«OHIO STATE LAW JOURNAL VOLUME 66, NUMBER 4, 2005 Predatory Lending and the Military: The Law and Geography of “Payday” Loans in Military Towns ...»
812 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 813 Our analysis of payday lending using ZIP code data revealed a strong bias toward military areas as well. Newport News (ZIP 23605) ranked worst in the state on our composite index for payday lending. Only a few miles in any direction to a number of military bases and home to a significant off-base population, this ZIP code has ten payday lenders but only one bank for its almost 15,000 people, of whom about one-fourth are military personnel. This per capita density is roughly ten times the statewide density for payday lending and its payday lender-to-bank ratio ranks third worst in the state.
Making these statistical anomalies more remarkable is the fact that Newport News is bordered by other ZIP codes with similar densities of payday lenders.
Though this ZIP code is the worst, it is closely followed by a dozen or so neighbors in the statewide rankings. In this very small four-county area, five of the top ten and ten of the top 20 ZIP codes for payday lending are located.
These ten ZIP codes contain 63 banks and 74 payday lenders—54 more payday lenders than statistically expected based on the population.
Looking outside the Newport-Norfolk region, other military bases also rank high in payday lender density. The second highest composite ranking ZIP code among the 847 ZIP Code regions in Virginia was adjacent to Fort Lee.
Petersburg (ZIP 23805) has five banks and nine payday lenders. Only one payday lender would be predicted based on the small population here and statewide averages. On the other side of Fort Lee, Colonial Heights (ranked thirteenth), and Hopewell (ranked thirty-fifth) combine to provide an additional eleven payday lenders, almost eight more than their combined populations would predict. The other top ranking ZIP codes were all border towns with regional service functions in western Virginia.
814 OHIO STATE LAW JOURNAL [Vol. 66:653 2005] PREDATORY LENDING AND THE MILITARY 815 The four-county Chesapeake Bay region was chosen for street-level analysis. Our analysis at this resolution reconfirmed our findings using ZIP code and county data. High concentrations of payday lenders are visible near the gates of nearly every installation in the Chesapeake Bay area, but the pattern is not as distinct as it at appears elsewhere. The relatively greater dispersion of payday lenders in this region is probably due to the sheer number of installations and the ubiquity of military personnel in all parts of these four counties.
Interestingly, but perhaps not surprising given the location and role of the installations at Quantico Marine Corps Base and Fort Belvoir near Washington D.C., neither base is significantly affected by payday lending. The counties and ZIP codes near these installations each rank near the median among their counterparts in Virginia.
In Washington, a payday lender must be a licensed “check casher”527 with a small loan endorsement.528 Although Washington’s usury laws generally prohibit parties from contracting for a rate of interest in excess of 12% per year,529 the State authorizes payday lenders to charge a rate of interest as high as 390%.530 In addition to the interest, a lender may charge a one-time returned check fee in an amount determined by Washington’s Director of Financial Institutions.531 If a borrower realizes that payment of the loan on the date originally specified will not be possible, he or she may convert the loan to a payment plan, which generally must have a duration of 60 days.532 The lender may charge the borrower a one-time conversion fee of ten to fifteen percent, but it cannot assess any other fee or charge as a result of converting a payday loan into a payment plan.533 Regulators have found some of the largest lenders in the state regularly ignoring price limitations and engaging in illegal collection 527 WASH. REV. CODE § 31.45.010(5) (2005).
528 Id. §§ 31.45.030, 31.45.073(1).
529 Id. § 19.52.020(1).
530 Specifically, a payday lender may charge interest of 15% on the first $500 loaned, and ten percent on any amount loaned from $500 to $700. Id. § 31.45.073(3). Assuming an average payday loan of $100 for fourteen days, the effective annual rate of interest would be 390%.
531 Id. § 31.45.082.
532 Id. § 31.45.084(1).
533 WASH. REV. CODE §§ 31.45.084(1), 31.45.073(3) (2005). The lender may charge a set-up fee of 15% for any principal amount of $500 or less and ten percent for any principal amount greater than $500. Id. § 31.45.073(3).
816 OHIO STATE LAW JOURNAL [Vol. 66:653 behavior.534 Washington is another state with several large military installations. Like the others included in our study, payday lending activity appears to be most intense in those locations where the military presence is significant. Washington has approximately 480 payday lenders535 and 1830 banks. That means that there are approximately 8.15 payday lenders per 100,000 persons, a rate that places Washington fourteenth among the 20 states we studied.
At the county level, the number and density of payday lending is most pronounced in those counties with a significant military presence. The county with the highest composite score for payday lending was Spokane County, home to Fairchild Air Force Base. With roughly 55 payday lenders, it has about 20 more than expected based on its population. Ranking second and third worst in the state were Thurston and Pierce Counties respectively. Pierce County is home to McChord Air Force Base and the Army Base at Fort Lewis, which spills over into Thurston County. The two bases together have over 27,000 military personnel, making this area one of the most visible military regions in the country. Together, these two counties have about 94 payday lenders, nearly 20 more than the population would suggest. The other two counties with significant Navy populations, Kitsap and Whidbey Island also rank among the 20 worst counties for payday lending.
534 ConsumerAffairs.com, Fast Cash Loans Faces Charges, Sept. 29, 2004, http://www.consumeraffairs.com/news04/fast_cash.html.
535 STATE OF WASHINGTON, DEPARTMENT OF FINANCIAL INSTITUTIONS, DIVISION OFCONSUMER SERVICES, LICENSEE LIST, http://www.dfi.wa.gov/cs/list.htm (last visited Oct. 17, 2005).
2005] PREDATORY LENDING AND THE MILITARY 817 818 OHIO STATE LAW JOURNAL [Vol. 66:653 At the ZIP code level, a more telling picture emerges in Washington, especially when we examined the ZIP codes closest to Fort Lewis and McChord Air Force Base. Lakewood (ZIP code 98499), lying adjacent to McChord A.F.B.
and just over a mile from Fort Lewis, has the highest composite score in the state. It has more payday lenders (sixteen) than any other ZIP code in the state, as well as the greatest excess number of payday lenders based on population (fourteen), and it is twelfth worst in the state in terms of its payday lender-tobank ratio. This density of payday lending is all the more impressive considering that six ZIP codes bordering Lakewood combined have an additional 22 payday lenders, twelve more than predicted in those ZIP codes for their combined population.
ZIP codes in which payday lenders exceed the expected number can be found in close proximity to all of the major bases in Washington, but none of the densities appears as extreme as the density near Fort Lewis. The Bremerton area, with its many scattered facilities has about fourteen payday lenders, which is about six more than our statistical expectation. Even isolated Oak Harbor, with its Air Station at Whidbey Island has five payday lenders, double the amount suggested by its population. The Naval Station at Everett has nearly identical numbers. Service persons at Fairchild Air Force Base have to drive about ten miles to get to the business areas of Spokane, where there are 29 payday lenders and 49 banks in the six ZIP codes along the highway leading to the heart of Spokane. This is about eighteen more payday lenders than we predicted based on the population of those ZIP codes. Spokane includes the second and sixth worst payday lending ZIP codes in the state, and both of these neighborhoods are surely widely visited by the Air Force families in the area, many of whom live off-base in Spokane. It should be noted that Spokane does serve as the regional service hub, and therefore should have some additional commercial activity, but Spokane is easily the most overrun of the many service hubs in Washington in terms of payday lending.
2005] PREDATORY LENDING AND THE MILITARY 819 820 OHIO STATE LAW JOURNAL [Vol. 66:653 For the street-level analysis, Thurston and Pierce Counties were chosen as the case study in Washington. Using the thre- mile buffer around the ZIP codes at Fort Lewis and McChord Air Force Base, we found 36 payday lenders and 37 banks. Statewide, there are more than four banks for each payday lender. The 216,738 people living within three miles of these bases have more than eighteen payday lenders beyond what is statistically expected for this region. By statewide standards, this is enough payday lenders to serve an additional 441,000 residents. The great majority of these payday lenders are found in two locations. The first is along or near Bridgeport Way, a road that leads north from McChord Air Force Base, and the other is Union Avenue, a road that runs along part of the northern border of Fort Lewis. Densities of payday lenders are very high in these two locations. In one two-mile stretch along Bridgeport Way, there are thirteen payday lending operations, including many of the industry leaders such as Check into Cash, Advance America, Advance Til Payday, etc. Five additional payday lenders are only a couple of miles down the road and again include widely recognized names in the business.
2005] PREDATORY LENDING AND THE MILITARY 821 822 OHIO STATE LAW JOURNAL [Vol. 66:653
A. Empirical Discussion Nearly every statistical measure we used at every spatial scale points to the same conclusion: the payday loan industry targets military personnel. The evidence is overwhelming and incontrovertible. Our overall analysis included 20 states; 1516 counties; 13,253 ZIP codes; and nearly 15,000 payday lenders.
Situated among those many counties and ZIP codes were 109 military bases and several dozen recently closed bases.536 Within three miles of open bases were 150 counties and 813 ZIP codes. Payday lenders were in these military-adjacent counties and ZIP codes at greater numbers and in greater densities in almost every state we examined. These counties and ZIP codes represent a wide range of ethnic, income, and population characteristics and none of these variables account for the clarity of pattern that we have witnessed. With striking regularity, the counties and ZIP codes most overrepresented by payday lenders had one thing in common: large military populations.
The consistency with which we found payday lenders overrepresented in military regions was remarkable. In twelve of the nineteen states where countylevel data was available, the worst county in the state was a military county. In Florida, Washington, California, and Colorado the top three, four, five, and six counties respectively all had a military legacy. The only states in which a military county did not have the highest composite density of payday lenders were (1) Alabama, where the second and third worst counties were military counties; (2) Idaho, which has only one small Air Force base; (3) Louisiana, where the second and third worst counties house military bases; (4) Missouri, where there is only one large base, which is adjacent to the second worst ZIP code statewide; (5) Ohio, with only one base in a top-ten county; (6) Oklahoma, where again the second worst county is a military county; and (7) Tennessee, which has no large base of its own, but shares Fort Campbell with Kentucky.
The 150 counties housing or bordering a military base account for roughly onetenth of all the counties in our survey and they account for a quarter of the total number of banks. Yet those same counties contain one-third of the payday lenders.