Do Fringe Banks Create Fringe Neighborhoods?: Examining the Spatial Relationship between Fringe Banking and Neighborhood Crime Rates

Abstract

In the aftermath of one of the worst recessions in U.S. history, high unemployment has placed millions of Americans in precarious financial positions. More than ever Americans are opting out of traditional financial services, relying instead on “fringe lenders” such as check cashers, payday lenders, and pawnshops to manage their finances. Given their tremendous growth and the concern that consumers who are least able to pay for high-cost, high-risk financial products are most likely to use them, fringe lenders have been the subject of controversy and the focus of much research. Largely unknown, however, are the effects of fringe lenders on the communities where they are located. Given their spatial concentration in low-income neighborhoods with greater concentrations of racial and ethnic minorities — areas with typically more crime — of concern is whether fringe lenders themselves are criminogenic. We consider this by examining the impact of several types of fringe lenders on neighborhood crime rates in Los Angeles. Our findings reveal that the presence of fringe banks on a block is related to higher crime levels, even after controlling for a range of factors known to be associated with crime rates. The presence of a fringe bank also impacts crime, particularly robbery, on adjacent blocks. Whereas we find that pawnshops have little impact on crime levels, payday lenders and check cashers have a much stronger impact. Finally, we discover there are moderating effects, as the fringe lender-crime relationship is considerably reduced if the lender is located in a higher population density area.

Keywords: crime, neighborhood effects, fringe lenders, payday lenders, pawnshops, check cashers, social disorganization, spatial analysis