Abstract
Payday loans are a high-cost form of credit, yet they remain a popular financial tool used by a significant proportion of Americans. Use of these loans varies significantly across social groups. Black households in particular are more than twice as likely to use payday lending as white households. Explanations for households’ decision to use payday loans remain disputed. Some scholars argue that poor financial literacy is a major driver of payday borrowing. Others propose instead that payday loans are a form of credit of last resort used after depleting higher quality sources of credit. In this article, I argue these explanations are incomplete and miss the racialized nature of payday lending. Payday lending is a form of predatory inclusion: it provides households experiencing exclusion from consumer credit markets with a needed source of credit but under conditions that jeopardize long-term benefits of access. Given historical and contemporary patterns of financial exclusion, this process entails disproportionate reliance on payday lending by black households. Models using data from the Survey of Consumer Finances provide support for both the predatory inclusion and the credit exhaustion explanations. Predatory inclusion, however, explains the largest portion of racial disparities in payday loan use.
Original language | English (US) |
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Pages (from-to) | 370-392 |
Number of pages | 23 |
Journal | Sociological Forum |
Volume | 35 |
Issue number | 2 |
DOIs | |
State | Published - Jun 1 2020 |
Keywords
- consumer credit
- finance
- financial exclusion
- payday loans
- predatory lending
- racial inequality
ASJC Scopus subject areas
- Sociology and Political Science