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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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Interestingly, Orange County, which neighbors San Diego County and has only a few thousand more people—but no significant military presence—has 73 fewer payday lenders. Sacramento County, though presently home to only 2100 military persons, was in recent years home to three military installations (Sacramento Army Depot and the McClellan and Mather Air Force Bases).

Although the bases are closed today, many of the payday lenders that were established before the closures are still in business. The economic hardship wrought by the base closings may be partly responsible for the continued presence of the payday lenders in the area.

360 CAL. DEP’T OF JUSTICE, OFFICE OF THE ATT’Y GEN., CALIFORNIA DEFERRED DEPOSIT

LENDER LIST (2003) (on file with authors) (provided on floppy disk by authors upon request). There are reports of much larger numbers of payday lenders in California. One Bloomberg News newspaper article provides an unattributed estimate of over 5600 payday lenders in California. Robinson, supra note 221. Some of the discrepancy may be due to growth in the industry or the Bloomberg News figure may include check cashers not specifically licensed as payday lenders. We also believe California probably has an unusually high number of unlicensed payday lenders given the recent regulatory handoff from the Attorney General’s office to the Department of Corporations. See Evans, supra note 358. We have cautiously relied on the Attorney General’s figures, which, in the worst case, conservatively undercount the number of payday lenders near military installations.

720 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 721 Smaller military counties in California also have greater than expected densities of payday lenders. Yuba County, home to Beale Air Force Base and with only a little over 60,000 people, has at least five payday lenders—about two more than one would expect given statewide averages. Five additional payday lenders are located just across the county line in Yuba City, a town of only about 30,000 people and situated less than ten miles from the somewhat isolated U2 spy plane base. The other counties ranking in the top ten in number and density of payday lenders include Los Angeles County and several in the impoverished San Joaquin Valley, where poverty rates are typically over 15%.

Based on statewide averages, we found higher than expected densities of payday lenders around military bases when mapped at ZIP code level as well.

Fourteen of the top 20 payday lending ZIP codes in California are within five miles of an active or recently closed military installation. Perhaps the most telling picture emerged just south of Camp Pendleton Marine Corps Base in Oceanside. The ZIP code at Camp Pendleton’s southern gate is a relatively affluent, beachfront community—hardly the place one would expect a large number of payday lenders. Yet this ZIP code region (92054) has 22 payday lenders, five more than any of the other 1661 ZIP code regions in California.

Given Oceanside’s population, there should be roughly five payday lenders, but it has seventeen more than what would be expected. Even if one were to consider the entire population of 30,000 Marines at Camp Pendleton as part of Oceanside’s demographics, there would still be at least thirteen extra payday lenders, four more than we found in all of Marin County (population 250,000).

Oceanside (92054) has six more payday lenders than banks. For the sake of comparison, the neighboring ZIP codes in Carlsbad, California (92008 and

92009) have 3000 more people than Oceanside (92054) but only two payday lenders. Admittedly, Carlsbad is slightly more affluent than Oceanside, but this cannot explain the stark difference in the number and density of payday lenders in these two neighboring towns. Clearly, the difference is Oceanside’s proximity to the nearly 30,000 Marines stationed at Camp Pendleton.

722 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 723 San Diego County was the location chosen in California for a street-level analysis, which is partially reproduced in Map 1. Since San Diego County is large and includes multiple military installations, our primary focus was on the Camp Pendleton region, but other military neighborhoods were also examined and analyzed. In the three-mile buffer zone around Camp Pendleton (and its adjacent DOD property, such as the Fallbrook Naval Weapons Annex), we found 24 payday lenders. This is ten percent of all the payday lenders we were able to map in all of San Diego County. By comparison, there were 25 banks in this three-mile buffer, representing only 4.65% of the total bank branches mapped in San Diego County. Approximately 148,859 people live inside this three-mile buffer zone, accounting for just over five percent of the county’s population. Combined, the buffer zone extending three to nine miles around the base has only sixteen payday lenders, although there are 204,396 persons living in these buffer zones.

The rest of San Diego County is speckled with military installations. Rather than placing buffer zones around individual DOD properties on this map, which was the practice in other cases, we instead placed buffer zones around census tracts with high percentages of military persons. This method was employed for this area because DOD installations are so numerous and so scattered in San Diego County that the map would have virtually no space not covered by a buffer zone. Also, many of the service persons and their families do not live onbase, as was the case with many of the military towns we examined. Instead, we focused on census tracts with over ten percent of the population aged 18 to 64 actively serving in the Armed Forces, designating them military census tracts.





Buffers were created around each of these tracts. The primary value of this map is to show the dispersed nature of the military population in San Diego. The heightened density of payday lending in these neighborhoods is less suggestive than it is in Oceanside, but it is visible nevertheless. None of the military neighborhoods in San Diego are lacking multiple payday lenders, though several are not well-served by banks. Countywide, more than two-thirds of the payday lenders are within three miles of a military neighborhood, while less than half of the banks are within the same three-mile buffer.

724 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 725

4. Colorado

Section 5-12-103 of Colorado’s state code makes it a felony to lend at interest rates in excess of 45% percent per annum.361 Historically, supervised small loan lenders in Colorado were limited to a 36% interest rate for loans of less than $1000.362 However, like many other states, payday lenders have successfully pressured the Colorado legislature into granting them a special exemption from the criminal usury law.363 The Colorado Deferred Deposit Loan Act (DDLA) gives licensed payday lenders the right to charge 20% of the first $300 loaned, plus 7.5% of any amount loaned in excess of $300.364 For a typical two-week $300 payday loan, this amounts to an annual percentage rate of about 520%. Once the loan is made, Colorado law authorizes accrual of interest for only the first 40 days after the loan transaction date; even if the lender chooses to delay completion of the transaction beyond this time, the lender is not supposed to charge any additional fees.365 To prevent lenders from indefinitely extending the 40-day loan period through periodic “renewals,” the Colorado legislature has instructed payday lenders not to renew loans more than once.366 Still, payday lenders are free to refinance a payday loan under the Uniform Consumer Credit Code (UCCC) with a maximum annual interest rate of 36%.367 However, Colorado has no program to actually guarantee that consumers do not extend their payday loans indefinitely by switching between different lenders, nor by extending loans with one lender.

361 COLO. REV. STAT. § 5-12-103 (2004). Section 18-15-104(1) states:

Any person who knowingly charges, takes, or receives any money or other property as a loan finance charge where the charge exceeds an annual percentage rate of forty-five percent or the equivalent for a longer or shorter period commits the crime of criminal usury, which is a class 6 felony.

COLO. REV. STAT. § 18-5-104(1) (2004).

362 Id. § 5-2-201.

363 Id. § 18-15-104(4)(a).

364 Id. § 5-3.1-105. A consumer borrowing $100 must write a check for $120 so that the lender may take its $20 fee from the check. Assuming that the consumer borrows this money for fourteen days subject to a 20% fee, the effective annual interest rate is 520%.

365 Id. § 5-3.1-103.

366 Id. § 5-3.1-108(1). The DDLA, as introduced by Colorado Senate Bill 00-144, would have allowed up to three renewals on a single deferred deposit loan, but the Senate Business Affairs and Labor Committee reduced that number to just one. Letter from Laura E. Udis, Administrator of the Uniform Consumer Credit Code 2 (June 27, 2000), http://www.ago.state.co.us/UCCC/opinions/deferdeploan062700.pdf.

367 COLO. REV. STAT. § 5-3.1-108(4) (2004); Letter from Laura E. Udis, supra note 366, 726 OHIO STATE LAW JOURNAL [Vol. 66:653 Nevertheless, unlike many states, Colorado officials have made some significant efforts to enforce the loan duration limitations in their payday lending statute. For example, in July 2001, Colorado Attorney General Ken Salazar filed a civil lawsuit in state court against ACE Cash Express, Inc., the largest check-cashing business in the country,368 for violating the DDLA.369 Salazar accused ACE of regularly allowing borrowers to renew payday loans far more times than allowed under the state rollover limit.370 Moreover, ACE had not even bothered to obtain a license to operate legally under Colorado state law.371 ACE removed the case to federal court, claiming that it was an agent of California-based Goleta National Bank.372 Employing a “charter-renting” argument, ACE argued that the federal National Bank Act preempted any state law claims arising under the DDLA.373 The Federal District Court of Colorado disagreed, however, finding that resolution of Salazar’s complaint was not controlled by the National Bank Act.374 Even though ACE Cash Express may have been an agent of Goleta, the court distinguished Marquette because ACE was not a subsidiary of Goleta.375 The court further stated that ACE and Goleta were “separate entities” and, thus, ACE could not escape the authority of Colorado state law.376 After the case was remanded to state court, ACE settled with the Colorado Attorney General, agreeing to pay $1.3 million in restitution to Colorado consumers and to comply with Colorado’s payday lending laws in the future.377 In October 2002, Salazar again initiated disciplinary proceedings, this time against Americash, a Knoxville, Tennessee-based payday lender operating ten payday loan stores in Denver and Colorado Springs.378 As before, Salazar at 2. Specifically, a payday lender may charge either (1) 36% interest for the first $1000, 21% interest on any balance in the amount of $1000 to $3000, and 15% interest on any part of the loan in excess of $3000 or (2) 21% interest on the entire loan. Id. § 5-2-201(2).

368 Press Release, California Reinvestment Comm., Community Groups Warn Goleta National Bank Shareholders of Dangers of Ace Cash Express Partnership (May 23, 2002), http://www.calreinvest.org/PRESS/press_5_23_02.html.

369 Press Release, Office of the Attorney Gen. of Colo., ACE Cash Express to Pay $1.3 Million in Restitution to Consumers (May 6, 2002), http://www.ago.state.co.us/press_detail.cfm?pressID=371.

370 Id.

371 Id.

372 People v. ACE Cash Express, Inc., 188 F. Supp. 2d 1282, 1284 (D. Colo. 2002).

373 Id.

374 Id.

375 Id.

376 Id. at 1285.

377 Office of the Attorney General of Colo., supra note 369.

378 Americash Shut Down, DENV. BUS. J., Nov. 18, 2003, available at http://www.bizjournals.com/denver/stories/2003/11/17/daily16.html.



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