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Comment by menacingly | Hacker News Reader

So, this guy received a loan check in the mail with an outrageous interest rate, and cashed it when his truck broke down.

Is the preference here that the guy didn't have the option of fixing his truck?

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>Is the preference here that the guy didn't have the option of fixing his truck?

It would be nice if people weren't running so close to the edge that an emergency can ruin them. I don't know the particulars of this guy's story, there must be many people who are in this situation since this is such a profitable industry. Maybe that speaks to a larger issue of inequality in our society. I'm not sure that relying on predatory loans to be a safety net are the only or best option for society.

That's the thing though, people do run close to the edge. These loans arose from opportunity, and the opportunity arose from societal conditions and psychological compulsion. Just like people who procrastinate on their papers, there are people who put off paying bills, having a savings account, and doing timely repairs. These seem like different orders of magnitude in comparison, yet the kind of thinking behind it is not that different. Add having less money into the mix, and the life consequences of these decisions really take off.

As for societal conditions, almost everyone needs loans for something at some point, but taking out a small-time loan at a high interest rate is almost always a terrible option. Usually when there is a terrible option on the table with other less-terrible options, people don't choose the terrible one unless they really have to (or have absolutely no clue what they are doing). A rich person buying a BMW isn't going to take out a 300% loan on the car because they have other options and it's a literal waste of money for them. However, a poor person who's 1998 Toyota Camry broke down and needs to get the most bare-minimum used car to keep their only job has to suck it up and pay the 300% loan because they have no other options. By the time it's all said and done, the poor person paid a lot more relative to the cost of the item they bought even though the total amount may be less.

Those are great points, they're just further up the chain than where we are when we're trying to execute our day to day. It was an option on the table he didn't have to take. He's a grown man, and he made a call. It may have even been the right one.

I come from a "payday-loan poor" family, and spent a good chunk of my adult life there myself. It's hard, but people with comfy salaries paternalistically taking options away because they know better really agitates me.

That's a fair point. The next question is "What do better options look like, and how do we get there?"

High interest-rate loans are one thing. Forcing payment for the company's lawyer is another. Broad-spectrum mailing of loan offers with (what looks like) no assessment of ability to pay is quite another still.[1]

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[1] Or even worse, selecting for people who they know can't pay immediately, so they can rack up the margins/fees. That would be one of the typical definitions of "predatory."

It's worth remembering that people who can't pay immediately are almost by definition those most in need of credit. If you protect them by taking away their access to credit, the likely consequence is either them seeking out illegal credit or failing to gain credit at all.

There aren't obvious better options, once you strip the business down to its core of high-risk credit. It's a business that no matter how efficient is going to come with high interest rates.

The obviously predatory marketing practices need to be stopped. But the core of the business here is never going to be a nice one. :/

>It may have even been the right one.

Absolutely, I just think it's a shame that there aren't alternatives available. Normally I'd assume that interest rates are that high because that's what is required to remain profitable while lending to the market, but I can't help wonder if consolidation and wall street ownership means there's a large profit margin and some gouging happening.

Well, then we're on the same page.

I don't want him to need the loan, but I respect him enough to trust him with the option. I'd prefer a competitive marketplace for his loans to shaming the concept of an alternative financial system, and I absolutely would not put it past capital to collude to keep the interest rates high.

I don't know that, though, since these are risky loans. Case in point, this very dude didn't pay it back.

The interest rate is high also because default rate is high, there is no financial background/credit history check most cases, and this is what makes them profitable pretty much.

I think the biggest obstacle is people simply not having personal finance education. This is something that very clearly should be taught in high schools, and yet, whenever it's brought up, seems to face some pretty hard resistance.

One of the important lessons I've learned in life is that there are people running so close to the edge in every walk of life. There's no shortage of people with sizable incomes who can barely balance their books. Which is to say that inequality isn't the cause of this particular problem, even if it does fit so very nicely into that narrative.

As others point out, payday loans and similar service a need. Payday loans in particular are the low-class version of it. The businesses go by different names higher up the class ladder.

This is an interesting point as I known a guy that made over $300k working at a bank. They lived in one of the nicest suburbs of Chicago, and were living paycheck to paycheck. They had a chef at home, wife didn't work and so on.

He ended up loosing his job and could not make any of the payments. They lost their house, cars, and got divorced shortly after.

However, they are still in a different situation than the people that get sucked into those terrible high interest loans. He could literally get a new job as his educated and be back to making over $100k. A person that does not have any skills or education will have a much harder time trying to bounce back. As everything is more expensive when you are making minimum wage.

61% of Americans can’t cover a $1000 emergency [1]. 40% can’t cover a $400 one [2].

1: https://www.cnbc.com/2018/01/18/few-americans-have-enough-sa...

2: https://www.cnbc.com/amp/2018/05/22/fed-survey-40-percent-of...

This is probably akin to taking advantage of financially uneducated person, in an emergency situation, no less.

There are laws (or should be) protecting the layman. Examples: title companies check if a seller is mentally competent and understand what they are doing (encountered one case where the seller was selling his/her house significantly under market to a flipper, without an agent). Similar to that, and similar to how mortgages require thorough financial background checks and whole process of payments is rather dumbed down, it should probably be similar for this case.

There aren't only two options here. There's also the society I prefer where the guy is able to get a loan at a reasonable rate and he's properly informed of the risks/costs associated with that loan.

One problem is that a “reasonable” rate is determined by the potential to get repaid. If they demonstrate credit worthiness, they would not need these loans.

Right, but the rate of interest also has a huge impact on the ability of the loan to be repaid.

It would have to be government subsidized. Which is fine with me.

Some 40% of America is in a situation where they don't have $400 for an emergency. And $400 is a small emergency.

More prosperity has to flow to people in the bottom tiers of our economy. America is regressing to a third world nation, first in small, limited areas, but spreading to more and more of the population.

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