Racial Segregation and Alternative Financial Services in the US

Capitalist markets often provide products for disadvantaged groups, but at greater cost and less favorable terms than for advantaged populations. This is especially the case in the context of credit where low-income and racially marginalized groups often lack access to mainstream credit but find access to alternative credit instruments such as high-cost payday loans readily available. However, studying this alternative financial services market has been limited by important data gaps. In this study, we build on prior foundational work connecting racial segregation to exploitation in credit markets by leveraging novel credit report data on millions of US consumers linked to data from an alternative financial services data provider. Our data enable us to (1) analyze spatial dynamics that often cannot be assessed in national surveys, (2) evaluate the role of online markets which have grown to dominate the alternative financial services space, and (3) consider the moderating role of state policy. And as a result, we shed new light on how physical isolation shapes inclusion into high-cost credit markets deepening our understanding of the mechanisms driving inequality in an increasingly financialized American economy.