Report: Payday Loan Borrowers and Other Fringe Bank Customers Suffer Poorer Health


A mounting body of research suggests that fringe bank services — including payday lending, check cashing, pawn brokerage, and car title lenders — are not just detrimental to borrowers’ wallets; these services come with detriments to borrowers’ health.

Published in Health Affairs, the latest study to call attention to the health consequences of debt and predatory lending, determined that individuals who use fringe banking services are 38 percent more likely to suffer from poorer health than individuals who instead use traditional banking and lending services.

The study found that fringe borrowers were more likely to report “poor/fair” health in a survey, rather than reporting “good/very good/excellent” health. Additionally, people who did not own bank accounts were also more likely to report poorer health, with a 17 percent higher prevalence.

The study surveyed over 14,000 respondents, of whom four percent reported using fringe bank services. Approximately the same proportion did not own bank accounts. Researchers considered demographic data as well as self-reported health data to conclude that fringe bank customers suffer from poorer health than their peers. While self-reports of health are by nature subjective, researchers have found that self-reports do indeed predict higher morbidity and mortality rates, suggesting their validity for use in such studies.

Personal Debt and Poor Health

Previous studies have uncovered evidence that suggests that personal debt is, in and of itself, harmful to a person’s health. One review found that people with private debt suffered a rate of mental illness three times higher than that of people with no similar financial obligations and were four times more likely to experience depression, anxiety, and panic disorders.

In fact, personal debt is a stronger predictor of mental health conditions than expected markers of socioeconomic status like the level of education or employment status; the association is so high that some experts believe that being in debt should be considered a socioeconomic marker when discussing health risks and trends.

Addressing the Cycle of Debt to Address Health

The industry has undergone explosive growth over the last few decades, with evidence suggesting a nearly four-fold increase in credit extended to borrowers across all categories of fringe bank services. Because these services charge predatory rates and disseminate information designed to mislead, the American public would benefit from tighter regulations upon the industry.

The authors of the study suggested expanding social welfare programs as well as a way to address financial security at its root. A tried and true method to curb the use of fringe bank services is to expand access to affordable health care.

A study published last year determined that expansions in Medicaid under the Affordable Care Act led to significant reductions in the use of predatory two-week payday loans whose interest rates are over 300 percent higher than conventional loans, a factor that fuels a vicious cycle of debt for low- and middle-class borrowers.

These findings suggest that the high cost of healthcare leads some individuals to seek financial relief through fringe banks who market themselves as one-time emergency loans.

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