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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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666 OHIO STATE LAW JOURNAL [Vol. 66:653 relative bargaining position of debtors often placed them at a significant

disadvantage.”69 One commentator explained the earliest credit markets thus:

“Human nature being what it is... [t]he rich extracted hard bargains and grew richer; the poor fell into perpetual debt and forfeited their meager possessions.”70 It is an open question whether this comment is less applicable today.

There is also significant historical evidence dating back thousands of years of predatory loans harming military personnel and their families. While a comprehensive discussion of this history is beyond the scope of our Article, a few short examples are illustrative. First, the Roman Republic was forced to address abusive high-cost lending to military personnel prior to its rise to a preeminent power in the ancient Mediterranean.71 In the fifth century B.C.E., Romans were only one of several ethnic groups present in Italy, and they were still far away from assuming their later historical importance.72 In 494 B.C.E., a violent civil revolt took place.73 A large number of poor plebeians withdrew from the city and gathered on a hill overlooking the Tiber River, where they preceded to elect their own shadow legislature, officials, and tribunes, essentially seceding from the Roman Republic.74 The revolt, called the First Secession, threatened to rip apart the emerging Roman nation.75 Interestingly, “[b]y all accounts the principal cause of the First Secession was a debt crisis.”76 Many historians, both modern and ancient, have focused on one story which may have lit the fire.77 Apparently, a war veteran’s farm was destroyed during a battle with a rival tribe.78 The loss of his farm, combined with government tax demands, forced the veteran to borrow money at dangerously high rates.79 69 Peterson, supra note 64, at 809.

70 James M. Ackerman, Interest Rates and the Law: A History of Usury, 1981 ARIZ. ST.

L.J. 61, 63.


CIVILISATION 13 (Christopher Holme trans., University of California Press, 1984); STEPHEN L. DYSON, COMMUNITY AND SOCIETY IN ROMAN ITALY 78 (1992).

72 See MICHAEL CRAWFORD, THE ROMAN REPUBLIC 31–42 (2d ed. 1993) (relating a brief history of the Roman conquest of Italy); CHESTER G. STARR, JR., THE EMERGENCE OF ROME AS RULER OF THE WESTERN WORLD 7–13, 16 (1953).


TO THE PUNIC WARS (C. 1000-264 B.C.) 256–57 (1995).

74 Id.

75 Id. at 13.

76 CORNELL, supra note 73, at 266.

77 See, e.g., F.R. COWELL, THE REVOLUTIONS OF ANCIENT ROME 31, 39–40 (1962).

78 Id. at 40 (quoting 1 TITUS LIVIUS, THE HISTORY OF ROME Book 2, Part 2.3 (Ernest Rhys ed., Rev. Canon Roberts trans., J.M. Dent & Sons, Ltd., London 1905)).

79 Id.

2005] PREDATORY LENDING AND THE MILITARY 667 When he was unable to pay, his creditor imprisoned and tortured him.80 Eventually, the veteran appeared in the city forum where those who heard his story were so enraged they took to the streets rioting.81 The first major codification of Roman law, called the Twelve Tables, was in part a response to the debt crisis of the First Secession.82 The Twelve Tables included Rome’s first usury law and some basic provisions to enforce it.83 Eventually settling on a 12% percent interest rate cap, Rome rose to power under a legal regime which clearly outlawed today’s payday loans.84 This 12% interest rate cap remained the legal limit for centuries and was eventually adopted by both the later Empire and the Byzantine Empire in Constantinople.85 Predatory lending to military personnel has not been limited to Western cultures. For example, historical sources link the decline of the Ming dynasty in China to debt-related peasant riots sparked by predatory lending to soldiers.

During the Ming dynasty, China was home to a large and thriving industry of creditors that loaned money to the working poor at high interest rates. Records suggest that in 1587, over 20,000 pawn shops operated across China.86 Similarly, businesses owned by wealthy families with links to imperial authority often took high-priced mortgages on the homes and land of poor farmers.87 When subsistence farmers fell behind on payments, creditors relied on local “roughnecks” to collect.88 In the late Ming dynasty, these contracts dispossessed a substantial portion of the population and helped cement a wide gap between 80 Id.

81 Id.

82 STARR, supra note 72, at 23.

83 HOMER & SYLLA, supra note 65, at 45–47 (establishing an 8.33% cap, which was later amended to 12%).

84 Historians suggest that even illegal extortionate lenders in ancient Rome charged interest rates hundreds of points lower than today=s average payday loans. COWELL, supra note 77, at 31.

There was at first no limit to the interest that might be demanded on loans, so those in desperate want were forced to accept any terms. Moneylenders in ancient times were notorious for their harsh, grasping greed and, left uncontrolled as they were, they demanded thirty, fifty, a hundred percent interest and more.


85 HOMER & SYLLA, supra note 65, at 47–49.


144 (1981).

87 Id. at 145 (“Essentially, such exploitation was the economic basis of the bureaucracy as an institution. Official families, who collected rents from landholdings and interest from the moneylending business, were an integral part of the rural economy.”).

88 Id. at 138.

668 OHIO STATE LAW JOURNAL [Vol. 66:653 the rich and poor.89 Some historians believe these financial conditions weakened China, inviting invasion by hostile neighbors. The Ming dynasty ended after a series of peasant rebellions paved the way for Manchurian invaders from the North.90 An ancient Chinese historian attributes predatory loans to Chinese military personnel as the trigger of these riots—bearing a remarkable similarity to Roman history.

Apparently the incident involved a predatory lender who named himself “Ch’ien,” which is the Chinese word for money.91 Surprising soldiers with deceptively high rates, Ch’ien demanded repayment far in excess of the principal originally borrowed.92 This lender, and presumably others, managed to enforce his loans by sharing the profits with officials, including a garrison commander.93 Eventually, soldiers became so outraged that they mutinied and organized local peasants suffering from crushing poverty to join them.94 Unlike Rome, which successfully reformed its laws, the Ming dynasty was too slow to react and eventually faltered.

Historians have recorded similar incidents in American history as well. In the nineteenth century, as the United States began expanding westward, military personnel were often posted in remote frontier garrisons.95 Similarly, during the Civil War, Union soldiers faced long and disrupted supply lines.96 These conditions meant that soldiers often had insufficient food and clothing and also received their wages at irregular intervals.97 A particular type of merchant followed Union Army units, setting up operations on the outskirts of each camp or garrison.98 Sometimes called “sutlers,” these merchants came to specialize in providing goods and services to struggling soldiers.99 Many sutlers lent cash, 89 Id. at 145 (“Agrarian exploitation of the poor... was far from limited to... isolated incidents. It affected all walks of life and was carried out on a large and small scale without surcease generation after generation.”).


xiii, xv (1970); F.W. MOTE, IMPERIAL CHINA, 900–1800, at 795–96 (1999).

91 Of course today=s payday lenders take similar names, such as Check into Cash, Ca$h Now, and ACE Cash Express.

92 PARSONS, supra note 90, at 5 n.* (discussing CHI LIU-CH=I, MING CHI PEI LUEH 4/11ab).

93 Id.

94 Id.


THE CIVIL WAR SOLDIER 150, 152–55 (David Madden ed., 2000) [hereinafter BEYOND THE BATTLEFIELD].

96 Id. at 152–55.

97 Id.




2005] PREDATORY LENDING AND THE MILITARY 669 but they also supplied food, clothing, boots, gloves, medication, tobacco, and alcohol on credit.100 Some sutlers refused to advance funds or provide change in currency, instead giving cardboard tickets redeemable exclusively at the sutler’s own store.101 This forced hungry and cold soldiers to trade away the liquidity of their wages. With their wages converted into sutler’s tickets, soldiers could not force price competition with other sutlers, nor could they shop with traditional merchants when the opportunity arose.102 While sutlers did take risks, many got rich by charging outrageous prices and interest rates to soldiers who made steady wages and had few options.103 Some sutlers gave “presents” to officers who then looked the other way.104 Recognizing its own limitations in meeting soldiers’ needs, the Army tolerated sutlers, allowing up to one sutler for each regiment.105 Rank and file soldiers, however, often despised their creditors; they “did not appreciate the ‘risks’ taken by men who were getting rich at their disadvantage, who did not conform to military rules, and who were exposed to enemy fire only by accident, and they accused the sutlers of price-gouging and profiteering.”106 While the practices associated with Civil War era sutlers varied from unit to unit, their situation repeatedly led enraged soldiers to rise up and rampage through their own camps.107 Many units took matters into their own hands, chasing their sutler lenders out of camp with all-too-real death threats.108 The immediate commercial precursor to today’s payday lenders developed in large eastern U.S. cities during this same period of time: the mid-nineteenth century. A type of lender commonly referred to as a “salary lender” emerged by serving a clientele typically composed of employees of large government and industrial institutions, including “civil servants, railroad workers, streetcar motormen, and clerks in firms such as insurance companies.”109 Such workers, FRONTIER 50–52 (1992).

100 BEYOND THE BATTLEFIELD, supra note 95, at 151.

101 See generally KENNETH KELLER, SUTLER PAPER MONEY (1994) (cataloging sutler scrip as collectible memorabilia); DAVID E. SCHENKMAN, CIVIL WAR SUTLER TOKENS AND CARDBOARD SCRIP (1983) (same).

102 DELO, supra note 99, at 131–32.

103 BEYOND THE BATTLEFIELD, supra note 95, at 151–52.

104 DELO, supra note 99, at 132.

105 BEYOND THE BATTLEFIELD, supra note 95, at 151–52.

106 Id. at 151–52.

107 Id. at 152 (“Repeatedly, sutlers were subjected to reprisals. Rampaging troops would pillage their supply tents, sometimes stealing, sometimes simply destroying....”).

108 Id. (“[O]ften a sutler would be chased out of a camp at the risk of his life should he return.”).

109 Mark H. Haller & John V. Alviti, Loansharking in American Cities: Historical Analysis of a Marginal Enterprise, 21 AM. J. LEGAL HIST. 125, 128 (1977).

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