Predatory payday lenders that target military bases across the country are now getting a closer look by the U.S. Department of Defense due to a 2005 study by Dr. Steven Graves, a CSUN geography professor.
Graves, along with Dr. Christopher Peterson, a law professor at the University of Florida, published their findings last year through the Ohio State Law Journal. Peterson contacted Graves about the predatory lenders because he needed someone to help with the mapping.
“He had an expertise on legal questions, but he didn’t know anything about mapping,” Graves said.
Graves and Peterson have not met each other yet, but they have been invited to several conferences to talk about their findings.
The study found that abusive high-cost lenders are targeting financially vulnerable military families. Their study included 20 states, 109 military bases and nearly 15,000 payday lenders.
Each of the states studied had a different legal and regulation strategy in regard to payday lending.
According to the study, payday lenders charge an inflated interest rate and unfair prices to unsuspecting and desperate military borrowers.
Because of their study a law was recently passed to make it illegal to loan money to servicemen and their families at an interest rate higher than 36 percent. Their study provided shocking statistics, some of which revealed that the loans were up to 459 percent as an annual percentage rate.
“This kind of business operates because people are desperate for cash,” Graves said. “That was part of the inspiration.”
The entire study took only one year.
According to the study, payday loans are high interest rate, rapidly compounding loans meant to tide over cash-short borrowers until their next paycheck.
The payday lender requires borrowers to write a post-dated check, by writing a date one or two weeks in the future or until their next pay day.
The date written on the check is the agreed date of the borrower and the payday lender. The payday lender will give the borrower the amount requested and then the borrower can take the money from the lender.
The difference is that the borrower’s post-dated check written to the payday lender is for $25-$35 more than the amount requested in order to pay the interest rate depending on the amount borrowed.
Once the agreed upon date comes around, the payday lender cashes the borrower’s check with the assumption that the borrower has the funds in their account.
Usually the payday lender will call the borrower ahead of time to let them know that they will be cashing their check.
If the borrower doesn’t have the funds in their account, then they can roll over their loan for an additional charge.
“Over time the interest and the principal become the same amount,” Graves said. “People get stuck paying these loans, because it can’t be paid off right away and it costs more in the long run.”
Graves was asked by the U.S. Department of Defense to make maps of his study so they could take a closer look.
“They called me and had me update maps for them,” Graves said. “I made similar maps for the Senator Elizabeth Dole.”
Dole is a Republican senator in North Carolina. In that state, around Fort Bragg, there are no payday lenders. They were shut down as soon as the study came out.
The Department of Defense closed the payday lenders in North Carolina around Fort Bragg and around Fort Gordon, in Georgia.
“We were in the right place at the right time,” Graves said in regard to when the study came out.
The laws in those states were modified to make it more difficult for them to do business.
Payday lending used to be illegal and the study gives a brief history of how payday lending came about.
Payday lending began popping up after the Ronald Reagan administration, according to Graves. Since the 1990s, payday lenders have popped up 4 percent more than Starbucks coffee shops. Payday lending has outnumbered them, according to Graves.
The payday lenders were able to get away with loaning people money at these high interest rates because they would set up offices in some states but the loans would actually go through another state that did not have regulations on how much people could be charged.
States were having trouble regulating their own loans in their own states. Banks began offering loans similar to those of payday lenders, calling it a Direct Deposit Advance, or advances from the bank until your next payday.
Banks were also being linked to these payday lenders by partnering up with them as insurance for the lenders.
According to the study, all national banks terminated their charter-renting relationships with payday loan companies. Since the Federal Deposit Insurance Corporation helps protect the bank accounts of their customer and oversee what the state banks are doing, they want the banks to get out of the business of charter-renting with these payday lenders.
“The FDIC thinks it’s a dangerous business,” Graves said. “There are a lot of consequences (for the banks) being linked with these payday lenders.”
The study also revealed that in Oceanside, Calif. around Camp Pendleton, there are more payday lenders than there are in all of San Francisco.
“Given the population of Oceanside, there should only be eight payday lenders, but we counted as many as 26,” Graves said.
“Payday lending is not a complicated thing, it’s simply, ‘I’ll give you a loan but you have to give me more money in return,'” Graves said.
Although Graves and Peterson have not met, they are working on another study as a follow-up on payday lending and religion.
Graves will be doing the statistics and Peterson will be working on the archaeology and laws.
According to Graves, socially conservative politicians are the biggest supporters of payday lending. He said there are lots of references to it in the Bible, which says usury is a sin.
“Religious officials used to stop payday lending from happening,” said Graves. “It is their religious rite to help the poor.”
Graves believes that this injustice should be outlawed.
“There are lots of religious that are against payday lending,” Graves said. “It’s expensive to be poor in this country.”
