The Proliferation Of Pawnshops And Check Cashing Outlets: Can Regulation Be To Blame?

Abstract

Regulation, particularly in banking, is often meant to protect the consumer.  The Community Reinvestment Act, codified in 1977, was intended to protect low-income depositors by encouraging banks to extend loans to such depositors.  Unfortunately, there are some important unintended consequences of the act that actually harm, rather than protect, low-income individuals.  Using panel data from the first quarter of 2000, this paper illustrates that the implementation of the 1977 act may actually explain the growth in pawnshop and check cashing outlets both of which are extremely expensive forms of intermediation for consumers.