Factors Affecting the Location of Payday Lending and Traditional Banking Services in North Carolina

Abstract

Payday lending is a relatively new and fast growing segment of the "fringe banking" industry. This paper offers a comparative, descriptive analysis of the location patterns of traditional banks and payday lenders. Utilizing a dataset at the Zip Code Tabulation Area level in North Carolina, we perform negative binomial regressions and find evidence supporting some, but not all, common assertions about the location patterns of both types of institutions. A key finding is that after controlling for many covariates, race is still a powerful predictor of the locations of both banks and payday lenders.

FRINGE FINANCIAL ECOLOGIES AND PLACE‐BASED EXCLUSION: A Tale of Two Cities

“…Graves, 2003; Evren, 2009; Fowler et al ., 2014; Prager, 2014; Faber, 2018); and (3) the spatial location patterns of alternative financial services relative to mainstream banks (e.g. Burkey and Simkins, 2004; Smith et al ., 2008; Wheatley, 2010; Smith et al ., 2013; Barth et al ., 2015). The concept of financial exclusion related to the absence of financial services or ‘financial infrastructure withdrawal’ (Leyshon and Thrift, 1995: 313) was forwarded as a geographic phenomenon in the 1990s (Leyshon and Thrift, 1995; Kempson and Whyley, 1999; Leyshon et al ., 2008).…”

Relational foundations of an unequal consumer credit market: Symbiotic ties between banks and payday lenders

“…Second and related, the literature has, in some ways, taken for granted the bifurcated credit market – where some individuals have access to “prime” bank services and others have to substitute with subprime non‐bank services. Most studies start with the premise that payday lenders are already established and able to compete with banks in the credit market, and from there they evaluate inequalities in consumer product use or financial service geography (e.g., Burkey & Simkins, 2004; Campbell et al, 2012; Damar, 2010; Small et al, 2021). The rapid growth of the payday industry serves as a motivation for analysis (see, e.g., Damar, 2010: p. 175), but studies do not interrogate how this growth was financed.…”

“…Geographic evaluations often jointly examine bank branch and payday storefront location choices to better understand inequalities in access to consumer credit. Studies confirm that, compared to bank locations, payday lenders are more likely to locate in or near predominately Black and Latino communities and communities that have lower incomes and higher poverty rates, on average (Burkey & Simkins, 2004; Damar, 2010; Faber, 2019; Graves, 2003; Prager, 2014; Small et al, 2021). This unequal access has consequences for consumers: households with proximate access to payday lenders are more likely to use those services (Friedline & Kepple, 2017; Goodstein & Rhine, 2017), and proximate access has been shown to negatively impact social and economic well‐being (e.g., Melzer, 2018).…”

(Un)conditional consumer protections in high‐cost lending regulation: Impacts on local lending geographies

“…We use geographic Census boundary files to spatially join payday lender locations to Census tracts and account for tract‐level socioeconomic and demographic characteristics of communities that are associated with payday lender presence (e.g., Burkey & Simkins, 2004; Damar, 2010; Gallmeyer & Roberts, 2009). We include time‐varying measures of log population and its squared term , share of Black and Hispanic/Latinx households , proportion of households below the poverty line , and unemployment rate and its squared term at the tract‐level.…”