For some low-income workers, short-term fringe loans — coming from payday lenders and check cashing services — are a fact of life. But that doesn’t mean they feel good about taking out those loans.
In a newly published study, University of Washington researchers report that people who use fringe loan services, or don’t have access to a bank account, are more likely to say they feel less healthy.
The study, published in the March issue of Health Affairs, makes use of data from 15,000 respondents that was collected for the U.S. Census Bureau’s annual Current Population Survey.
“Public health research is limited on this topic,” study lead author Jerzy Eisenberg-Guyot, a UW Ph.D. student in epidemiology, said today in a news release. “With this study, we now have the evidence that supports a public health approach to this problem, and one that addresses why people are using fringe loan services in the first place.”
Fringe banking services provide loans to low-income customers who commonly use the money to cover rent payments, food purchases or medical bills. The practice mushroomed in the 1990s as states loosened regulations on interest rates, and now supports a multibillion-dollar industry.
Credit is easy, but expensive: Payments can amount to as much as the equivalent of a 600 percent annual interest rate.
Policymakers and social scientists have long debated whether the benefits of short-term fringe loans outweigh the harm done by spiraling debts. One study, conducted in 2014 by researchers from Seattle University and the U.S. Department of Agriculture, suggested that access to payday loans could ease the borrowers’ sense of food insecurity.
Eisenberg-Guyot and his colleagues took a different tack, focusing on the results from Census Bureau surveys conducted between 2011 and 2016.
They looked for correlations between one set of surveys in which respondents were asked about their use of fringe lending services, and another set in which the respondents assessed their own health.
Lots of variables could affect how well a person feels — and, for that matter, how likely a person is to seek out a fringe loan. The researchers used a statistical technique known as propensity-score matching to zero in on any linkage between the loans and the health self-assessment.
The result was that those who used fringe loan services were 38 percent more likely to self-report poor or fair health than those who did not use them. Those who didn’t have access to a bank account were 17 percent more likely to report poor or fair health than those who did have an account.
The researchers acknowledge that they couldn’t assess the actual health of the respondents. They could only go by what people reported about themselves. But other studies have shown that the self-assessment is strongly associated statistically with morbidity and mortality.
The study also falls short of proving that taking out a fringe loan is a root cause of poor health. Because such loans are often taken out to cover medical bills, a causative relationship could well go the other way. In any case, the researchers say stronger welfare programs, more labor protections and less onerous financial alternatives could make a difference in public health.
The study’s authors listed several potential policy changes, ranging from raising the minimum wage to instituting universal health care to resurrecting the postal banking system in the United States.
“This type of work has many policy implications,” said senior author Anjum Hajat, an assistant professor of epidemiology at UW. “There are several ways we, as a nation, could re-engineer the social safety net and adjust social policy to assist people who find themselves using these services. I am especially hopeful that changes at the state and local levels will help low-income populations.”
In addition to Eisenberg-Guyot and Hajat, the authors of the Health Affairs study, “From Payday Loans to Pawnshops: Fringe Banking, the Unbanked and Health,” include Caislin Firth and Marieka Klawitter. Hajat’s work on the project was supported by strategic hire funds provided by the University of Washington School of Public Health and the Bill and Melinda Gates Foundation.