Breaking Up Payday: Anti-Agglomeration Zoning & Consumer Welfare

In the last decade, dozens of local governments have enacted zoning ordinances designed to limit the concentration of payday lenders and other alternative financial services providers (AFSPs), such as check-cashing businesses and auto title loan shops, in their communities. The main impetus for these ordinances is to shield economically vulnerable residents from the industry's lending practices in the absence of sufficiently aggressive federal and state consumer protection regulation. This Article casts considerable doubt on whether zoning is the appropriate regulatory tool to achieve the consumer protection and welfare goals animating these ordinances. The author's analysis of the aftermath of payday-lending zoning restrictions in one state demonstrates that while such laws may play a role in reducing the number of payday lenders in the immediate urban area, they do not shield consumers from these lenders altogether. Further, the economic literature on agglomeration economies suggests that there are costs to consumer welfare from limiting or breaking up retail agglomerations. Such "anti-agglomeration" zoning restrictions can prevent consumers from capturing the benefits of the price and product competition that result from retail agglomerations. This Article concludes that if the main impetus behind anti-agglomeration zoning measures is to protect local residents from the high interest rates and loan terms associated with the payday-lending industry, it might be that these measures are working against their intended purpose and actually harming consumers who lack viable financial services alternatives. As such, in weighing the costs and benefits of payday-lender agglomeration, lawmakers should consider more carefully the effects of anti-agglomeration zoning measures on consumer welfare.