Cashing in on Distress: The Expansion of Fringe Financial Institutions During the Great Recession

Abstract

The Great Recession was a consequence of widening inequality and the growth of a tiered financial services system, in which the rich and the poor have access to vastly different tools for wealth accumulation. The spatial organization of these dynamics created neighborhoods vulnerable to predation on behalf of subprime lenders and other fringe service providers. This project seeks to understand the reproduction of institutional marginalization in consumer finance. Results show that racially isolated neighborhoods in New York City, where subprime lending and foreclosures were common, were uniquely vulnerable during the Great Recession and were communities where check cashing outlets (CCOs) sprouted, highlighting a mechanism for the reproduction of inequality over time. CCOs cost more per transaction than a checking account—potentially totaling tens of thousands of dollars over a career. The link between widening financial services inequality and the recession’s consequences provides a strong impetus for safety net and community investment policies.