Why did poor households take on so much new debt in the years leading up to the financial crisis?

To examine whether big rich-poor gaps turn poor people into big borrowers, researchers looked at local levels of income inequality and debt-accumulation. They found that poor households didn’t borrow more in high-inequality areas. Instead, poor households borrowed more in poorer areas (i.e.: areas with less overall inequality). In short, it’s the opposite of what the keeping-up-with-the-Joneses effect would predict. Poor households borrowed more when they had poor neighbors, not rich neighbors.

How come?

One possible answer is that banks operating in richer counties were more likely to reject loans to poorer families. “Lower-income mortgage applicants in high-inequality regions are rejected more frequently and pay higher mortgage rates than similar applicants in low-inequality regions,” they write.

Another plausible answer is that predatory lenders were preying on poor families in poor areas.