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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 769 loans.451 A consumer advocacy organization reported that after the payday loan law sunset, some smaller payday lending companies sold out to larger chains while others reverted to their original check cashing business.452 Many lenders simply continued to offer payday loans without licenses through catalog sales, sale-leaseback transactions, and other disguises.453 Other payday lenders turned to out-of-state banks and began payday lending under a charter-renting theory.454 State leaders and consumer protection attorneys have waged a continuing legal and political battle over the future of payday lending in the state. In 2002, for example, North Carolina Attorney General Roy Cooper filed suit against ACE Cash Express for offering payday loans in violation of the state’s payday lending laws.455 Only a few months later, ACE agreed to stop its payday lending activities for one year and to pay civil penalties of $325,000.456 In February 2003, North Carolina’s Office of the Comptroller of the Currency filed suit against Advance America, Cash Advance Centers Inc., and Peoples National Bank for engaging in illegal payday lending transactions in the state. The parties eventually reached a settlement agreement, agreeing to end their payday lending arrangement in North Carolina; in addition, Peoples National Bank agreed to pay $175,000 in civil penalties.457 Finally, in July 2004, consumers filed a series of lawsuits against Advance America, Check into Cash, and Check ’N Go, alleging that the lenders were exploiting poor people by luring them into quick loans that carry exorbitantly high interest rates.458 This regulatory uncertainty created data collection challenges in studying payday lender locations around North Carolina’s important and large military installations. Because the state Commissioner of Banks has taken the position that payday lending is illegal in the state, it does not publish a list of payday lenders. However, it does maintain a list of companies licensed as check 451 Richard Wagner, Court Shuts Down Payday Lender, CAROLINA J., Dec. 15, 2003, http://www.carolinajournal.com/articles/display_story.html?id=1241.


453 Id.

454 Id. Using a charter-renting arrangement, as of mid-2004, Advance America was operating 114 stores in North Carolina, generating revenues of more than $30 million per year, and two other payday lending outlets, Check ’N Go and Check Into Cash, together had one hundred stores in the state, bringing in combined revenues of $28 million every year. See


THREE OF NORTH CAROLINA’S LARGEST PAYDAY LENDERS, July 28, 2004, http://www.tlpj.org/pr/nc_payday_072804.htm.


456 Id.

457 Id.


770 OHIO STATE LAW JOURNAL [Vol. 66:653 cashers.459 Many of the check cashers on this list are the very companies that are using charter-renting relationships with state banks to evade North Carolina’s interest rate cap. However, other payday lenders that do not engage in simple check cashing are not included on this list, making it unsuitable for our purposes. Instead we painstakingly culled payday lender addresses statewide from current classified business and telephone directory listings.460 While significantly more time-consuming than state regulatory databases, use of classified business and telephone directories is widely accepted by social scientists conducting studies similar to ours.461 Based on our analysis of classified directories, we estimate that 612 payday lenders currently serve North Carolina’s eight million-plus people. When compared to the 2478 banks in the state, North Carolina ranks tenth of 20 states in our survey in the total number of payday lenders, and sixteenth in per capita density of payday lenders at 7.60 per 100,000. This rate is much lower than its



https://www.nccob.org/Online/CCS/CompanyListing.aspx (last visited Oct. 17, 2005).

460 After searching dozens of business directories and telephone directories, we found that the most reliable and extensive directory of payday lenders was to be found in several on-line directories. We would have preferred to use the BellSouth Yellow Pages, available on-line through Yahoo.com, because this directory allowed us to look up businesses under the heading “Check and Cash Advances.” Unfortunately, this database did not allow us to compile a comprehensive list of payday lenders for the entire state. After some searching, we found the business database Reference USA that offered statewide listings, but unfortunately did not list the same businesses as “Check and Cash Advances,” rather listing them as “Check Cashing Services.” After numerous trials in which we compared the directory listings provided by both services, we became confident that the Reference USA and the BellSouth Yellow Pages listings, though categorized under different headings, were essentially the same list. We concede that some businesses in both databases may offer only check-cashing services and not loans, but clearly the vast majority of those listed in the Reference USA database are offering loans and thus we chose to use the addresses in this database as a proxy for payday lenders. We would also like to note that the use of proxy variables is a common and accepted practice among social scientists and researchers who conduct studies similar to ours. From the Reference USA database, we compiled a list of 612 businesses that we will call payday lenders. Reference USA, Category Heading: Check Cashing Services, http://www.referenceusa.com (last viewed Oct. 17, 2005). Over half of the list is comprised of national payday lenders such as Advance America and Check N’ Go. One hundred additional businesses on this list have words such as “loan,” “advance,” “payday,” or “pawn” in their names, indicating that they too are offering loans.

461 For example, John Caskey has used a similar technique to measure growth and

distribution of check cashers and pawnshops. See JOHN P. CASKEY, FRINGE BANKING:

CHECK-CASHING OUTLETS, PAWNSHOPS, AND THE POOR 46 n.6 (1994) (“A comparison of the number of pawnshop outlets listed in the classified pages of telephone books with the number reported by state regulators shows a generally close correspondence.”). Because most lenders are anxious to advertise their services, telephone directories tend to provide business lists as accurate or more so than comparable government databases.

2005] PREDATORY LENDING AND THE MILITARY 771 neighbors Tennessee and South Carolina, but still above the 6.64 per 100,000 density found in Virginia, despite the fact that under state law payday lending is legal in Virginia and illegal in North Carolina. There are six military bases in North Carolina with over 4000 troops, but the Marine Corps’ Camp LeJeune (30,000) and the Army’s Fort Bragg (40,000) are the largest. All told there are well over 100,000 active military personnel stationed in North Carolina.

The counties with the greatest number and density of payday lenders tend to be those with significant military activity. The county with the greatest composite ranking in the state is Wayne County, home of Seymour Johnson Air Force Base. Wayne County has 113,400 persons, 30 banks, and seventeen payday lenders, which is about 8.5 more than our statistical prediction.

Craven County, where the Marine Corps Air Station at Cherry Point is housed, ranks fourth worst in the state. Cumberland County, which shares Fort Bragg and encloses Pope Air Force Base, has an estimated 32 payday lenders, ranking it third in the state for sheer volume and sixth worst out of 101 counties on our composite payday lending score. Not far behind is Onslow County, where Camp LeJeune is sited. Onslow County has 25 banks and fourteen payday lenders, which gives it a ranking of eight out of 101.

772 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 773 The story was much the same once we examined the numbers at the ZIP code level. It was clear that within the military counties overcrowded with payday lenders, the ZIP codes adjacent to bases were the hottest spots for payday lending. For example, Goldsboro, home to about 65,000 civilians and 4500 service persons at Seymour Johnson Air Force Base, has nineteen banks and seventeen payday lenders citywide, but the ratio is most uneven on the side of town where the main base gates are located (ZIP 27534). Here, the ratio climbs to eleven payday lenders to only four banks, and with less than 30,000 people, it is the most thickly concentrated ZIP code in the state for payday lending.

Ranking fourth highest out of 735 possible ZIP codes in North Carolina is Jacksonville (28546). This ZIP code, adjacent to Camp LeJeune, has almost 33,000 people, eight banks, and ten payday lenders—7.5 more than the population would predict based on state averages. The Marine Corps Air Base at Cherry Point is situated just up the road in Havelock. The ZIP code here (28532) ranks tenth in the state, with its three banks and six payday lenders.

Fort Bragg and Pope Air Force Base share the same general space on the west side of Fayetteville. These bases have a number of local ZIP codes with unusually high numbers and densities of payday lenders. Fayetteville’s 28303 ZIP code ranks highest among the local ZIP codes, (eight of 735) with seventeen banks and twelve payday lenders for roughly 32,000 people. The other nearby ZIP code of note is 28301, which has an additional nine payday lenders, helping to make it the fourteenth worst ZIP in the state for payday lending. Another ZIP (28311) bordering the base also has more payday lenders than one would expect and together the three Fayetteville ZIP codes near the bases have 26 payday lenders, 18.3 more than the population in those ZIP codes statistically warrants.

774 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 775 Because Fort Bragg and Pope Air Force Base together constitute one of the largest installations in the country, Fayetteville has become one of the nation’s best known “military towns” and serves as an excellent site for additional analysis at the street level. When we mapped payday lenders in the region, we found roughly 36 total in Cumberland County, plus two others in a neighboring ZIP code in Harnett County, just to the north of Fort Bragg and Pope Air Force Base.462 We were able to map the location of each payday lender, plus all 68 banks in this same region. After placing a series of one-mile buffers around the three ZIP codes that largely constitute the two bases, we counted the banks, payday lenders, and people living within each buffer zone.

As shown in Map 5, seven out of 36 payday lenders or about 20% of the payday lenders in the region were within one mile of the bases, while only five of the 68 banks (7.35%) were in that same one-mile buffer zone around the bases. Our mapping software counted eight banks either on-base or on the bases’ immediate perimeter. There are no payday lenders on-base. Six additional payday lenders were between one and two miles from the bases, while only one bank was found in that zone. From two to three miles from the bases, the ratio of payday lenders to banks begins to edge back toward statewide averages with three payday lenders and six banks. Statewide there are roughly four banks to each payday lender, but in the three miles adjacent to Fort Bragg and Pope Air Force Base, the ratio is four banks to every five payday lenders.

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