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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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177 See, e.g., Charu A. Chandrasekhar, Note, Can New Americans Achieve the American Dream? Promoting Homeownership in Immigrant Communities, 39 HARV. C.R.-C.L. L. REV.

169, 172, 188–91 (2004).

178 See, e.g., ROBERT SCHAFER & HELEN F. LADD, DISCRIMINATION IN MORTGAGE LENDING (1981); Harold A. Black, Is There Discrimination in Mortgage Lending? What Does the Research Tell Us?, 27 REV. OF BLACK POL. ECON. 23, 25–27 (1999); Cathy Cloud & George Galster, What Do We Know About Racial Discrimination in Mortgage Markets?, 22 REV. OF BLACK POL. ECON. 101, 116–17 (1993); Theodore E. Day & S. J. Liebowitz, Mortgage Lending to Minorities: Where’s the Bias?, 36 ECON. INQUIRY 3 (1998); Stephen A.

Fuchs, Discriminatory Lending Practices: Recent Developments, Causes and Solutions, 10 ANN. REV. BANKING L. 461, 466–73 (1991); Fred Galves, The Discriminatory Impact of Traditional Lending Criteria: An Economic and Moral Critique, 29 SETON HALL L. REV.

1467, 1472–73, 1481–83 (1999); Glenn W. Harrison, Mortgage Lending in Boston: A Reconsideration of the Evidence, 36 ECON. INQUIRY 29 (1998); Helen F. Ladd, Evidence on Discrimination in Mortgage Lending, 12 J. ECON. PERSP. 41, 46–47 (1998); Stanley D.

Longhofer, Discrimination in Mortgage Lending: What Have We Learned?, ECON.

COMMENT., Aug. 15, 1996, at 1; Robert E. Martin & R. Carter Hill, Loan Performance and

Race, 38 ECON. INQUIRY 136 (2000); Alicia H. Munnell et al., Mortgage Lending in Boston:

Interpreting HMDA Data, 86 AM. ECON. REV. 25, 25–26, 31, 41 (1996); Reynold F. Nesiba, Racial Discrimination in Residential Lending Markets: Why Empirical Researchers Always See It and Economic Theorists Never Do, 30 J. ECON. ISSUES 51, 52–55 (1996); Ron Nixon, Application Denied: Do Lending Institutions Overlook Hispanics?, 11 HISP. 30, 32–33 (1998); Ronald K. Schuster, Lending Discrimination: Is the Secondary Market Helping to Make the ‘American Dream’ a Reality?, 36 GONZ. L. REV. 153, 162–73 (2000/2001); Peter P. Swire, The Persistent Problem of Lending Discrimination: A Law and Economics Analysis, 73 TEX. L. REV. 787, 806–14 (1995). See also Discrimination in Home Mortgage Lending: Hearing Before the Subcomm. on Consumer and Regulatory Affairs of the S.

Comm. on Banking, Housing, and Urban Affairs, 101st Cong. 118 (1989) (statement of Sen.

Alan J. Dixon).

179 See, e.g., Tania Davenport, Note, An American Nightmare: Predatory Lending in the Subprime Home Mortgage Industry, 36 SUFFOLK U. L. REV. 531, 533 (2003).

2005] PREDATORY LENDING AND THE MILITARY 679 personnel are low-wage entry-level workers. A typical Army private first class makes $16,884 per year.180 Like all low-wage workers, military personnel tend to live month-to-month, often struggling to pay their bills. Military surveys reveal that nearly one-third of enlisted service members self-report moderate to severe difficulty in paying their bills.181 Sudden unexpected expenses such as car trouble or legal problems, as well as poor personal financial choices, can all pitch low-wage workers into financial hardship caused by debt. For junior enlisted military personnel, these cash shortages do not always resolve themselves over time because these enlistees tend to see relatively little growth in their monetary compensation over the course of their careers.182 Furthermore, military compensation comes with high opportunity costs

from long and irregular hours. As Professors Bowen and Orthner observed:

Service in the armed forces involves more than an occupation choice; it is the selection of a life style that permeates almost every aspect of a person’s life. Few civilian occupations require the high level of commitment and dedication from their employees that the military services require. Even fewer ask their employees, much less members of the employees’ families, to make such a range of personal and family sacrifices to accommodate the work mission, including long work hours, high-stress assignments, required relocations, frequent family separations and reunions, remote tours of service, long-term separations from extended family and friends, residence in foreign countries, and frequent subservience of family needs to mission responsibilities.183 At the most practical level, when military personnel fall into financial difficulty, they do not have the option of taking a second job to cover their expenses, which is an important route to overcome financial hardship for civilians.184 Nor does the military pay overtime to its employees despite requiring long hours.185 The predictability of monthly income for junior enlisted personnel also may place them at risk for debt problems. On the one hand, prospective creditors can be relatively certain that military personnel are going to be paid. Unlike comparable private sector workers, such as service employees, construction 180 U.S. ARMY, BENEFITS: MONEY, http://www.goarmy.com/benefits/money.jsp (last visited Oct. 17, 2005).

181 Martha McNeil Hamilton, Ignorance Costs Plenty: Officials Promote Financial Literacy, WASH. POST, Feb. 6, 2002, at E01.

182 Moore, supra note 157, at 261.

183 Gary L. Bowen & Dennis K. Orthner, Introduction, in THE ORGANIZATIONAL FAMILY: WORK AND FAMILY LINKAGES IN THE U.S. MILITARY, supra note 5, at ix, xiii.

184 See GOTTLIEB, supra note 156, at 163; HARRELL, supra note 5, at 108.





185 GOTTLIEB, supra note 156, at 163; HARRELL, supra note 5, at 108.

680 OHIO STATE LAW JOURNAL [Vol. 66:653 workers, and small business entrepreneurs, junior enlisted military personnel are unlikely to be laid off, fired, or have their businesses fail. On the other hand, junior enlisted military personnel often have great difficulty predicting exactly what their monthly income will be in any given month. The Government Accountability Office has found that military families chronically suffer from delays and mistakes in the distribution of their wages. But even when wages are paid correctly, enlisted family income varies significantly with the deployment schedule of the unit.186 For example, many military families receive a subsistence allowance intended to feed the service member, and many rely on this allowance to feed the entire family and to pay bills.187 Yet when the service member is unexpectedly deployed or called into the field, this separate allowance is no longer provided, potentially creating an unexpected income shock.188 The simultaneous likelihood that military members will eventually be paid, combined with unpredictable changes in compensation, make military families likely to borrow to bridge unexpected gaps.

The form of military compensation also limits the ability of military families to adapt to financial crises, potentially forcing them to turn to creditors. Much of military compensation comes in the form of non-fungible in-kind goods and services, rather than a traditional paycheck. Military health care, future tuition assistance, military housing, military food, access to commissaries, and access to military recreational facilities and entertainment are all important components of the compensation package for military personnel.189 Military recruiters understandably use these side benefits as a way of explaining and justifying relatively low military pay. Nevertheless, the non-fungible nature of non-cash compensation prevents military personnel from converting a significant portion of their resources to overcome income shocks and unexpected expenses. If a civilian family car breaks down, because the primary wage earner is likely to receive all or nearly all of his or her compensation in the form of cash payment, the family can divert resources normally allocated to important but ultimately expendable purchases into repairing the car. For instance, the family might be able to forego entertainment or cut back on food expenditures through more parsimonious shopping. A family that is saving for educational expenses can temporarily halt monthly contributions, or even draw from pre-existing reserves.

Cash compensation can be more readily applied to repairing the car (or to servicing a loan balance which paid for repairing the car). This diversion of resources may be more difficult for military families because their pool of fungible resources is relatively smaller than their otherwise identical civilian counterparts. A military family cannot transform its right to receive military 186 HARRELL, supra note 5, at 108.

187 Id. at 108–09.

188 Id.

189 See supra note 3 and accompanying text.

2005] PREDATORY LENDING AND THE MILITARY 681 entertainment or food into cash. Nor can it transform a military promise to pay future school tuition into cash which might be useful in repairing the car. This is, of course, not to belittle the value of the considerable in-kind compensation military families receive; it is merely to point out its illiquidity. Because military families receive a comparatively greater portion of their compensation in noncash forms, we should expect that they will be marginally less able to adapt their monthly budget to overcome financial hurdles than will a family that receives liquid cash compensation of the same absolute value.

The military wage distribution system may also give aggressive lenders a relatively greater opportunity to capture the income of enlisted military personnel. As a service to military members, the armed services have allowed members to “allot” their income; creditors, including landlords, utilities, merchants, and others, can be paid directly by the government out of service members’ wages.190 This provides a convenience to service members who may be unable to mail payments while in the field. However, some creditors make allotments a condition of lending money. Margaret Harrell’s study of junior enlisted Army personnel suggests that the system tends to encourage service members to take on credit, for which they would not qualify if they were civilians.191 If true, this would leave members precariously over-extended and vulnerable to high-cost debt marketing. We should also expect that the system will erode the ability of military borrowers to deter creditor over-reaching with the most effective strategy: refusing to repay.192

3. The Dislocation of Military Service Members

Military service members may be at risk for debt problems because they have difficulty maintaining traditional support networks within the institutional constraints of the armed forces. The military is a prototypical example of what Lewis Coser called a “greedy” institution.193 For instance, the military tends to place great demands on its members with respect to geographic mobility.

Military personnel are frequently transferred between posts and assignments.

Historically, most military assignments last for no more than three years. One study found that 86% of enlisted personnel moved at least once in the three 190 See 32 C.F.R. ' 113.6 (2005).

191 HARRELL, supra note 5, at 109.

192 The Truth in Lending Act recognizes the importance of the ability to refuse payment by allowing credit card borrowers to assert against credit card lenders most claims and defenses assertable against merchants who honor credit cards.

193 LEWIS A. COSER, GREEDY INSTITUTIONS: PATTERNS OF UNDIVIDED COMMITMENT

(1974); Mady Wechsler Segal, The Military and Family as Greedy Institutions, 13 ARMED FORCES & SOC’Y 9, 9 (1986).



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