Effect of ‘redlining’ map on the access of alternative financial services

Access to financial services is fundamental to economic stability and inclusion, yet many low-income and historically marginalized communities in the United States remain underserved. While alternative financial services (AFS), such as check cashers, payday lenders, pawnshops, rent-to-own stores, and auto title lenders provide short-term credit, they often charge high fees and interest rates hindering asset accumulation. A growing body of research suggests that the distribution of AFS providers is not random but instead reflects underlying socioeconomic and racial patterns. This study investigates whether the spatial distribution of AFS providers today aligns with the discriminatory neighborhood grading established by the Homeowners’ Loan Corporation (HOLC) in the 1930s. HOLC’s color-coded maps rated neighborhoods from “A” (best) to “D” (hazardous), with “D” areas often inhabited by racial minorities systematically denied credit, a practice later termed as “redlining.” We use a Geographic Regression Discontinuity Design to compare the density of AFS outlets across boundaries between differently graded HOLC neighborhoods. In this study, we combine digitized HOLC maps for 200 cities with location data for AFS outlets and socioeconomic data from the American Community Survey, we find that AFS outlets are disproportionately clustered in the most disadvantaged neighborhoods and suggests persistent spatial disparities rooted in historical redlining.