CSUN University News Clippings

Concentration of Payday Lending Associated With Neighborhood Crime Rates, Study by CSUN’s Steven Graves Finds

(November 4, 2009)

Recommends Congress Cap Payday Lender Interest Rates at 36 Percent 

WASHINGTON, Nov. 3 /PRNewswire-USNewswire/ -- As Congress debates financial
regulatory reform and the Obama Administration advocates for greater consumer
financial protection, a new study finds a need for Congressional action on
fringe banking practices used heavily by financially vulnerable families. The
study released today details the toll on communities with a high concentration
of payday lending business and finds a clear association between the presence
of payday lenders and neighborhood crime rates. The study recommends that
Congress take action to cap payday lender interest rates at 36 percent,
enacting for the entire country protections Congress put in place for U.S.
military families.  The new study, entitled "Does Fringe Banking Exacerbate
Neighborhood Crime Rates? Social Disorganization and the Ecology of Payday
Lending," was conducted by The George Washington University professors Charis
E. Kubrin and Gregory D. Squires, along with Dr. Steven M. Graves of
California State University, Northridge.  

 "As a criminologist, I can attest to the fact that there is woefully limited
research on the impact of the behavior of financial institutions on
neighborhood crime.  As our research demonstrates, these connections can no
longer be ignored by criminologists and law enforcement officials across the
country," said Charis Kubrin. 

The study examined payday lending, a practice that has become part of the
growing web of fringe banking largely concentrated in low-income and
disproportionately minority communities. It allows lenders to provide cash
advances on post-dated checks and has increasingly become a way for
financially-strapped families and individuals to obtain money in the
short-run. Nearly all of these loans come with exorbitantly high interest
rates and fees, and these monetary costs to families who become trapped by
them has been well documented. However, this study finds there are broader
community costs that all residents incur in those neighborhoods where payday
lenders are concentrated. These broader community costs include higher rates
of violent crime.  The study found that the association between payday lending
and violent crime remains statistically significant even after a range of
factors traditionally associated with crime are controlled for statistically. 

"This study shows that not only do individuals suffer from predatory lending
practices, but entire communities can pay a price for a high concentration of
payday lenders. Congress took an important step by limiting payday loan
interest rates in military base communities but it shouldn't stop there.
Congress should do for all communities what it did for military families,"
said Gregory Squires. 

The researchers provided several policy recommendations to reign in predatory
practices and provide incentives for banks and other financial institutions to
provide alternatives that would preserve access to small consumer loans. An
immediate step Congress could take is to cap interest rates at 36 percent.
Currently, several states provide this protection to consumers, and Congress
enacted this protection for loans to members of the military and their
families. 

"These findings will surprise very few who both understand how this industry
operates, and have witnessed its explosive growth in the very neighborhoods
that have struggled to reduce crime," said Graves.    

The working paper can be read here:
http://www.gwu.edu/~newsctr/09/pdfs/Payday_Lending_and_Crime_Working_Paper.pdf

Charis E. Kubrin, GW associate professor of Sociology, is currently working on
a variety of projects that reflect her larger research agenda on
neighborhoods, race, and violence as central to social disorganization theory.
In 2005, Professor Kubrin received the Ruth Shonle Cavan Young Scholar Award
from the American Society of Criminology and the Morris Rosenberg Award for
Recent Achievement from the District of Columbia Sociological Society. In
2007, she was a visiting fellow at the Centre for Criminology at Oxford
University. Professor Kubrin served as president of the District of Columbia
Sociological Society during the 2007- 2008 term. Currently, she is heading up
the Dean's Scholars in Globalization Program at GW. She received her Ph.D. in
sociology from the University of Washington in 2000.

Gregory D. Squires is a professor of Sociology and Public Policy and Public
Administration at George Washington University. In addition, he is a member of
the Board of Directors of the Woodstock Institute, the Advisory Board of the
John Marshall Law School Fair Housing Legal Support Center in Chicago and the
Social Science Advisory Board of the Poverty & Race Research Action Council in
Washington, D.C. He has served as a consultant and expert witness for fair
housing groups and civil rights organizations around the country, including
the U.S. Department of Housing and Urban Development, the National Fair
Housing Alliance, the National Community Reinvestment Coalition and others. He
also served a three-year term as a member of the Consumer Advisory Council of
the Federal Reserve Board. He has written for several academic journals and
general interest publications including Social Problems, Social Science
Quarterly, Urban Affairs Review, Journal of Urban Affairs, The Nation, The
American Prospect, New York Times, and Washington Post. Prior to joining the
faculty at George Washington he taught at the University of
Wisconsin-Milwaukee and served as a research analyst for the U.S. Commission
on Civil Rights.

Steven M. Graves is an associate professor of Geography at California State
University, Northridge. He has been researching the patterns and effects of
differential access to credit for over a decade, publishing several articles
on the spatial behavior of payday lenders. His co-authored article exposing
the extraordinary concentration of payday lenders near military bases,
published in the Ohio State Law Review was named the CSUN pre-eminent
scholarly publication in 2008. He received his Ph.D. in geography from the
University of Illinois in 1999.  

SOURCE  George Washington University

Emily Cain, The George Washington University, +1-202-994-3087, eecain@gwu.edu;
or Carmen Ramos Chandler, California State University, Northridge,
+1-818-677-2130, carmen.chandler@csun.edu

Story ran in dozens of media around the world

Publication: Reuters