Does Fringe Banking Exacerbate Neighborhood Crime Rates? Social Disorganization and the Ecology of Payday Lending

Payday lenders have become the banker of choice for many residents of poor and working class neighborhoods in recent years. The substantial costs that customers of these fringe bankers incur have long been documented. Yet there is reason to believe there are broader community costs that all residents pay in those neighborhoods where payday lenders are concentrated. One such cost may be an increase in crime. In a case study of Seattle, Washington, a city that has seen a typical increase in the number of payday lenders, we find that a concentration of payday lending leads to higher violent crime rates, controlling on a range of factors traditionally associated with neighborhood crime. Social disorganization theory provides a theoretical framework that accounts for this relationship. The findings suggest important policy recommendations and directions for future research that could ameliorate these costs.

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