Oct 15 2014

The Impact of Two-Tiered Banking: How Credit Unions Can Bridge The Divide


For many consumers, payday lending is a dangerous cycle of indebtedness.  Yet, payday-lending services are in high demand. As a result, policymakers and the public watch the steady rise of payday lending with concern. This study traces the emergence and expansion of payday lending outlets in Winnipeg and rural Manitoba between 1980 and 2009 in order to look for shifts over time in the site location strategies of payday lenders relative to mainstream banks.

Location analysis examines the hypothesis that mainstream financial institutions have played a role in the rise of payday lending in poor neighborhoods where traditional branches are absent or underrepresented. The research uncovers data that is intriguing for anybody who cares about the complicated relationship between payday lenders and credit unions.

The report concludes with a summary that highlights a growth opportunity for credit unions willing to make the investment in new markets overlooked by traditional banks. 

  • Results suggest that the payday lending industry is not exclusively located in lower-income neighborhoods
  • Even when credit unions have a branch in a particular area, products and transactional services matter most to consumers who use payday lenders
  • Credit unions may not be in a position to supplant the payday loan industry, but they may be able to ward off the worst effects in underbanked neighborhoods
Report Number 342