«OHIO STATE LAW JOURNAL VOLUME 66, NUMBER 4, 2005 Predatory Lending and the Military: The Law and Geography of “Payday” Loans in Military Towns ...»
Overall, about half of the payday lenders in the Fort Bragg region are within three miles of the base, while only about 17.5% of the banks are in that same three-mile zone. Even if we add in the on-base banks, only about 30% of the banks in the region are close to the Bragg/Pope area. There are about 90,000 people living within three miles of a base and, on average, 16% of this population is military. If this area conformed to state-wide averages, there should be less than seven payday lenders for this population, nine fewer than what we found in this three-mile zone around the Base. According to our statistical measures, those nine extra payday lenders next to the bases are enough to serve 120,000 additional North Carolinians. Outside the three mile buffer, there remains additional payday lending capacity, with at least six of the 21 remaining area payday lenders just beyond the three mile circumferential border used in our study.
462 A listing of addresses for the Fayetteville region listed under “Check and Cash Advance” was downloaded from Yellow Pages and cross-checked against the database of check cashers. We found all but two of the entries matched, boosting our confidence in the accuracy of our proxy variable.
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In Ohio, unless otherwise authorized by law, charging interest in excess of 25% per annum is criminal usury, which is a fourth degree felony.463 However, the Ohio legislature has passed legislation protecting licensed payday lenders from the criminal law statute.464 Licensed Ohio payday lenders are authorized to charge interest of five percent per month465 in addition to an “origination fee” of ten percent,466 which is the effective equivalent of an annual rate of interest of 390%.467 Further, payday lenders may also charge defaulting borrowers returned check fees468 and check collection fees.469 The statute forbids allowing payday loans to extend beyond a term of six months, the longest duration of any state included in our survey.470 The statute also includes a prohibition of entering into a payday loan transaction for the purpose of “retiring” an existing loan, but only as between the original two parties.
While Ohio’s large population and relatively lax payday lending regulation is reflected by the large number of payday lenders (1042),471 the state does not have a great density of payday lenders (9.18 per 100,000 residents), nor does it have a sizeable number of military facilities. Wright-Patterson Air Force Base near Dayton, Ohio is the only significant active military installation in the state.
This base is large and touches at least three other counties. The off-base population is widely scattered throughout the four-county region. Among those counties bordering Wright-Patterson, only Greene County ranks in the top ten in payday lending. Only Montgomery County ranks high in any of the statistical categories we examined, and only in terms of the total number of payday lenders (165), but given its population of over a half million people, this number is about what we expected statistically.
463 OHIO REV. CODE ANN. §§ 2905.21(H), 2905.22 (West 2004).
464 Id. §§ 1315.36–1315.38.
465 Id. § 1315.39(B). Specifically, the lender may charge five percent interest “per month or fraction of a month on the unpaid principal.” Id. § 1315.39(B) (emphasis added).
466 Id. § 1315.40(A). The ten percent rate is allowed for loans under $500; if a loan exceeds $500, the interest rate is capped at 7.5 percent.
467 Assuming an average loan duration of fourteen days, a 15% fee (including the interest and the origination fee) equates to an annual interest rate of 390%.
468 OHIO REV. CODE ANN. § 1315.40(B) (West 2004). Returned check fees are the actual fees charged by the lender’s bank for a returned check. Id.
469 Id. § 1315.40(B). Check collection fees are additional fees, not to exceed $20, that a lender may charge a borrower for the inconvenience of depositing a worthless check. Id.
470 Id. § 1315.39(A)(2).
471 OHIO DIVISION OF FINANCIAL INSTITUTIONS, OHIO CHECK LENDERS (Dec. 12, 2003) (on file with author) (provided by mail on authors’ request).
778 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 779 At the ZIP code level, the picture remains cloudy. For example, Fairborn (ZIP 45324), which is Wright-Patterson’s “gateway town,” ranks fifty-third among Ohio’s 1016 ZIP codes because it has ten banks and seven payday lenders for its nearly 40,000 people including those on-base. Just across U.S. 35 lies Dayton’s 45420 ZIP code. It ranks twenty-third in the state with seven banks and six lenders for its 25,000 people. Otherwise, the ZIP codes surrounding Wright-Patterson are statistically unremarkable.
780 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 781 The street-level analysis done for Wright-Patterson did, however, show some greater clustering around the base that the other resolutions did not. In the three-mile buffer zone around the base, we found 21 of the 75 payday lenders in the tri-county region. This is 28% of the region’s payday lenders, but only ten percent (25 of 242) of the region’s banks are found in the same three-mile buffer zone. In the first two miles from base, the ratio of payday lenders to banks is twelve to eight. We have documented similarly uneven ratios in other states, but in Ohio such an imbalance is actually quite rare. Of the 1016 ZIP code regions in Ohio, only 38 have more payday lenders than banks, and of those, only one in Akron has a greater imbalance between payday lending and banks than the twomile radius around Wright-Patterson. By taking the number of people in the three-mile buffer, plus those living on-base, we can estimate that there should be about 14.5 payday lenders there, which is roughly seven fewer than what we actually found in the three miles surrounding Wright-Patterson. Because the banks, payday lenders, and population are split into numerous ZIP codes, the pattern we normally see at the ZIP code level is diluted. If, however, the nearbase neighborhoods were collapsed into a single ZIP code, surely it would be one of the worst in Ohio.
In Oklahoma, payday lenders are licensed and regulated under the state’s Deferred Deposit Loan Act (DDLA).472 The Oklahoma DDLA authorizes payday lenders to charge a fee of $15 for every $100 loaned up to the first $300.473 Assuming a fourteen-day loan of an amount within this range, the statute allows an effective annual interest rate of 390%. The DDLA further allows lenders to charge an additional returned check fee of $25.474 Initial loan terms are limited to between twelve and 45 days.475 The DDLA prohibits any renewal or rollover of a payday loan.476 But, the Act also allows lenders to make two payday loans to a given borrower at one time, suggesting that the 472 OKLA. STAT. tit. 59, §§ 3101–19 (Supp. 2005).
473 Id. § 3108. For payday loans of more than $300, the lender can charge an additional $10 for every $100 advance in excess of $300. Id.
474 Id. § 3108(B).
475 Id. § 3106(8). However, a loan term may exceed 45 days if the debtor has entered into an installment payment plan.
476 Id. § 3109(A). A renewal is defined as a transaction in which the borrower refinances all or part of the unpaid balance of a payday loan with the proceeds of a new payday loan, regardless of whether the new payday loan is extended by the same or a different lender. Id. § 3102(16). A renewal is further defined as a payday loan made within thirteen days after a previous payday loan has been entered into between the lender and the borrower. OKLA. STAT. tit. 59, § 3109(C).
782 OHIO STATE LAW JOURNAL [Vol. 66:653 prohibition on rollovers may be unenforceable.477 To verify that a borrower has no more than two outstanding loans, every payday lender must require the borrower to sign an affidavit, and then the lender must “verify the accuracy of the affidavit” by searching through the lender’s own records and by searching through an on-line database managed by a government contractor.478 The DDLA also regulates “consecutive” payday loans, which are defined as loans extended to a borrower no later than seven days after the date on which a previous loan was fully paid off by that borrower.479 The Act allows a borrower to pay the fourth loan in a series of consecutive payday loans through means of an installment payment plan for which the lender can charge no more than $15.480 If a borrower has entered into five consecutive payday loans, the DDLA mandates that the borrower wait until at least 8:00 a.m. on the second business day after the fifth loan has been fully repaid before entering into his or her next payday loan transaction.481 Finally, the Act also establishes the regulatory revolving fund, which is intended to be used to pay claims filed by aggrieved Oklahoma consumers.482 Under this regulation, Oklahoma has developed about 407 payday lenders483 and about 1241 banks. This is about 11.8 payday lenders per 100,000 people, which is somewhere in the middle of the survey. The pattern of payday lending statewide is disproportionately focused in the state’s two metropolitan counties. Together, Tulsa County and Oklahoma County have about one-third of 477 Oklahoma consumer advocates complain that Oklahoma’s DDLA has not prevented
Since the Oklahoma Deferred Deposit Lending Act became effective September 1, 2003, the average Oklahoma payday loan customer is borrowing at a pace of a little over one payday loan per month, which equals 13 loans a year. During the four month period August-November, 2004, most payday borrowers (77%) had taken out consecutive loans, and 36.4% had taken out 3 or more consecutive loans.
COMMUNITY ACTION PROJECT, PAYDAY LENDING: SB 892 WILL HELP PROTECT CONSUMERS,http://www.captc.org/pubpol/Payday_Lending/SB892_IssueBrief.pdf (last visited Oct. 17, 2005).
478 OKLA. STAT. tit. 59, § 3109(B)(2) (Supp. 2005); Steve Kanigher, Florida, Oklahoma Databases Reduce Loans Per Customer, LAS VEGAS SUN, Mar. 6, 2005, at D4. The database is funded by a $0.46 assessment charged to lenders for every payday loan transaction. Id.
479 OKLA. STAT. TIT. 59, § 3102(4) (Supp. 2005).
480 Id. §§ 3104(E), 3109(D).
481 Id. § 3110.
482 Id. §§ 3118–19. The fund is funded by payday lender license fees, examination fees, and application fees, as well as a $0.05 charge assessed to payday lenders for every loan transaction entered into. Id. §§ 3118–19 (Supp. 2005).
483 STATE OF OKLAHOMA, DEPARTMENT OF CONSUMER CREDIT, DEFERRED DEPOSITLENDER ROSTER, http://www.okdocc.state.ok.us/ROSTERS/rosterDDL.pdf (last visited Oct.
2005] PREDATORY LENDING AND THE MILITARY 783 the population but about one-half of the payday lenders. Oklahoma County is home to Tinker Air Force Base. Garfield County, home of Vance Air Force Base, ranks tenth in the state on our composite scale, and Comanche County, where Fort Sill is located, ranks twenty-third of 77 counties. Muskogee County, which does not have a military base, ranks first in our composite scale, and no obvious causal variables can be found for this anomalous statistical condition.
784 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 785 Examining the data at the ZIP code level produces a clearer picture of the pattern of payday lending around military bases. The ZIP code next to Tinker Air Force Base (73110) has nine payday lenders, which ties it for third most in the state and gives it almost five more payday lenders than one could expect given the local population. Overall, ZIP code 73110 ranks ninth worst out of