Research Earns UF Law Professor Consumer Advocate of the Year Award
GAINESVILLE, Fla. — The National Association of Consumer Agency Administrators (NACAA) recently awarded University of Florida Law Professor Christopher L. Peterson its Consumer Advocate of the Year Award for 2007 for his research on predatory lending and his advocacy for legislation adopted last year by Congress that caps the interest rate lenders may charge military personnel.
Peterson, an associate professor at UF’s Levin College of Law, co-authored a study last year with Steven M. Graves, an assistant professor of geography at California State University, which helped spur the U.S. Congress to pass legislation protecting military families from predatory lenders who charge interest rates that can reach well into the triple digits. The study surveyed more than 13,000 zip codes and found that payday loan companies clustered in areas near military bases. The findings were cited in a report by the Pentagon, and Peterson testified before the Senate Banking, Housing and Urban Affairs Committee.
Just 15 days after Peterson’s testimony, Congress agreed to legislation prohibiting lenders from imposing an interest rate of more than 36 percent on loans to members of the armed forces or their dependants. Peterson called it “probably the most consumer-friendly legislation Congress has passed in a generation.”
The NACAA is a not-for-profit association of U.S. and Canadian government agencies (such as state attorney general offices, city and county attorney offices, state consumer protection offices, etc.) that are responsible for enforcing consumer protection law.
NACAA Executive Director Elizabeth Owen said the award is not presented annually and is only given when the nominating committee recognizes a truly outstanding person who has distinguished himself in the field of consumer protection. More than anyone else in the country, she said, Peterson recognized the devastating impact of payday lending on the military, regular citizens, and the economy.
“We credit him for drawing national attention to this problem, which has plagued consumer protection agencies for years,” Owen said. “Members of NACAA are honored to know Chris, made better by his example, and inspired by his dedication. The emphasis on consumer protection and the importance of taking care of those people victimized by fraud and greed seems to have been brushed aside lately. At such a young age Chris has already accomplished so much—everyone in the consumer protection field can’t wait to see what he does next.”
Peterson, who began teaching in 2003, has been studying predatory lending for years and is the author of Taming the Sharks: Towards a Cure for the High Cost Credit Market, which received the American College of Consumer Financial Services Attorneys’ Best Book of the Year Award for 2004.
In a typical payday loan, a lender might give a borrower $100 cash in exchange for a post-dated check for $115. When the loan comes due, typically two weeks later, 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.
Peterson and Graves mapped payday loan locations in 20 states, including 109 military bases, and found that ZIP codes near military bases consistently had higher numbers of payday lenders than nonmilitary ZIP codes of similar population and demographic makeup.
Military personnel make good targets for the payday loan industry, Peterson said. Junior enlisted personnel often have low salaries and little experience managing money. Because the military frowns on nonpayment of debt—delinquent soldiers can face demotion, loss of security clearances, and even discharge—lenders can be confident they will be repaid.
In addition to capping interest rates, the bill also prohibits mandatory binding arbitration in contracts with military service members. Critics of arbitration argue that it is a more expensive, secret system designed by big business to deflect rather than resolve consumer complaints. This ban, Peterson said, creates an exciting new exception to the Federal Arbitration Act, a law which many believe is being used by big business to deny consumers access to the civil justice system.
The legislation is the first effort Congress has made to close a loophole in federal banking regulation that allows banks to ignore usury laws. Unlike state usury laws, the new 36 percent interest rate cap for military personnel applies to all creditors equally, including banks.
Peterson’s current research offers a startling analysis of how many state legislatures use small, innocuous numbers in usury law in an attempt to minimize the public outcry over their decision to legalize triple digit interest rate consumer loans. He said the recognition of the value of his work by the NACAA, which was announced at the organization’s annual awards luncheon in Philadelphia in June, was both surprising and humbling.
“It feels like further confirmation that my research is being noticed and maybe making a small difference in the world,” Peterson said. “And to have a big group of people from around the country get together and agree that that’s happened is really very gratifying.”