«OHIO STATE LAW JOURNAL VOLUME 66, NUMBER 4, 2005 Predatory Lending and the Military: The Law and Geography of “Payday” Loans in Military Towns ...»
2005] PREDATORY LENDING AND THE MILITARY 727 claimed that Americash was operating in violation of Colorado’s payday lending law by renewing loans more than one time and by falsifying its records to make it appear as if the borrower had paid off the original loan in full before obtaining a new loan.379 One year later, Americash settled with the Attorney General, agreeing not to engage in payday lending in the future in Colorado. It further consented to surrender its license and pay $18,000 in damages.380 Colorado officials said they would use the money in part to reimburse the costs incurred in prosecuting the case and for consumer education.381 Colorado ranks toward the bottom of our list of states in terms of the number and the density of payday lending. Colorado has 4.3 million people, 361 payday lenders, and 1390 banks.382 The relative lack of payday lending statewide may be partially attributable to the general prosperity and relatively well-funded educational system in Colorado. Still, where payday lenders are found in high concentrations, they tend to be near military installations. There are 63 counties in Colorado and only six of them either house or border a military installation. These same six counties are the six top counties in the state for payday lending. The two counties most densely populated with payday lenders in our composite ranking, Pueblo and El Paso, both share the Army Base at Fort Carson.
382 Uniform Consumer Credit Code Div., Colo. Depart. of Law, Colo. Deferred Deposit Lender List, Dec. 2003 (on file with authors) (provided in digital format by authors upon request).
728 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 729 At the ZIP code level, the military districts in Colorado also stand out in our ranking of payday lending regions. One of the worst ZIP codes in the state is 80012 in Aurora, Colorado. Situated essentially in the middle of two recently closed bases (Lowry Air Force Base and Fitzsimons Army Medical Center) and the still-active Buckley Air Force Base/Air National Guard Base, this ZIP code has fifteen banks and eleven payday lenders, the third most of any ZIP code in the state and 7.4 more payday lenders than statistically expected.
A ZIP code analysis clearly demonstrates that the Fort Carson area is the favorite spot in the state for payday lenders. Bordering Fort Carson on the south is Pueblo, Colorado. Pueblo has only seven ZIP codes, but still manages to include the first, sixth, and ninth worst ZIP codes in the state. Pueblo has 36 banks and 28 payday lenders—nearly double our statistical expectations. Eight of those payday lenders are in Pueblo ZIP code 81008, which directly borders Fort Carson. Because this ZIP code has less than 7000 people in it, statewide averages suggest there should not be a single payday lender operating there.
Instead, the ZIP code bordering Fort Carson has the highest density of payday lenders per capita in the state.
730 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 731 The northern part of Fort Carson is bordered by Colorado Springs, one of the United States’ best known “military towns,” and is therefore an ideal case study site for additional analysis. Colorado Springs is a fairly large city and has 24 ZIP codes. Five of them rank among the worst in the state and contain most of the 65 payday lenders citywide. As illustrated in Map 2, almost all of the nearly 27 extra payday lenders in Colorado Springs are in three ZIP codes located very close to Fort Carson and Peterson Air Force Base. For example, ZIP code 80909 has thirteen payday lenders, the most of any ZIP code in the state and almost ten more than we predicted based on the local population. The second worst ZIP code in the state (80916) has only two banks but nine payday lenders for its 32,000 people. Most of the payday lenders in this part of town are on Academy Boulevard. This street, which runs south from the Air Force Academy toward the other two bases in town has at least nineteen payday lenders, with two more just off Academy Boulevard. Seventeen of the payday lenders on Academy are along a roughly five-mile stretch in the neighborhoods closest to Peterson Air Force Base and Fort Carson. By contrast, only six banks can be found along the same five-mile stretch of Academy Boulevard. This stretch of highway is very likely home to one of the heaviest concentrations of payday lenders anywhere in the country. Thirty-eight of the 63 payday lenders (60.3%) whose addresses could be matched in El Paso County were within three miles of Peterson Air Force Base or Fort Carson, which are only a few miles apart. That is more than ten percent of the total number of payday lenders statewide, serving only three percent of the state’s population, and about 26 more payday lenders than statistically expected given the number of people inside that perimeter.
732 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 733
Delaware has long had a reputation for its laissez faire corporate, tax, and banking laws. In the wake of the Marquette decision, Delaware actively encouraged banks to export the state’s regulatory environment to states more focused on consumer protection issues. Today, the state is well-known as the epicenter of the nation’s credit card lending operations. Delaware also imposes no interest rate cap for payday loans allowing lenders to charge interest “as the agreement governing the loan provides.”383 Delaware law purports to limit the duration of payday loans to 60 days and the number of payday loan rollovers to no more than four times.384 However, the effect of these provisions is ambiguous in that payday lenders may refinance the entire outstanding and unpaid amount of a payday loan, and they may even charge a refinancing fee for doing so.385 Lenders operating in states with strict payday lending laws now consistently seek to partner with Delaware banks in order to export Delaware’s deregulated interest rates to their home states.386 For example, First Bank of Delaware, which rents its charter to payday lenders around the country, had $5 million in outstanding payday loans by the end of 2002, equating to 20% of its total assets.387 Similarly, the State of New York has accused County Bank of Rehoboth Beach, a Delaware-chartered state bank, of criminally facilitating evasion of New York’s usury laws.388 In a different vein, PDL Marketing, LLC is a Delaware-based company that generates 7000 payday loan applications each day for payday lenders located throughout the United States.389 For our purposes, Delaware is also of interest because it is home to Dover Air Force Base, which is the best example of an urban, East Coast base in a small state. Despite its liberal banking environment, payday lending is no more common here than it is in some rural southern states. Delaware has 256 banks
383 DEL. CODE ANN. tit. 5, § 2229 (2001).
384 Id. §§ 2227(7), 2235A(a)(1) (Supp. 2004).
385 Id. § 2235A(c).
386 Consumer Federation of America, Consumer and Cmty. Groups Call on Fed.
Reserve Bd. to Halt Rent-A-Bank Payday Lending by Del. Bank (Apr. 15, 2003), http://www.consumerfed.org/FedLetter.html.
388 People v. County Bank of Rehoboth Beach, No. 1:03-CV-1320 (N.D.N.Y. May 25, 2004), www.abanet.org/buslaw/committees/CL230044pub/links.shtml (subscription required).
389 Press Release, PRWeb, Del. Based PDLMarketing.com Driving Force Behind America's Newest Bus. Success Stories (Jan. 10, 2005), http://www.prweb.com/releases/2005/1/prweb194851.php.
734 OHIO STATE LAW JOURNAL [Vol. 66:653 and 120 payday lenders390 for its 784,000 people. These numbers rank it in the upper half in terms of payday lending density among the states we surveyed.
There are only three counties in Delaware, but Kent County, which includes Dover A.F.B., ranks first in the state in payday lending activity. In Kent County there are approximately 127,000 people, 32 banks and 30 payday lenders. This is about ten more payday lenders than predicted for that population according to our statistics.
390 Del. Office of the State Bank Comm’r, Non-Depository Institutions (Dec. 1, 2003), http://www.state.de.us/bank/information/nondepsearch.shtml (search parameters included “all licensed lenders”).
2005] PREDATORY LENDING AND THE MILITARY 735 736 OHIO STATE LAW JOURNAL [Vol. 66:653 Because of Delaware’s lack of consumer protection laws, we expected to find the majority of the high-ranking ZIP codes bordering other nearby states that would serve borrowers from Maryland and New Jersey. This payday lender location strategy was evident to some extent. However, as Map 3 illustrates, the ZIP codes that ranked first and second for payday lending density statewide were both next to the Air Force Base in Dover. Dover ZIP 19901 had less than 32,000 people and six banks, but had fifteen payday lenders, which amounts to ten more than statewide averages would lead us to expect based on this population. Just a few miles from the base is Milford (ZIP 19963). Though only populated by less than 15,000 people, Milford has seven banks and eight payday lenders, which is about six lenders above statistical expectations.
2005] PREDATORY LENDING AND THE MILITARY 737 738 OHIO STATE LAW JOURNAL [Vol. 66:653 Dover Air Force Base was selected for additional street-level analysis. In the first two miles from the base, we could find only one bank, but six payday lenders. We saw a slight return to normalcy between two and three miles from the base, as banks outnumbered payday lenders at a ratio of nine banks to five payday lenders.
2005] PREDATORY LENDING AND THE MILITARY 739 740 OHIO STATE LAW JOURNAL [Vol. 66:653
Like other states discussed so far, Florida has legislation specifically authorizing payday lenders to exceed the state’s interest rate cap.391 Under Florida law, payday lenders may charge ten percent of the loan. Payday lenders are also authorized to charge the borrower a “verification fee” of no more than five dollars.392 Combined, the two charges allow Florida lenders to charge an effective annual percentage rate of 390%.393 On the other hand, Florida has been innovative in trying new ways to avoid the problem of chronic rollovers by borrowers who are unable to repay their initial payday loans when due. First, the Deferred Presentment Act strictly prohibits any rollover of a payday loan;394 indeed, a borrower must wait 24 hours after redeeming or otherwise terminating a payday loan before entering into another payday loan transaction.395 Second, the Act forbids a lender from redeeming, extending, or otherwise consolidating a payday loan with the proceeds of an additional payday loan made by the same or an affiliated lender.396 Finally, it prohibits a lender from extending a payday loan to any person who has an outstanding payday loan with that lender or with any other payday lender.397 To facilitate compliance with these requirements, Florida has implemented a common database, accessible via the internet, connecting all deferred presentment providers.398 Lenders must submit the personal information of any borrower entering into a payday loan into the database, including the borrower’s name, address, social security number, driver’s license number, amount of the transaction, and the dates that the transaction commences and terminates.399 Florida has experienced an 82% decrease in multiple 391 The Deferred Presentment Act effectively exempts payday loans from the state’s normal usury laws capping interest at an annual rate of 18%. See FLA. STAT. ANN.
§§ 687.02(1), 687.
03(1) (West 2003).
392 Id. § 560.404(6) (West 2002 & Supp. 2005).
393 For every $100 loaned, a payday lender may charge interest of ten dollars and a verification fee of five dollars, amounting to a total fee of 15%; assuming an average loan duration of fourteen days, the annual percentage rate of interest is 390%.
394 FLA. STAT. ANN. § 560.404(18) (West 2002 & Supp. 2005).
395 Id. § 560.404(19).
396 Id. § 560.404(18).
397 Id. § 560.404(19).
398 Id. § 560.404(23).
399 Id. The information entered in to the database is confidential except when payday lenders need to access it to verify whether a potential borrower has any outstanding (or recently terminated) deferred presentment transactions. FLA. STAT. ANN. § 560.404(23) (West 2002 & Supp. 2005).