Payday lenders and deprivation

The Bureau of Investigative Journalism collected data on the locations of payday lenders around the UK, noting that due to growth of the sector “there is now one short-term loans store for every seven banks or building societies on the high street”. They created a league table of local authorities and their amount of payday lenders per 100,000 population, claiming that “stores are disproportionately located in areas of poverty.”

The examples they gave such as Lewisham and Liverpool do score highly both on the payday lenders table and on the indices of deprivation, however the analysis stops at such case studies so I thought I’d look at average deprivation rankings for the top and bottom 20 English Local Authorities (LAs) on their payday loan table.

To gain a rough idea of distribution, I took the top 20 and bottom 20 English LAs ranked by proportion of payday loan shops to population (compiled by the bureau of investigative journalism) and recorded the deprivation rank of each, with the most deprived LA having a rank of 1 (Hackney) and the least deprived (Hart) having a rank of 326. This (often requested) data can be found at open data communities. 

I then calculated their average ranking on the 1-326 scale to determine their average position in terms of more or less deprived. The top 20 LAs in england on the bureau’s ‘payday loan per 100,000 population’ league had an average ranking of 70. The bottom 20 LAs had an average ranking of 221. Therefore on average the 20 LAs with the highest proportion of payday lenders were in the top 25% most deprived local authorities and the 20 LAs with the lowest proportion of lenders were among the 40% least deprived authorities.

There were outliers in both cases – for example Watford was ninth in the payday/population league for England, with a rate of 5.5 per 100,000 population, yet its position in the deprivation rankings of local authorities was 189th, well within the least deprived half of the distribution. Tendring, with only 1 payday lender, was close to the bottom of the list yet had a deprivation ranking of 81, putting it within the most deprived 30% of authorities.

This (admittedly very rough) analysis further supports the idea of a link between area deprivation and payday lenders. It’s a finding that’s unlikely to surprise anyone given that deprived areas provide a natural market for short term loans available to anyone regardless of credit rating.