«OHIO STATE LAW JOURNAL VOLUME 66, NUMBER 4, 2005 Predatory Lending and the Military: The Law and Geography of “Payday” Loans in Military Towns ...»
a finance charge subject to disclosure as interest under the Truth in Lending Act.146 Still, with state courts and regulatory authorities slow to act, and with enormous profits to be had, the payday lending business exploded in the late 1990s. In North Carolina, payday lending outlets roughly quadrupled in four years, growing from 307 in 1997 to 1204 in 2000.147 Payday lending outlets quintupled in Salt Lake City between 1994 and 2000.148 Wyoming payday lenders almost tripled between 1996 and 1997.149 Iowa’s payday lenders increased from eight to 64 in two years.150 In states where payday lending was once illegal under state law, bills purporting to regulate the industry have in fact legitimized it, leading to astonishing growth nearly overnight. For instance, after Mississippi began regulating payday lenders in 1998, the number of outlets in that state quickly tripled.151 Some lenders, such as QC Holdings, Inc., have proven so profitable that they have filed with the SEC and are now publicly traded corporations.152 As of 2001, over 12,000 payday loan outlets were operating nationwide, with the industry continuing to expand rapidly.153 145 See, e.g., Betts v. ACE Cash Express, Inc., 827 So. 2d 294, 297 (Fla. Dist. Ct. App.
2002). Some state legislatures have attempted to prevent these disguised payday loans by statute. See, e.g., ALA. CODE ' 5-18A-12(d) (2004) (“No person shall use any device, subterfuge, or pretense whatsoever, including, but not limited to, catalog sales, discount vouchers, Internet instant-rebate programs, phone card clubs, or any agreement, including agreements with affiliated persons, with the intent to obtain greater charges than would otherwise be authorized by this chapter.”).
146 Truth in Lending Act, 15 U.S.C. § 1601 (2000), discussed in Official Staff Commentary § 226.2(a)(14)-2, as published in 65 Fed. Reg. 17,129 (Mar. 31, 2000).
147 OFFICE OF THE COMM=R OF BANKS, supra note 31, at 5.
148 Peterson, supra note 33, at 560–61.
149 CONSUMER FEDERATION OF AMERICA, THE GROWTH OF LEGAL LOAN SHARKING: AREPORT PAYDAY LOAN INDUSTRY 3 (Nov. 1998), ON THE http://www.consumerfed.org/The_Growth_of_Legal_Loan_Sharking_1998.pdf.
151 Jimmie E. Gates, Check-Cashing Businesses Rolling out the Dough, CLARIONLEDGER (Jackson, Miss.), Feb. 6, 2005, available at http://www.clarionledger.com/apps/pbcs.dll/article?AID=/20050206/NEWS01/502060399/1 002/NEWS01.
152 See Stephen Roth, Payday Loan Firm Seeks Cash on Wall Street, BUS. J. (Kansas City, Mo.), June 18, 2004, http://www.bizjournals.com/kansascity/stories/2004/06/21/story5.html.
153 CONSUMER FEDERATION OF AMERICA & THE U.S. PUBLIC INTEREST RESEARCH2005] PREDATORY LENDING AND THE MILITARY 675 Attempting to put this fundamental shift in the financial services industry into perspective, the U.S. Comptroller of the Currency famously remarked that “California alone has more payday loan officesCnearly 2,000Cthan it does McDonalds and Burger Kings.”154
B. Financial Vulnerability of Military Personnel
For those who care about the well-being of American military service members, the recent resurgence of an industry which first gave rise to the term “loan shark” has troubling overtones. A large and well-documented body of literature has explored the precarious financial position of members of the U.S.
military. We believe this literature suggests that military service members may have several characteristics which make them especially vulnerable to high-cost indebtedness. From this literature, we have distilled four factors which tend to suggest that military personnel may be uniquely viable targets for predatory lending in general, and payday loans in particular: (1) demographic characteristics which predispose military service members toward high-cost indebtedness; (2) the form, amount, and distribution of military compensation;
(3) dislocation faced by military service members and their families; and (4) military cultural considerations.
1. Demographic Predisposition
Military service members tend to have demographic characteristics associated with personal indebtedness problems. While there is considerable variation among different service branches, the great majority of military service members are young enlisted personnel. Junior enlisted personnel make up about 75% of the military.155 In fact, the Department of Defense is “the nation’s largest employer of American youth.”156 Unlike their civilian peers, a relatively large proportion of these young people are recently married and have young children.157 Some commentators have suggested that high health care costs and
GROUP, RENT-A-BANK PAYDAY LENDING: HOW BANKS HELP PAYDAY LENDERS EVADESTATE CONSUMER PROTECTIONS 1–2 (Nov. 2001).
154 Barr, supra note 20, at 150 (quoting remarks by John D. Hawke, Jr., Comptroller of the Currency, before the ABA National Community and Economic Development Conference, Baltimore, MD, Mar. 18, 2002).
155 Pamela C. Twiss & James A. Martin, Conventional and Military Public Housing for Families, 73 SOC. SERV. REV. 240, 241 (1999).
156 Phillips, supra note 8, at 340; see also DAVID GOTTLIEB, BABES IN ARMS: YOUTH IN THE ARMY (1980) (surveying motivation and experiences of new Army recruits).
157 Twiss & Martin, supra note 155, at 241. The percent of married military service members has increased steadily since the military converted to an all volunteer force. Brenda L. Moore, The Propensity of Junior Enlisted Personnel to Remain in Today=s Military, 28 676 OHIO STATE LAW JOURNAL [Vol. 66:653 the growing scarcity of health insurance have forced young parents to turn disproportionately to the military because of its relatively generous governmentprovided health care system.158 A small but growing minority of these families are single-parent households.159 Historically, young enlisted military personnel have hailed from primarily economically disadvantaged backgrounds.160 Moreover, vulnerable groups have sought out the armed services as a means of moving along both formal and informal paths of citizenship and social privilege.161 For centuries, minorities and recent immigrants have seen service in the armed forces as a way to achieve social legitimacy and legal rights.162 Especially during major conflicts, such as the Civil War and both World Wars, authorities have waived normal citizenship requirements for alien military personnel.163 Many refugees and temporary workers still turn to the military as a way of speeding up immigration procedures.164 Currently, a small but symbolically important group of about 32,000 non-citizens is serving in the U.S. military.165 More significant demographically is the disproportionate representation of African Americans in the military, who make up about 13% of the American civilian population, but about 20% of enlisted personnel.166 Enlisted military personnel also have had historically limited educational backgrounds.167 For instance, at the end of the 1970s, almost half of military ARMED FORCES & SOC’Y 257, 272 (2002). Interestingly, the decrease in the median age at first marriage for military personnel runs opposite to the civilian trend of marrying later in life. Charles C. Moskos, The American Enlisted Man in the All-Volunteer Army, in LIFE IN
THE RANK AND FILE: ENLISTED MEN AND WOMEN IN THE ARMED FORCES OF THE UNITEDSTATES, AUSTRALIA, CANADA, AND THE UNITED KINGDOM 35, 40 (David R. Segal & H.
Wallace Sinaiko eds., 1986). Currently about 65% of military members are married. BUDDIN, supra note 4, at 4.
158 Harrell, supra note 5, at 23.
159 Twiss & Martin, supra note 155, at 241; Karen Jowers, Single Parents a Growing Segment of Military, ARMY TIMES, Jan. 25, 1999, at 18.
160 Glen H. Elder, Jr., Military Times and Turning Points in Men’s Lives, 22 DEVELOPMENTAL PSYCHOL. 233, 244 (1986).
161 The armed forces are more ethnically diverse than the civilian population. Twiss & Martin, supra note 155, at 241.
162 MORRIS JANOWITZ, MILITARY CONFLICT 77–78 (1975); DAVID R. SEGAL,
RECRUITING FOR UNCLE SAM: CITIZENSHIP AND MILITARY MANPOWER POLICY 10 (1989).163 SEGAL, supra note 162, at 10.
164 Nina Bernstein, Fighting for U.S., and for Citizenship, N.Y. TIMES, Jan. 15, 2005, at B1.
166 Phillips et al., supra note 8, at 341.
167 Moskos, supra note 157, at 35–37. Professor Glen Elder=s study of archival data of men born in the 1920s in Berkeley, California showed that young men with poor high school grades and teenage self-inadequacy predicted early timing of military service. Elder, supra 2005] PREDATORY LENDING AND THE MILITARY 677 enlistees lacked a high school diploma, and only 2.2% had any college experience.168 Because in recent years military recruiters have focused on applicants with high school degrees, currently about ninety-nine percent of enlistees are high school graduates.169 Nevertheless, almost half of enlisted personnel list the primary motivation for joining the military as the ability to receive future assistance in obtaining an education that they have not yet acquired.170 Consumer finance research suggests these demographic characteristics of the nation’s enlisted military personnel are serious risk factors for personal debt problems. Young people often lack financial experience and tend to borrow with less regard for the long-term consequences.171 Young families have extreme financial pressure from child-rearing expenses, making debt a tempting option.172 The emerging class of single-parent military personnel may be especially vulnerable.173 Empirical evidence consistently finds an association between single-parent families and a variety of social, health, and financial impairments.174 Single-income families are less able to overcome income shocks and sudden expenses, making them more likely to borrow and less likely to repay successfully. A recent study of bankrupt families found that “[h]ouseholds without a male present were nearly twice as likely to file for bankruptcy giving a medical reason or identifying a substantial medical debt as households with a male present.”175 Similarly, because enlisted service members tend to come from financially vulnerable backgrounds, they may have fewer familial resources to draw on in financial emergencies, in turn forcing them to creditors. Many recent immigrants and their families have tenuous personal finances, face language barriers, and hail from countries relatively unaccustomed to credit.176 Several commentators have argued persuasively that note 160, at 244.
168 Moskos, supra note 157, at 35–36.
169 Moore, supra note 157, at 259.
170 GOTTLIEB, supra note 156, at 19. Roughly half of enlistees report that they enlisted because they faced unsatisfactory employment options. Id.
171 PETERSON, TAMING THE SHARKS, supra note 28, at 168.
172 Frank Green & Mike Freeman, The Debt Generation: Free Spending 20-Somethings Lured by Easy Credit, SAN DIEGO UNION TRIB., Jan. 3, 2002, at A1.
173 Leslie N. Richards & Cynthia J. Schmiege, Problems and Strengths of Single-Parent Families: Implications for Practice and Policy, 42 FAM. REL. 277, 282 (1993) (finding financial problems are Apervasive” for single mothers).
174 Id. at 280.
175 Elizabeth Warren, Teresa Sullivan, and Melissa Jacoby, Medical Problems and Bankruptcy Filings, 2 (Harv. Law Sch. Pub. Law and Legal Theory Working Paper Series, Working Paper No. 009, 2000).
176 See generally Steven W. Bender, Consumer Protection for Latinos: Overcoming 678 OHIO STATE LAW JOURNAL [Vol. 66:653 these characteristics leave recent immigrants vulnerable to targeting by predatory lenders.177 A large literature suggests that African Americans and other ethnic minorities have faced exclusion from inexpensive creditors and targeting by predatory lenders.178 Finally, many commentators have argued that individuals with limited education and financial experience have greater difficulty shopping for lower priced loans, leaving them at risk for marketing by high-cost and predatory lenders.179 All of these factors suggest troubling implications for military service members.
The form, amount, and distribution of military compensation may also place military personnel at risk for high-cost debt problems. The most important aspect of military compensation is the lack of it. Junior enlisted military Language Fraud and English-Only in the Marketplace, 45 AM. U. L. REV. 1027 (1996).