Nefarious Neighbors: How Living near Payday Loan Stores Affects Loan Use

Few of us give much thought to local laws, yet local laws, such as zoning and other land use regulations, have an abiding influence on our lives. Think for a few moments about the types of businesses located near your home. Are these businesses places you frequent? Considering socio-economics, how do land uses differ from locale to locale throughout your city or state? Do all citizens have an equal voice in the land use approval process? The answer is likely no, which creates environmental and economic justice issues. Like all businesses, when it comes to payday lenders, geography matters. Payday lenders and other high-cost loan providers charge between 300% to 1,000% interest on consumer loans, a fact that concerns many consumer advocates. For decades, we have known another disturbing fact - by locating storefronts in neighborhoods frequented by certain demographic groups, payday lenders and other providers of high-cost credit target people of color, low-income and moderate-income Americans, military personnel, and the elderly. What we did not know until now, however, was whether this targeting succeeds in increasing loan usage by these groups. This Article examines the extent to which living near a payday lender increases the likelihood that a consumer will use one. A growing body of literature examines the possible spatial patterns of alternative financial services, but here we add to that literature by explicitly exploring the relationship between distance and density of payday loan stores and consumer use of such loans. The study described in this Article finds that consumers who live closer to payday lenders are more likely to use the loans and that if a consumer lives near more than one, he or she is even more likely to use the loans. The study results suggest local payday loan ordinances that limit the number of lenders, or forbid lenders from certain areas, effectively limit the harm caused by such high-cost loans