San Diego, CA - IPayday loan companies -- which make high-cost loans to cash-strapped people - target military members and their families, according to a study co-authored by a University of Florida
law professor.
 
After collecting data from more than 13,000 ZIP codes in 20 states, the study's authors found payday loan operations clustered in areas near military bases.

"Payday loan companies vociferously deny that they are targeting military personnel, but the numbers show that they do," said Christopher L. Peterson, an assistant professor at UF's Levin College of Law. "It's sad enough to see someone get into financial trouble because someone lent him money at more than 400 percent interest. It's even worse when that borrower is a person who is fighting to protect our freedom -- someone whose career can be ruined by a loan of this sort."

Payday loans are high-interest loans intended to tide the borrower over to his next paycheck. In a typical payday loan scenario, a lender might give a borrower $100 cash in exchange for a post-dated check for $115.  Then the loan comes due, typically two weeks after the money is borrowed, the lender cashes the check, recouping his $100 plus a $15 "lender's fee."

If the borrower doesn't have enough money in the bank when the loan is due, he can always refinance -- by borrowing more money on the same terms. Known as a "rollover," this practice can quickly turn a small
loan into a sizable financial obligation. Charges for payday loans vary, but a typical lender will charge around $17 or $18 for a two-week loan of $100. That's roughly equivalent to an annual interest rate of 450
percent.

"The people who take out these loans are typically in a precarious financial situation to begin with," said Peterson. "When people take out payday loans, they take on a debt that can rapidly turn into yet
another major financial obligation -- and quite often, they don't really understand just how high the interest rate is for one of these loans."

Co-author Steven M. Graves, an assistant professor of geography at California State University, first became aware of the connection between military bases and payday loans while mapping the locations of payday lenders in Louisiana. Graves, then a faculty member at Louisiana Tech University, had originally set out to test the notion that payday lenders are concentrated in minority communities.

"The data showed pretty conclusively that there were far more payday lenders in predominantly black areas than in white areas, and far more banks in white areas than in black areas," he said. "But there were
a few non-minority areas that seemed to have an abnormally large number of payday lenders. Finally I realized what these areas had in common: they were military towns."

Graves had found evidence of phenomenon that consumer advocates had warned about for some time - a boom in the number of payday lenders outside the gates of military bases, where struggling soldiers could
easily stop in for a loan. UF's Peterson, who has written extensively about the payday loan industry, was already working on a book about the industry's effects on the military.

Graves and Peterson soon teamed up to conduct a larger study. They mapped payday loan locations in 20 states, including 109 military bases. They found that ZIP codes near military bases consistently had higher
numbers of payday lenders than non-military ZIP codes of similar population and demographic makeup. They also found that in almost every state, military towns ranked among the highest in number of payday
lenders per capita.

"While the clustering of payday loan outlets near military bases has been well known, the Graves-Peterson study is the first nationwide study to document that payday lenders target military consumers for their
high-cost, high-risk loans," stated Jean Ann Fox, director of consumer protection for Consumer Federation of America, and organization that has opposed the growth of payday lending. "Hopefully, this report will lead
Congress and state legislatures to enact effective consumer protections."

Miltary personnel make good targets for the payday loan industry, Peterson said. While many junior enlisted personnel receive free room and board on bases, he notes, the actual pay is typically low (a private
first class in the Army usually makes less than $17,000 per year.) Junior enlisted personnel are often in their late teens and early 20s, with little experience managing money -- and many are married and have
families. Payroll errors are not infrequent in the military, and young families often find themselves struggling to make ends meet on a fraction of a normal paycheck while waiting for those errors to be cleared up.

Service members are also easier to track down than other payday loan customers. While some customers will simply default on an overdue loan or leave town to avoid payment, military personnel can always be found
through their units. And because the military frowns on non-payment of debt -- delinquent soldiers can face demotion, loss of security clearances, and even discharge from the military -- lenders can be confident they will be repaid.

"The military's seriousness about personal debt is a plus for the payday lenders," said Peterson. "It also means that a payday loan can have truly tragic consequences for someone in the military. It can
ruin a career."

To correct the problem, the authors of the study advocate a return to strict enforcement of usury laws, which ban lending at a high rate of interest. Various states passed a wide range of usury laws in the early
20th century, in response to a boom in predatory lending at the time (a trend that gave rise to the popular term "loan shark.") The current resurgence in payday lending began in the early 1990s, as lenders began
to find loopholes that allowed them to skirt those laws.

As an example of the effectiveness of strict enforcement of usury laws, the study's authors point to Fort Drum in New York, the only major military installation in the study that was not surrounded by a cluster
of payday lenders.

"New York's usury laws are virtually the same as those in place in North Carolina -- but there are as many as 21 payday lenders within three miles of Fort Bragg," Peterson said. "The difference is that in New York, there is the political will to actively sue or prosecute these lenders."

Peterson sees an irony in the lack of enforcement of usury laws around some of the nation's largest military bases. "We're asking our soldiers to put their lives on the line for us, and in the current wartime environment, there's a lot of incentive for politicians to show that they support the troops," he said. "Simple enforcement of existing laws on payday lending would be unquestionably good for the troops, yet very little is being done."  .