if those at a particular location _indeed_ have higher risk, then what's wrong with having a higher interest? Are you saying that a business must lend at a lower interest rate, for some sort of social justice and equality?

If those people at said particular location _actually_ does not have higher risk, but is only higher due to their location association (e.g., their job is secure, etc), then an enterprising lender could find that out, and thus get the business from those people at a lower interest rate. This would be a form of arbitrage - they will steal marketshare from another lender who is unwilling to lend at the lower rate.