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Predatory Lending and the Military: the Law and Geography of "Payday" Loans in Military Towns

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Predatory Lending and the Military: the Law and Geography of OHIO STATE LAW JOURNAL VOLUME 66, NUMBER 4,2005 Predatory Lending and the Military: The Law and Geography of "Payday" Loans in Military Towns STEVEN M. GRAVES* AND CHRISTOPHER L. PETERSON** A heated national debate has developed over whether one type of high-cost predatory lender, commonly known as "'paydaylenders, " targetfinancially vulnerable militaryfamilies and whether the law protects them from such predation. Writing within the relatively new interdisciplinary "law and geography" movement, this Article provides geographicevidence thatpayday lenders do aggressively target American military personnel, irrespective of mostforms of legal regulation. This Article first provides a comprehensive introduction to payday lending business practices and to the financial vulnerability of military personnel. Next, this Article presents empiricalresearch gatheredfrom an examination of 20 states, 1516 counties, 13,253 ZIP codes, nearly 15,000payday lenders, and 109 military bases. High concentrations of payday lending businesses in counties, ZIP codes, and neighborhoods in close proximity to military bases werefound Observations were controlled by comparing the density ofpayday lender locations to bank locations. Each of the 20 states studied had a different legal andregulatory strategyfor addressing payday lending. However, the only regulatory strategy which preventedpayday lendersfrom targetingmilitary personnel was the aggressive and consistent enforcement of civil and criminal usury law. Going beyond the debate over predatory lending to militarypersonnel, this researchprovides a realistcheck on pure legal reasoningand unfoundedfaithin currentconsumer protection rules. *Assistant Professor of Geography, California State University, Northridge. The author gratefully acknowledges generous financial assistance from the College of Social and Behavioral Sciences at California State University, Northridge. **Assistant Professor of Law, University of Florida, Frederic G. Levin College of Law. The author wishes to thank the following for helpful conversations, comments, encouragement, research assistance, and suggestions: Reed Clary, Lynn Drysdale, Mark Fenster, Diana Henriques, Lyrissa Lidsky, Diane Mazur, Tera Peterson, Buddy Schulz, Sarah Stoddard,'Michael Wolf, and Barbara Woodhouse. Special thanks to Blake Delaney for exceptionally thorough and helpful research assistance. OHIO STATE LA WJOURNAL [Vol. 66:653 TABLE OF CONTENTS I. INTRODUCTION ............................ ................................... .................. 655 II. BACKGROUND ............................................ 660 A. Payday Lending ................................................... ....... 660 1. What Are Payday Loans? ......................................................... 660 2. Payday Lending in History: Ancient Lineage and Recent R esurgence ................................................................................ 665 B. FinancialVulnerability of MilitaryPersonnel .............................. 675 1. DemographicPredisposition.................................................... 675 2. The Military Compensation System .......................................... 679 3. The Dislocationof Military Service Members ......................... 681 4. Military Culture and FinancialObligations ............................ 685 C. Payday Lending to Militaty Personnel.......................................... 686 1. Congress's Position: The Servicemembers' Civil Relief Act. .686 2. The Debate: Do Payday Lenders Target Military Service Mem bers? ................................................................................... 690 1I . METHO D S............................................................................................... 693 A. Law and Geography: Theoretical Considerations ....................... 693 B. EmpiricalMethodology .................................................................. 697 1. Study Overview: Sample, Scales of Resolution, and Control G roup .......................................................................................... 697 2. Data Sources and Mapping Techniques .................................. 699 3. StatisticalAnalysis of Payday Lender Location Density......... 701 IV. RESULTS: THE LAW AND GEOGRAPHY OF MILITARY PAYDAY LENDING JUXTAPOSED ................................................................................................ 704 A. FederalBanking Law and the Marquette Doctrine:A Backdrop to American Payday Lending .............................................................. 704 B. State Law and EmpiricalResults ................................................... 709 1. A labama ..................................................................................... 709 2. A rizona....................................................................................... 7 15 3. Califom ia ................................................................................... 718 4. Colorado .................................................................................... 725 5. Delaw are .................................................................................... 733 6. F lorida ....................................................................................... 740 7.Idaho .......................................................................................... 746 2005] PREDATORY LENDING AND THE MILITARY 655 8. Kentucky .....................................................................................749 9.Louisiana ...................................................................................756 10 .M issouri................................................................................... 76 1 11. N ew York ..................................................................................766 12. North Carolina........................................................................ 768 13. Ohio ..........................................................................................777 14. Oklahom a ................................................................................781 15. South Carolina........................................................................ 787 16. South Dakota ...........................................................................792 17. Tennessee .................................................................................797 18. Texas ........................................................................................800 19. Virginia ....................................................................................810 20. W ashington ..............................................................................815 V .AN ALY SIS ...............................................................................................822 A.Empirical Discussion...................................................................... 822 B.Legal and Public Policy Considerations....................................... 825 1.Voluntary Compliance and Industry Best Practices............... 825 2. State Law ...................................................................................827 3. FederalLaw ...............................................................................829 4. Military Leadership on Payday Lending .................................830 V I.C ON CLU SION .........................................................................................832 I.INTRODUCTION "Support the troops" has become a national rallying cry.Because we live in a complex and dangerous world, we as a society rely on the military to protect us. President George W. Bush recently stated that "Americans live in freedom because of our veterans' courage, dedication to duty, and love of country."' This sentiment speaks to the fundamental debt of honor and respect we owe the women and men who make great sacrifices, sometimes the ultimate sacrifice, to protect us.2 In satisfying this debt, the United States expends vast resources in caring for current and former military personnel and their families. 3 The 1 President George W. Bush, Proclamation on Veterans Day (Nov. 9, 2004) (transcript available at http://www.whitehouse.gov/news/releases/2004/11/20041109-5.html). 2See BERNARD J. VERKAMP, THE MORAL TREATMENT OF RETURNING WARRIORS IN EARLY MEDIEVAL AND MODERN TIMES 103-08 (1993) (discussing differing social approaches to reassimilating returning veterans with complex emotional and moral problems). 3 One commentator has emphasized the relative cost of family support programs: OHIO STATE LA WJOURNAL (Vol. 66:653 Department of Defense maintains a comprehensive system of social services aiming to meet every need of every member of every armed service family.4 Nevertheless, profound questions remain about the extent and nature of our support of military personnel. In recent years, scholars have asked compelling questions about the quality of life and overall well-being of military families. 5 Indeed, $25 billion of Defense Department spending on family support is actually $3 billion more than the Navy will spend this year developing and buying new ships, submarines, and aircraft. It exceeds what the Army, Navy, and Air Force each spend on their worldwide operations in a year. It equals nearly half of the Army's total budget. John Luddy, Meet the US. Government's Biggest Family Welfare Program, AM. ENTERPRISE, May/June 1996, at 63. 4 These programs include: a system of worship services, locations, and chaplains, government housing, housing subsidies, cost of living
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