Rev Ind Organ (2009) 34:173–191
Why Do Payday Lenders Enter Local Markets?
Evidence from Oregon
H. Evren Damar
Published online: 6 November 2008
© Springer Science+Business Media, LLC. 2008
Abstract This study analyzes payday lenders’ entry strategies in the state of
Oregon in order to look for changes in the nature of the industry and its relation-
ship to traditional ﬁnancial institutions. The results of ﬁxed-effects logit regressions
suggest that payday lenders have started to enter areas already being served by banks.
Furthermore, the presence of “incumbent advantage” in entry decisions may also have
implications concerning the level of competition in the industry. Finally, since payday
lenders also enter areas with large Hispanic populations, it is still possible that payday
loans represent the sole source of credit for certain segments of the population.
Keywords Payday lending · Consumer ﬁnance · Entry
Since the early 1990s, alternative ﬁnancial service (AFS) providers have become an
integral part of the ﬁnancial sector in the United States. Among the most proﬁtable and
perhaps the most controversial AFS providers are payday (or deferred deposit) lenders.
The rapid growth of the payday lending industry—from being nonexistent in 1990 to
22,000 outlets in 2004—is likely to reﬂect both an increasing household demand for
short-term liquidity and improvements in information technologies (Stegman 2007).
The fact that annualized interest rates on these loans can exceed 400% has raised con-
cerns of payday lenders’ preying on ﬁnancially unsophisticated, low income house-
holds. Despite such attention, few studies have looked at the structure of the payday
H. E. Damar (
Department of Business Administration and Economics, State University of New York College at
Brockport, 350 New Campus Drive, Brockport, NY 14420-2914, USA