Establishing a Link Among Subprime Lending, Payday Lending, and Housing Costs

Abstract

This study identified counties with high shares of payday businesses and high shares of subprime loans. Payday lending establishments, banks, and credit unions were inventoried in every county in Utah. The objective was to empirically analyze a potential link between high shares of payday lending and subprime lending, and between high shares of payday lending and housing cost burden. A statistically significant association was estimated by calculating Spearman ‘s rho on the ranking of the variables. The study found a moderately strong correlation between payday lending and subprime lending, and between payday lending and housing cost burden. The regression model showed that 30% of variability in subprime lending was accounted for by payday store-per-household and housing cost burden. Specifically, payday store-per-household alone accounted for 20% of the variation in subprime lending. Recommendations for payday lending and subprime lending were provided.