Recently the Attorney General’s office handed off oversight responsibilities of payday lenders (but not check cashers) to the Department of Corporations.359 This dynamic environment has created uncertainty over the 350 CAL. CONST. art. XV, § 1.
351 CAL. CIV. CODE §§ 1916-1, 1916-3 (West 1985).
352 CAL. FIN. CODE §§ 23000-23106 (West Supp. 2005).
353 Id. § 23036(a). Until recently, California law also allowed a ten dollar “set up fee.” Associated Press, Davis Approves Audits, Study of Payday Lending Industry, SAN DIEGO UNION-TRIB., Sept. 22, 2002, at A4. The CDDTL still authorizes a payday lender’s returned check fee of $15. CAL. FIN. CODE § 23036(e) (West Supp. 2005).
354 CAL. FIN. CODE § 23037(a) (West Supp. 2005).
356 Id. § 23036(c).
357 Associated Press, supra note 353.
358 Jim Evans, California’s “Payday” Policing Up in the Air, SACRAMENTO BEE, Feb.
6, 2004, at D1, available at 2004 WLNR 12390767.
359 Id.; CAL CIV. CODE § 1789.35(e) (West Supp. 2005) (Attorney General charged with enforcing check cashing law).
2005] PREDATORY LENDING AND THE MILITARY 719 total number of payday lenders in the state. For our research, we have relied on data supplied to us by the state Attorney General’s office, which lists a total of 2294 payday lenders in the state.360 Even assuming the Attorney General’s conservatively small count, this is probably the largest number of payday lenders in any state. However with a population of about 34 million, this suggests that there are approximately 6.64 payday lenders per 100,000 people, placing California toward the very bottom in per capita payday lender density.
Of California’s 58 counties, several counties with a significant military presence or legacy ranked highest in payday lending. San Bernardino and San Diego counties, perhaps the two counties in the state with the greatest military presence, both rank among the top five counties in terms of the number and density of payday lending. San Bernardino County, home to Fort Irwin Army Training Facility, Twentynine Palms Marine Corps Base, the eastern gates of Edward Air Force Base, China Lake Naval Weapons Facility, and several recently closed bases, is tied for the county with the highest density of payday lenders in the state. This county has 161 payday lenders, but only 217 banks, giving it the highest bank-to-payday lender ratio in the state. San Bernardino County has nearly 45 more payday lenders than one would expect, given its countywide population. San Diego County, home to Camp Pendleton and a host of naval installations, has 238 payday lenders, making it second only to Los Angeles County and giving it about 50 more than its population would suggest.