Payday lenders and check cashers have never been more popular with consumers. There are more payday lenders in the U.S. than there are McDonald’s locations and Starbucks combined. Yet their business practice of charging extremely high fees and interest rates is widely condemned.

Do alternative financial service providers merit their reputation as rip-off artists? Why do their customers choose to remain “unbanked?”

To better understand how these businesses operate and why people choose to patronize them, Lisa Servon took a break from teaching at the University of Pennsylvania to work as a teller in the South Bronx and Oakland. She discovered that traditional banks are neglecting the poor and bilking the middle class, leaving payday lenders and check cashers to fill a crucial need.

Reason’s Todd Krainin spoke with Servon about The Unbanking of America: How the New Middle Class Survives, a first-hand account of what may be America’s most widely misunderstood industry.

Read J.D. Tuccille’s review of the book from our March 2017 issue.

Produced, edited, and hosted by Todd Krainin. Cameras by Meredith Bragg and Josh Swain.

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This is a rush transcript—check all quotes against the audio for accuracy.

Todd Krainin: The first thing that really struck me in the book is that there are more payday lenders and check cashers in the United States than McDonald’s and Starbucks combined. Is that true?

Lisa Servon: Yes.

Todd Krainin: That sounds crazy.

Lisa Servon: It’s actually just payday lenders, right?

Todd Krainin: Right.

Lisa Servon: Not even counting the check cashers, and that’s an important difference because, in 13 states, payday lending is illegal.

Todd Krainin: That speaks to some incredible need for this, what you call, alternative banking services.

Lisa Servon: Exactly. Exactly. Particularly in the case of payday lenders for short term credit; small amounts of money for a small amount of time.

Todd Krainin: What gave you the idea to take a break from your Ivy League job and work, of all places, in the South Bronx?

Lisa Servon: I was interested in why so many people were using alternative financial services … Payday lenders, check cashers, pawnshops … when the story about them that you hear in the press, and even from consumer advocates and from policymakers, is that they’re predatory, they’re taking advantage of poor people, and yet, in the early ’90s, you started to see an upward trajectory of use. These businesses are growing an incredible amount. Payday lending grew from a $10 billion business to a $30 billion business in about 10 years in the early 2000s.

The implicit message in all of that writing was that low income people who were presumed to be the primary users … I found out that wasn’t exactly true either … were somehow making bad decisions, that they weren’t informed enough. If only they had the information that wealthier upper middle class people had then they would choose differently. That’s the whole implicit message, even in the FDIC’s categorization of people who’s banked, unbanked, under-banked.

By looking at the numbers, I couldn’t really figure it out. I knew from working in poor communities for 20 years that low income people know where their money goes, probably more than people who have more of a buffer. I realize that if I wanted to really understand it, I had to get as close to the problem as possible. When you’re a researcher, you have to match the method to the question. The only method I could really figure out was to get really close.

I knew that even just talking to people and interviewing them would not give me the full story. It turned out to be right. Really, by working behind the window for months and looking at the way that people manage their money, I learned a ton.

Todd Krainin: These check cashers are often targets of journalists and academics as people who do or organizations that do, pray on poor, minority clients. Did you go into it with that expectation? Because that’s the dominant narrative that’s out there.

Lisa Servon: It’s certainly what I thought before I began to look into it more deeply. A pivotal moment for me was having this man, Joe Coleman, who runs a chain of check cashers in the South Bronx and Harlem, come to a class I was teaching. At the moment that he walked in the door, my students and I all thought exactly what you said: these are bad guys; now one of them is coming to our class. We get to really ask him the tough questions.

Joe came in and he made a very compelling argument for why he felt like his businesses were serving people in those communities the way they needed to be served, and that banks were not doing that and banks didn’t really want their business. That made me think maybe there’s more to the story. I tried to go in with a really open mind once I went to both of those businesses and worked at them.