New CRL analysis finds that California's payday lenders overwhelmingly locate in African-American and Latino neighborhoods, even after controlling for income and other factors, draining $247 million in the process
Payday loans trap working households in long-term debt at annual interest rates of over 400 percent. In California and elsewhere, African Americans and Latinos make up a disproportionate share of payday loan borrowers.
Our analysis reveals that payday lending storefronts are most heavily concentrated in African American and Latino communities in California, even when controlling for other factors which may influence a payday lender's location such as household income. In addition, we find that the racial and ethnic composition of a neighborhood is the primary predictor of payday lending locations. This finding differs with an analysis of mainstream financial institutions such as banks, where the primary explanatory factors of location are not tied to race or ethnicity.
Predatory Profiling analyzes the relationship between the proximity and clustering of payday lending locations and African-American and Latino neighborhoods in California and explores the primary factors influencing payday lenders' locations, as compared to bank branches.
How does your neighborhood measure up?
In this report, CRL finds that:
- Payday lenders are nearly eight times as concentrated in neighborhoods with the largest shares of African Americans and Latinos as compared to white neighborhoods, draining nearly $247 million in fees per year from these communities.
- Even after controlling for income and a variety of other factors, payday lenders are 2.4 times more concentrated in African American and Latino communities. On average, controlling for a variety of relevant factors, the nearest payday lender is almost twice as close to the center of an African American or Latino neighborhood as a largely white neighborhood.
- Race and ethnicity play a far less prominent role in the location of mainstream financial institutions, such as bank branches. While race and ethnicity account for over half of the variation in payday lender location explained by neighborhood factors, they explain only one percent of the variation in bank branch locations.
California should follow the lead of fifteen states and the District of Columbia in implementing a comprehensive, small-loan rate cap of or around 36 percent. Such a measure is the only solution to the debt trap perpetuated by payday lending. California should ensure that credit is offered on reasonable terms, giving struggling families the opportunity to save and begin on a path to a more secure financial future--particularly in the African-American and Latino communities that lose $247 million in wealth annually to service payday loans.