«OHIO STATE LAW JOURNAL VOLUME 66, NUMBER 4, 2005 Predatory Lending and the Military: The Law and Geography of “Payday” Loans in Military Towns ...»
In Kentucky, payday lenders may charge fees equating to an effective annual interest rate of 459%.413 However, Kentucky law is clear that this charge is a “service fee,” not interest.414 As a result, payday lenders are not subject to the Commonwealth’s interest rate cap of 19%.415 In the event that a borrower’s check bounces, a lender may charge, in addition to its service fee, a returned check fee in any amount, so long as that amount is disclosed to the borrower in the original loan documents.416 Once a lender extends a payday loan to a borrower, the lender may not enter into any further payday loan transactions with the same borrower until the original loan is terminated.417 However, a consumer may enter into a second payday loan transaction at any one time, provided that the loans are from two different lenders and that the aggregate amount of the loans does not exceed $500.418 Finally, a lender may not renew, roll over, or consolidate a payday loan, unless it does so without charging the borrower a fee.419 413 KY. REV. STAT. ANN. § 368.100(2) (West 2004). Specifically, a payday loan fee may not exceed 15% of the face amount of the check. Id. For example, for every $100 check written, the borrower receives $85 while the lender receives $15. As a result, the borrower actually incurs a charge of 17.65%; assuming an average payday loan duration of fourteen days, the borrower is charged an effective annual percentage rate of 459%.
415 See id. § 360.010(1).
416 Id. § 368.102(3).
417 Id. § 368.100(10).
418 KY. REV. STAT. ANN. § 368.100(11) (West 2004).
419 Id. § 368.100(15).
750 OHIO STATE LAW JOURNAL [Vol. 66:653 According to the Kentucky Department of Financial Institutions, the Commonwealth has 583 payday lenders.420 At the county level, the state’s two military counties stand out statistically. The worst county in the state for payday lending is Christian County, where most of the troops at Fort Campbell live. It has 21 banks and eighteen payday lenders for its roughly 72,000 people. This is nearly 25 payday lenders per 100,000 and seven more than statistically expected for the population here, which includes the Kentucky component of the on-base population. Ranking fifth out of 120 counties in Kentucky is Hardin County, home to Fort Knox. Ironically, this county has 22 payday lenders to its 38 banks for its nearly 100,000 people. By comparison, Fayette County, which includes metropolitan Lexington and 260,000 people, has only four more payday lenders, but 63 more banks.
The county in Tennessee serving Fort Campbell’s soldiers is Montgomery County. It has 21 payday lenders for its 134,000 residents, including those onbase. In terms of total number of lenders, it ranks thirteenth among Tennessee’s 95 counties, but in terms of per capita density, Montgomery ranks in the middle percentile.
At the ZIP code level, locations adjacent to military bases appear highly attractive to payday lenders. The top four ZIP code regions in the state are all located near the state’s only two military bases. Radcliff (ZIP 40160), which lies adjacent to Fort Knox Army Base, has the greatest composite density of payday lenders in the state. Though home to only 24,000 people and six banks, it has managed to attract twelve payday lenders, 8.6 more than statistically predicted.
Radcliff ranks poorly in virtually all of our statistical categories and is the single most targeted location in the state of Kentucky for payday lending.
Oak Grove, probably the place most soldiers at Fort Campbell would go for a payday loan, has eight lenders to chose from, but only one bank. With less than 8000 people in Oak Grove, statewide averages predict only one payday lender in this ZIP code, unless you include the more than 20,000 soldiers stationed at Fort Campbell. Even when we added those soldiers to Oak Grove’s population, there are still 3.5 payday lenders beyond the expected number.
Hopkinsville and Clarksville, Tennessee, which sandwich Oak Grove on Highway 41, offer another ten payday lenders for the soldiers at Fort Campbell to choose from. The density of nearby competition, both in Kentucky and just across the border in Tennessee, makes the number of payday lenders in Oak Grove even more statistically dramatic.421 421 For a closely related discussion of payday lending in Tennessee, see infra Section IV.B.17.
2005] PREDATORY LENDING AND THE MILITARY 753 754 OHIO STATE LAW JOURNAL [Vol. 66:653 The Fort Campbell area was also chosen for street-level analysis, and at this resolution, the pattern is remarkable. As illustrated in Map 4, within three miles of the main entrance to the base, we located seventeen payday lenders and ten banks. Outside the three-mile buffer in the surrounding region there are 23 payday lenders and 69 banks. Twenty-four of the 41 total payday lenders in the region are located on Fort Campbell Boulevard.
2005] PREDATORY LENDING AND THE MILITARY 755 756 OHIO STATE LAW JOURNAL [Vol. 66:653
Payday lenders in Louisiana operate under the authority of the Deferred Presentment and Small Loan Act (DPSLA).422 The DPSLA allows lenders to charge interest rates of as much as 520%,423 well exceeding Louisiana’s usury law prohibiting conventional interest in excess of 12%.424 The Act prohibits lenders from extending payday loans that exceed a term of 60 days425 or are for an amount greater than $350.426 If the borrower cannot repay a payday loan on time, the lender may continue charging interest, but at a reduced rate (36% annual interest during the first 365 days following the extension, and then 18% annual interest thereafter).427 If the borrower’s check bounces for any reason upon the lender’s attempted deposit, the lender may recover a returned check fee.428 The Act’s protections for consumers are minimal—lenders may not divide a payday loan into multiple agreements for the purpose of charging a higher fee,429 nor may they renew or roll over a payday loan.430 However, a lender may make a new payday loan to a borrower if the borrower pays off at least 25% of the original loan.431 Louisiana has two major military installations: the Army’s Fort Polk and Barksdale Air Force Base. Louisiana also has 685 payday lenders and 1524 banks.432 Because it has about 4.5 million people, it ranks sixth among the 20 states in our survey in terms of the density of payday lending but better than most of the other southern states in our survey.
Louisiana has many places where quick loans would seem popular, from the 422 LA. REV. STAT. ANN. §§ 9:3578.1 to 9:3578.8 (2004).
423 Id. § 9:3578.4.A. Specifically, the Act allows a payday lender to charge a fee of 16.75% “of the face amount of the check issued.” Id. Consequently, a consumer borrowing $100 must write a check for $120, which is the equivalent of 20% interest. Assuming an average loan duration of fourteen days, Louisiana’s DPSLA allows payday lenders to charge an annual interest rate of 520%.
424 Id. § 9:3500.C.
425 Id. § 9:3578.3(6).
426 Id. § 9:3578.3(2)(c).
427 LA. REV. STAT. ANN. § 9:3578.4.A (2004).
428 Id. § 9:3578.4.B. The returned check fee must be for the same amount that the lender’s banking institution charged the lender for returning the check. Id. However, this returned check fee may be assessed only one time per check, regardless of the number of times that the check was returned to the lender by the lender’s bank. Id.
429 Id. § 9:3578.6.A(4).
430 Id. § 9:3578.6.A(7).
431 LA. REV. STAT. ANN. § 9:3578.6.A (2004).
432 STATE OF LOUISIANA, DEPARTMENT OF FINANCIAL INSTITUTIONS, PAYDAY LENDERLIST (2001) (on file with authors) (list mailed on authors’ request).
2005] PREDATORY LENDING AND THE MILITARY 757 third-world like poverty of the Delta, to the swamps of the Achafalaya Basin, to the streets of New Orleans. The swampy St. Martin’s Parish has the worst payday lending numbers in the state at the county level. The second and third worst parishes are two less likely candidates for payday lending, until you factor in military demographics.433 Bossier Parish, home to Barksdale Air Force Base, has almost 100,000 people, 22 banks, and 24 payday lenders, about eight more than expected. These statistics rank it second worst among the 64 parishes in Louisiana. Vernon Parish ranks third worst, and with just over 50,000 people and fourteen banks, its fourteen payday lenders are well above what one would expect in rural Louisiana were it not for the presence of Fort Polk in the heart of Vernon Parish.
433 Parishes are the functional and geographic equivalent of counties in Louisiana.
758 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 759 At the ZIP code level, the pattern is similar. Two ZIP codes in Baton Rouge have the worst ranking for payday lending statewide, but military-adjacent ZIP codes in Louisiana are not absent from our rankings. ZIP codes 71112 and 71111, which flank Barksdale Air Force Base in Bossier City, rank fifth and ninth in the state respectively. These two ZIP codes have fifteen banks and 23 payday lenders serving roughly 57,000 people, or fourteen more than statistically expected given their combined populations. The second highest composite density ZIP code in the state (71118) is just across the river in Shreveport. Its fifteen payday lenders are available to service men and women at Barksdale after only a short and commonly made trip across the Red River into Shreveport.
760 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 761 The composite score for payday lending is fourth highest in Leesville (ZIP 71446). Leesville has 12 banks and 14 payday lenders for its approximately 24,000 people—10.33 more payday lenders than the population would suggest, even if the population of soldiers at Fort Polk were included.
Leesville was selected for additional neighborhood analysis, which revealed that payday lenders were crowded around the main entrance to Fort Polk and less frequent in Leesville itself, which lies some six miles up Louisiana Highway 171. We found six payday lenders and one bank located less than a mile from Fort Polk’s border. In the three-mile buffer, we were able to map fourteen payday lenders and ten banks, but upon closer inspection we found that five of the payday lenders were crammed along Entrance Road, located within a mile of the base. Soldiers traveling to Leesville would pass five additional payday lenders in the next two miles. In Leesville itself, there were only three payday lenders, only one of which was not on the main route toward the base.
Missouri’s payday lending law is one of the most creditor-friendly in the nation. The statute actually authorizes lenders to charge fees equating to an annual interest rate of 1950%.434 Lenders are also essentially free to turn these loans into long-term obligations by allowing borrowers to renew six times, so long as the borrower pays down the loan by at least five percent upon each renewal.435 Lenders may not accept repayment out of the proceeds of another payday loan made by the same or an affiliated lender.436 However, lenders are not required to use a unified system to track whether consumers have more than one loan outstanding with other non-affiliated lenders.
Missouri is another state with a large number and high density of payday lenders. There are roughly 5.6 million people in Missouri, and they have some 2193 banks and 1138 payday lenders from which to choose.437 There are more than 20 payday lenders per 100,000 people in the state, ranking it fifth worst among the 20 states in our survey. Fort Leonard Wood and Whiteman Air Force Base are the only significant military installations in the state. Because Fort Leonard Wood has many missions and functions partly as a training facility, 434 A lender in Missouri may charge 75% interest on any payday loan. MO. REV. STAT.
§ 408.505(3) (2005). Assuming an average loan duration of fourteen days, this equates to an eye-popping annual rate of 1950%. It should be noted, however, that the 75% in interest authorized by Missouri law applies to the total of the initial loan and up to six renewals. Id.
§§ 408.505(3), 408.
435 Id. § 408.500(6).
436 Id. § 408.505(5).
437 STATE OF MISSOURI, DIVISION OF FINANCE, SECTION 408.500, SMALL, SMALL LOAN COMPANIES (Dec. 16, 2004), http://www.missouri-finance.org/pdfs/smallsmallloans.pdf.