Ann Arbor Times

The University of Michigan has released a study indicating that the placement of financial institutions in the Detroit area is influenced by changes in neighborhood racial composition. The research examines how banks, credit unions, and alternative financial services make locational decisions based on these demographic shifts, even when considering factors like income and poverty.

Terri Friedline, a professor of social work at U-M and the study's first author, stated: “These insights challenge common misconceptions about the demand for high-cost financial services and underscore the broader impact of financial institutions on community dynamics.” The study analyzes developments from 2000 to 2016 across six counties in Metro Detroit.

The findings suggest that as neighborhoods experience demographic changes, particularly with an increasing Black population, there is a tendency for traditional financial services to decline while alternative financial services rise. This shift can lead to higher costs for financial management in these communities. In contrast, white communities tend to benefit from more stable traditional financial services and lower management costs.

According to Friedline and her colleagues, banks and credit unions often withdraw from areas with growing Black populations. Meanwhile, alternative financial services target these areas by following subtle changes in racial demographics. The study also highlights that payday lenders and similar services open new locations following shifts in neighborhood racial makeup.

“Some may argue that payday lenders open storefronts in ways that respond to market demand, but this argument is rooted in a disingenuous interpretation of demand,” said Friedline. The researchers note that their analysis did not consider the impact of digital technologies such as online or mobile banking on residents.

Published in Critical Sociology, the study was co-authored by Jones Adu-Mensah and Xanthippe Wedel.