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
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
"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
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
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
"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
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." .
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