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Determinants of Short-term Lender Location and Interest Rates

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  • Taylor Canann

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  • Richard Evans

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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. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Taylor Canann & Richard Evans, 2015. "Determinants of Short-term Lender Location and Interest Rates," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(3), pages 235-262, December.
  • Handle: RePEc:kap:jfsres:v:48:y:2015:i:3:p:235-262
    DOI: 10.1007/s10693-014-0202-x
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    Cited by:

    1. Jaakko Sääskilahti, 2018. "Retail Bank Interest Margins in Low Interest Rate Environments," Journal of Financial Services Research, Springer;Western Finance Association, vol. 53(1), pages 37-68, February.

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    More about this item

    Keywords

    Consumer lending; Interest rates; Payday lending; Lender location; C35; D22; E43; G23;
    All these keywords.

    JEL classification:

    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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