Does Payday Lending Hurt Food Security in Low‐Income Households?

• Published date: 01 December 2019
• Author: Yunhee Chang
• Date: 01 December 2019
• DOI: http://doi.org/10.1111/joca.12281

WINTER 2019 VOLUME 53, NUMBER 4 2027

YUNHEE CHANG

Does Payday Lending Hurt Food Security in Low-Income

Households?

During the study period of 2005–2011, household food insecurity rates

as well as regulations over payday lending industry increased in the

United States. This study evaluates the association between access to

payday lending and the risk of foodinsecurity using cross-sectional sam-

ples of low-income households from the 2005 to 2011 FoodSecurity Sup-

plements of the Current Population Survey.The study uses county-level

payday lender density, state-level legislative status, and county border

indicators of cross-state payday access to examine how payday lender

availability affects household food insecurity.The ndings suggest that

access to payday lending, which may be presumed to provide conve-

nient short-term credit to underserved consumers, increases the likeli-

hood of household food insecurity by 2.8–6.0 percentage points in abso-

lute terms. Furthermore, the county border effect of payday access has

become insignicant later in the sample period, the potential reasons

for which are discussed.

Despite continued provision of federal food assistance programs and other

antipoverty safety net programs, food insecurity, a condition in which one

cannot afford to maintain consistent access to food needed for healthful

living, remains to affect more than 12% of US households (Bartfeld

et al. 2015; Coleman-Jensen et al. 2018).1Furthermore, food insecurity is

regarded as a public health concern that costs society in both the short and

long terms due to its association with the risk of obesity, chronic diseases,

and adverse developmental outcomes in children (Gundersen and Kreider

2009). Identifying its contributing factors would help policymakers to

effectively assess policy alternatives.

Literature suggests that better nancial knowledge and healthy nan-

cial practices can help avoid food insecurity (Gundersen and Garasky

2012; Guo 2011; Millimet, McDonough, and Fomby 2015; Mills

et al. 2000). The use of high-cost short-term loans such as payday

1. The Supplemental Nutrition Assistance Program (SNAP)caseload almost doubled between 2000

and 2011, and a third of the increase was explained by policy changes (Bartfeld et al. 2015).

Yunhee Change (chang@olemiss.edu) is an Associate Professor of Nutrition and Hospitality

Management at the University of Mississippi.

The Journal of Consumer Affairs, Winter 2019: 2027–2057

DOI: 10.1111/joca.12281

Copyright 2019 by The American Council on Consumer Interests

2028 THE JOURNAL OF CONSUMER AFFAIRS

lending may be a poor nancial practice (Fellowes and Mabanta 2008;

Stegman 2007). However, literature examining whether borrowing

from payday lenders leads to food insecurity is sparse, and the role of

predatory lenders with respect to household food security is even less

understood.

The understanding of the relationship between payday lending and

food insecurity has possibly been limited by the difculty in nding reli-

able instruments for the supply-side determinants of household nancial

choices that are not directly associated with food insecurity or any other

hardship risk factors. Those instruments will not only help to identify the

causal relationship between household nancial behavior and food secu-

rity but also uncover the role of nancial industry on food insecurity. The

literature, however, is sparse on the topic, and the small number of nd-

ings that exist contradict one another due to the different data and methods

employed (Fitzpatrick and Coleman-Jensen 2014; Melzer 2011; Millimet,

McDonough, and Fomby 2015; Zaki 2014).

This study seeks to obtain an unbiased estimate of the causal effect of

access to payday lending on household food insecurity by incorporating

three different empirical constructs of availability of payday lenders,

instead of individual households’ use of payday loans. Availability or

accessibility of payday lending is dened based on the combination

of the supply of payday lending services with geographic as well as

legislative factors. This study considers the number of payday lenders

in each county, state-level payday bans, and the distance from each

county to the nearest state border. The household sample was taken

from the multi-wave Food Security Supplement (FSS) to the Current

Population Survey (CPS). The data include measures of food inse-

curity and very low food security, demographic and socioeconomic

characteristics, county and state of residence, and the year of survey.

Contextual data about local food and economic environment at the county

level were added.

This study nds evidence that access to payday lending increases food

insecurity. By a conservative measure, the availability of payday lending

increases an average low-income household’s likelihood of being food

insecure by at least 2.2 percentage points. The study also indicates that

the harmful effect of payday access may be smaller for short-term food

insecurity than it is for food insecurity measured with a yearlong reference

period. The data suggest that payday lending exacerbates low-income

households’ resource constraints in the long run even though it may offer

temporary relief to some. These ndings are consistent with evidence of the

harmful effect of payday lending on consumption hardship (Melzer 2011)