Do Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study

The annualized interest rate charged on payday loans can reach 1,950 percent, whereas similar rates charged by banks are typically less than 25 percent. Also, persons borrowing from payday lenders and paying the higher interest rates are disproportionately lower-income Blacks. This provides an incen...

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Autores principales:	James R. Barth, Richard J. Cebula, Jiayi Xu
Formato:	article
Lenguaje:	EN
Publicado:	Pompea College of Business 2021
Materias:	black banks payday lenders substitution financial institutions Business HF5001-6182
Acceso en línea:	https://doaj.org/article/36cc5d75cb87475c847d869ca1713576
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spelling	oai:doaj.org-article:36cc5d75cb87475c847d869ca17135762021-11-16T19:01:44ZDo Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study10.37625/abr.24.2.1-110743-23482689-8810https://doaj.org/article/36cc5d75cb87475c847d869ca17135762021-11-01T00:00:00Zhttps://digitalcommons.newhaven.edu/americanbusinessreview/vol24/iss2/1/https://doaj.org/toc/0743-2348https://doaj.org/toc/2689-8810The annualized interest rate charged on payday loans can reach 1,950 percent, whereas similar rates charged by banks are typically less than 25 percent. Also, persons borrowing from payday lenders and paying the higher interest rates are disproportionately lower-income Blacks. This provides an incentive for Blacks seeking loans to turn to banks rather than payday lenders. This may be more likely to happen when there are Black-owned banks in communities with greater percentages of Blacks. Indeed, offices of such banks may substitute for payday loan stores, providing a greater opportunity for Blacks to avoid the higher interest rates associated with payday lenders. We hypothesize that to the extent Black-owned banks substitute for payday there is a greater opportunity for lower-income Blacks to substitute/switch firms and thereby seek lower-cost loans. We do find that there are significantly fewer payday loan stores in counties where there are more Black bank offices.James R. BarthRichard J. CebulaJiayi XuPompea College of Businessarticleblack bankspayday lenderssubstitutionfinancial institutionsBusinessHF5001-6182ENAmerican Business Review, Vol 24, Iss 2, Pp 1-11 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	black banks payday lenders substitution financial institutions Business HF5001-6182
spellingShingle	black banks payday lenders substitution financial institutions Business HF5001-6182 James R. Barth Richard J. Cebula Jiayi Xu Do Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study
description	The annualized interest rate charged on payday loans can reach 1,950 percent, whereas similar rates charged by banks are typically less than 25 percent. Also, persons borrowing from payday lenders and paying the higher interest rates are disproportionately lower-income Blacks. This provides an incentive for Blacks seeking loans to turn to banks rather than payday lenders. This may be more likely to happen when there are Black-owned banks in communities with greater percentages of Blacks. Indeed, offices of such banks may substitute for payday loan stores, providing a greater opportunity for Blacks to avoid the higher interest rates associated with payday lenders. We hypothesize that to the extent Black-owned banks substitute for payday there is a greater opportunity for lower-income Blacks to substitute/switch firms and thereby seek lower-cost loans. We do find that there are significantly fewer payday loan stores in counties where there are more Black bank offices.
format	article
author	James R. Barth Richard J. Cebula Jiayi Xu
author_facet	James R. Barth Richard J. Cebula Jiayi Xu
author_sort	James R. Barth
title	Do Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study
title_short	Do Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study
title_full	Do Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study
title_fullStr	Do Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study
title_full_unstemmed	Do Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study
title_sort	do black-owned banks substitute for payday lenders? an exploratory study
publisher	Pompea College of Business
publishDate	2021
url	https://doaj.org/article/36cc5d75cb87475c847d869ca1713576
work_keys_str_mv	AT jamesrbarth doblackownedbankssubstituteforpaydaylendersanexploratorystudy AT richardjcebula doblackownedbankssubstituteforpaydaylendersanexploratorystudy AT jiayixu doblackownedbankssubstituteforpaydaylendersanexploratorystudy
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Do Black-Owned Banks Substitute for Payday Lenders? An Exploratory Study

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