Determinants of Short-term Lender Location and Interest Rates

Taylor Canann and Richard Evans
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Taylor Canann: Department of Economics, Brigham Young University

No 2013-06, BYU Macroeconomics and Computational Laboratory Working Paper Series from Brigham Young University, Department of Economics, BYU Macroeconomics and Computational Laboratory

Abstract: This study tests the degree to which payday and title lenders differentiate their store location and interest rates based on the socioeconomic characteristics of the areas in which they operate. We use store-level lender data, geographically matched IRS income data, and Census Bureau demographic data to answer these questions. In the case of lender location, we find that payday and title lenders tend to locate in areas with lower median age, a larger population of not married households, more restaurants, and more pawn shops. We also find a nonlinear relationship between lender location and individual incomes in the surrounding area. Regarding lender interest rates, we find that competition among lenders reduces average interest rates and that riskiness of borrowers, as measured by defaults, increases average interest rates. We also find that payday and title lenders have higher interest rates in areas with lower educational attainment, smaller proportions of Black residents, and fewer married households. This evidence seems to contradict the argument that payday and title lenders prey on minorities.

Keywords: Consumer lending; interest rates; payday lending; lender location (search for similar items in EconPapers)
JEL-codes: C35 D22 E43 G23 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2013-12
New Economics Papers: this item is included in nep-ban, nep-mac and nep-ure
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Published in Journal of Financial Services Research, forthcoming

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https://docs.google.com/file/d/0B6KGaihAO5TJellUSmtLWjZPem8/edit First version, 2013 (application/pdf)

Related works:
Journal Article: Determinants of Short-term Lender Location and Interest Rates (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:byu:byumcl:201306

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