Menus Subscribe Search
payday-lender

(PHOTO: TABERANDREW/FLICKR)

The Link Between Payday Lenders and High Crime Rates

• October 03, 2013 • 6:00 AM

(PHOTO: TABERANDREW/FLICKR)

They seem to go hand in hand, but it’s unclear which comes first.

We tend to know where they are, the businesses that offer payday loans. They’re in the poor parts of town amongst the seedy liquor stores and pawnshops and sidewalks littered with greasy paper plates that once served a purpose. Since residents of wealthy neighborhoods typically don’t depend on $300 cash advances to make it through the month, these companies avoid establishing themselves in such places. Anyone would. Instead, payday lenders cater to their lower-income customers by setting up shop where they live.

We tend to know this because the payday industry has flourished over the past couple of decades, with businesses sprouting up in destitute sections of major cities across the country. According to a 2012 report by the Pew Charitable Trusts, approximately 20,000 payday storefronts and hundreds of websites provide short-term, high-interest credit to over 12 million Americans each year. Bloomberg reports that in 2012 alone the industry lent the public $48.7 billion and earned revenues of $9.3 billion for the service. That’s quite the handsome sum for a profession geared toward aiding the needy.

“We found that the areas with the highest levels of violent crime were about seven times more likely to have check-cashing places.”

However, a new study published in the journal Sociology Mind suggests that payday companies might actually be targeting communities where crime—especially violent crime—is high, and not communities where income is low. Using data obtained from local police reports, a team of researchers at St. Michael’s Hospital in downtown Toronto compared the city’s crime-ridden neighborhoods to the locations of multiple payday lenders and discovered a strong overlap between the two. An overlap that held steady despite the particular area’s socioeconomic standing, whether rich or poor.

“We found that the areas with the highest levels of violent crime were about seven times more likely to have check-cashing places,” said Joel Ray, a clinician-scientist at St. Michael’s and the study’s lead author.

As noted in the study, individuals who commit street-level robbery are often in need of quick cash, so perhaps it makes good business sense for payday lenders to move into areas where this activity often occurs to provide an alternative source of fast money, which has the added benefit of being legal to procure. It’s a simple case of supply and demand.

“Just to be clear, I would not remove wealth or poverty from the equation entirely,” said Ray, who mentions in the study that these findings are purely meant to add to the body of literature on payday-industry strategy. “I think there’s no question that check-cashing places are generally designed for people in lower-income brackets, and that these places are abundantly found in low-income areas.”

But could it be the other way around? In a 2011 study titled “Does Fringe Banking Exacerbate Neighborhood Crime Rates? Investigating the Social Ecology of Payday Lending,” researchers from a few American universities set their sights on Seattle. Besides gathering some pretty intriguing facts—example: today’s version of the payday industry went from barely existing in 1990, to growing faster than Starbucks in the mid-’90s, to now involving more outlets than McDonald’s has restaurants in the U.S.—the researchers suggest that while payday lenders in Seattle are also prevalent in communities where crime rates are higher, it’s not as much that the payday businesses seek out these areas as it is that their mere presence brings about increased levels of illegal activity.

“I think to a degree they have it wrong,” said Ray about the Seattle case study. “It’s like asking, ‘If you open up more ice cream parlors, are more people going to steal ice cream?’ I think they were realizing it backward, but I can’t prove that to you.”

Still, Ray admits that the chicken-egg thing is complicated. Just type in the words “poverty” and “crime” into any academic database and you’re bound to receive a plethora of clashing articles all attempting to distill the relationship between the two. Most people believe there’s certainly a correlation there, but it’s difficult to discern which is more cause and which is more symptom.

Nevertheless, Ray asserts that payday lenders are savvy businesses dedicated to discovering statistical beacons capable of indicating the whereabouts of potential customers. It’s a strategy employed by any sensible company. So if neighborhoods with high crime produce more profit than neighborhoods with low income, presumably nobody is more devoted to uncovering and exploiting this information than payday lenders.

Somewhat surprisingly, neither the Toronto study nor the Seattle study touches on how the Internet is eradicating the importance of storefront location. According to the Wall Street Journal, in 2007 13 percent of all payday lending happened online, while this number more than doubled to 38 percent in 2012. The New York Times reports that experts estimate that it will spike to around 60 percent by 2016, shunting the physical act of visiting a brick-and-mortar store to collect a loan into the minority.

While different states have different laws either regulating or prohibiting what many would call predatory lending practices, the industry’s trade group, the Community Financial Services Association of America, maintains that their goal is to help people overcome unexpected expenses with short-term credit—a service they claim the traditional banks are unable to provide. It’s an altruistic-sounding endeavor. However, if Ray and his colleagues have exposed an industry trend of strategically targeting neighborhoods plagued by violence and crime, things suddenly seem a whole lot less noble.

Paul Hiebert
Paul Hiebert is the editor of Ballast, a Canadian-centric Website about culture and politics. Follow him on Twitter @hiebertpaul.

More From Paul Hiebert

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

September 18 • 4:00 PM

Racial Disparity in Imprisonment Inspires White People to Be Even More Tough on Crime

White Americans are more comfortable with punitive and harsh policing and sentencing when they imagine that the people being policed and put in prison are black.



September 18 • 2:00 PM

The Wages of Millions Are Being Seized to Pay Past Debts

A new study provides the first-ever tally of how many employees lose up to a quarter of their paychecks over debts like unpaid credit card or medical bills and student loans.


September 18 • 12:00 PM

When Counterfeit and Contaminated Drugs Are Deadly

The cost and the crackdown, worldwide.


September 18 • 10:00 AM

How Do You Make a Living, Molly Crabapple?

Noah Davis talks to Moly Crapabble about Michelangelo, the Medicis, and the tension between making art and making money.


September 18 • 9:00 AM

Um, Why Are These Professors Creeping on My Facebook Page?

The ethics of student-teacher “intimacy”—on campus and on social media.


September 18 • 8:00 AM

Welcome to the Economy Economy

With the recent introduction of Apple Pay, the Silicon Valley giant is promising to remake how we interact with money. Could iCoin be next?



September 18 • 6:09 AM

How to Build a Better Election

Elimination-style voting is harder to fiddle with than majority rule.


September 18 • 6:00 AM

Homeless on Purpose

The latest entry in a series of interviews about subculture in America.


September 18 • 4:00 AM

Why Original Artworks Move Us More Than Reproductions

Researchers present evidence that hand-created artworks convey an almost magical sense of the artist’s essence.


September 17 • 4:00 PM

Why Gun Control Groups Have Moved Away From an Assault Weapons Ban

A decade after the ban expired, gun control groups say that focusing on other policies will save more American lives.


September 17 • 2:00 PM

Can You Make Two People Like Each Other Just By Telling Them That They Should?

OKCupid manipulates user data in an attempt to find out.


September 17 • 12:00 PM

Understanding ISIL Messaging Through Behavioral Science

By generating propaganda that taps into individuals’ emotional and cognitive states, ISIL is better able motivate people to join their jihad.


September 17 • 10:00 AM

Pulling Punches: Why Sports Leagues Treat Most Offenders With Leniency

There’s a psychological explanation for the weak punishment given to Ray Rice before a video surfaced that made a re-evaluation unavoidable.


September 17 • 9:44 AM

No Innovation Without Migration: Portlandia Is Dying

Build an emerald city. Attract the best and brightest with glorious amenities. They will come and do nothing.



September 17 • 8:00 AM

Why Don’t We Have Pay Toilets in America?

Forty years ago, thanks to an organization founded by four high school friends, human rights beat out the free market—and now we can all pee for free.


September 17 • 6:32 AM

Do Conspiracy Theorists Feed on Unsuspecting Internet Trolls?

Not literally, but debunkers and satirists do fuel conspiracy theorists’ appetites.


September 17 • 6:00 AM

The Grateful Dig: An Archaeologist Excavates a Tie-Dyed Modern Stereotype

What California’s senior state archaeologist discovered in the ruins of a hippie commune.


September 17 • 4:00 AM

The Strong Symbolic Power of Emptying Pockets

Researchers find the symbolic act of emptying a receptacle can impact our behavior, and not for the better.


September 16 • 4:00 PM

Why Is LiveJournal Helping Russia Block a Prominent Critic of Vladimir Putin?

The U.S. blogging company is showing an error message to users inside Russia who try to read the blog of Alexei Navalny, a prominent politician and critic of the Russian government.


September 16 • 2:00 PM

Man Up, Ladies! … But Not Too Much

Too often, women are asked to display masculine traits in order to be successful in the workplace.



September 16 • 12:00 PM

What Makes You So Smart, Brilliant 12-Year-Old?

Charles Wang is going to rule the world.


Follow us


How to Build a Better Election

Elimination-style voting is harder to fiddle with than majority rule.

Do Conspiracy Theorists Feed on Unsuspecting Internet Trolls?

Not literally, but debunkers and satirists do fuel conspiracy theorists' appetites.

3-D Movies Aren’t That Special

Psychologists find that 3-D doesn't have any extra emotional impact.

To Protect Against Meltdowns, Banks Must Map Financial Interconnections

A new model suggests looking beyond balance sheets, studying the network of investment as well.

Big Government, Happy Citizens?

You may like to talk about how much happier you'd be if the government didn't interfere with your life, but that's not what the research shows.

The Big One

One in three drivers in Brooklyn's Park Slope—at certain times of day—is just looking for parking. The same goes for drivers in Manhattan's SoHo. September/October 2014 new-big-one-3

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.