by Bradley Parsons
In 2005, the Pentagon mostly spared Florida bases from a round of closures and even added troops and bases to the state. A year later Jacksonville officials and consumer advocates worry that Florida is rolling out the red carpet for predatory lenders that often target the military.
Jacksonville traditionally has been a tough place for those lenders to operate. In 1998, the City restricted car title lending with legislation that was copied across the state. The City followed that up in October 2005 with restrictions on payday lenders that was viewed as another potential trendsetter.
But those local ordinances are under attack, say the elected officials and consumer lawyers who helped write them. Legislation being considered now by state lawmakers has the potential to derail Jacksonville’s attempts at regulating the industry.
A senate bill filed by Sen. Lee Constantine of Altamonte Springs and its companion bill in the House of Representatives filed by Rep. Trey Traviesa of Tampa set limits on payday loans made to military members.
Payday lenders essentially use a borrower’s paycheck as collateral. Some charge triple-digit interest rates. Military members make ideal customers due to their steady income and a command structure that frowns on unpaid debts.
The lenders are a statewide concern but a local priority. A University of Florida study found that the businesses cluster near military bases, making Northeast Florida particularly fertile ground. The study found that the area around Naval Air Station Jacksonville had the highest concentration of payday lenders in the state.
The area has 24 banks and 22 payday lenders to service 87,000 people. That’s four times more than would normally operate in that size community, according to the study.
Those numbers were the genesis of Jacksonville’s restrictions on the industry. Jacksonville’s laws limit the interest rates the lenders can charge and keeps them away from military bases. The state bills exclude those provisions, which has local consumer advocates and officials concerned. They worry that the state laws are watered-down versions that could prevent stronger legislation down the line.
Lynn Drysdale, a consumer attorney for Jacksonville Area Legal Aid, said the proposed legislation doesn’t break any new ground. Most of its protections are already built into Florida statutes and military law, she said.
In a letter to Rep. Jennifer Carroll, Drysdale noted similarities in the protections contained in Constantine’s bill and payday lenders’ own best practices regarding loans to the military.
Those guidelines, spelled out on the Community Financial Services Association of America’s Web site, haven’t been sufficient to protect military members in Northeast Florida, said Drysdale. She worries the state law will fall short as well.
“The interest rate caps and zoning regulations are part of what gives teeth to Jacksonville’s protections,” said Drysdale. “All of those provisions wouldn’t be in the state law.”
More worrisome to Drysdale is the potential for the state legislation to preempt local protections. She said Constantine has been public about his desire to keep regulation a state prerogative.
“Sen. Constantine has said in public meetings to consumer advocates, he’s made it clear that his purpose is to also ensure that cities and local governments don’t regulate these issues locally,” she said. “These bills, they will be amended along those lines.”
An aide for Traviesa emphasized that the representative’s bill “does not contain preemption language.”
But Constantine said he’s “giving strong consideration” to preempting local ordinances with his bill. Florida has 400 cities and 67 counties. Allowing each of them to make their own rules for the industry would create a confusing “mish mash” of regulations that would be difficult to enforce, he said.
Constantine said Florida already has some of the toughest payday lender regulations in the country. Toughening them would drive the legitimite lenders out, reducing borrowing options for low-income earners.
“We can ban the whole industry if we want, but the unintentional consequence will be to force people to go into the back alley to get their loans,” he said. “Until the banking industry is prepared to give loans to folks at this income level for this short a period of time, then what other options do they have? Pawn shops?”
Constantine said his bill likely wouldn’t touch Jacksonville’s zoning prohibitions on the lenders near military bases. Zoning is a local matter, he said. But he doesn’t like Jacksonville’s interest rate caps.
Instead of adding regulations, the state should make sure lenders comply with existing law, he said.
Jacksonville’s payday lending law has another hurdle to overcome before its protections take effect. Circuit Court Judge Charles Arnold is presiding over a challenge to the law from the industry.
City Council President Kevin Hyde helped write the law and shepherded it through the City Council. Even if Arnold rules in favor of the City, Hyde expects an appeal.
“It’s a case only a lawyer could love,” said Hyde, also a partner at Foley & Lardner. “Judge Arnold is being asked to review just about every aspect of the ordinance.”
If the local law is struck down or stripped down, Hyde said Jacksonville would lose one of the key protections it can offer military members. The City’s aggressive response to the problem adds to its reputation as a military-friendly town and is likely one of the reasons the Pentagon’s base closing axe skipped the City entirely, he said.
Hyde pushed the local ordinance after reading the Department of Defense’s base closure criteria. Number eight on that list is the prevalence of payday lending in an area.