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Comment by maratd | Hacker News Reader

> Which consumers is the CPB protecting?

Those very same consumers. Large, established players do not want to even touch that customer base because it represents a high risk and a low payoff.

These are the only financial services these people have access to. Cutting that off is not a solution.

Encouraging competition and increasing the number of players will reduce the "obscene fees". People aren't stupid, they'll always pursue the lowest cost option.

A good article/video to listen about this topic:

https://reason.com/reasontv/2017/04/13/lisa-servon-banking-c...

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From that article:

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?

How much more competition do you think there can be? And if "These are the only financial services these people have access to" and "fees are high because because it represents a high risk and a low payoff", why do you think the fees will be lower without regulation?

> How much more competition do you think there can be?

Quite a bit more, apparently. See the other comments here. There are startups trying to tackle the problem.

Regulation is not the answer. Competition is.

If you feel you can provide better service at a lower cost, the field is wide open.

Regulation levels the playing field.

It'd be easy to undercut the airlines by starting a company that eschews safety regulations.

It'd be easy to undercut the banks by starting a company that eschews financial regulations.

It'd be easy to undercut a doctor by offering services by unlicensed medical staff that don't follow medical guidelines.

There are lots of businesses that would be more affordable to the poor if they didn't have any regulation at all.

Reasonable regulation is not a bad thing, it ensures that consumers are getting what they paid for and that they aren't being exploited. Like, giving the customer a $500 loan at 300% interest that they may never be able to pay back so they end up in an endless cycle of debt.

> Like, giving the customer a $500 loan at 300% interest that they may never be able to pay back so they end up in an endless cycle of debt.

If that's the percentage being charged and that's the best a person can do, that means that person has a very high chance of defaulting on the loan.

Which would explain why nobody else wants to lend to that person. With your regulations, that financial institution would not exist. You can't regulate people into losing money. They'll just shut down.

You've now deprived the person of a legal financial option of borrowing money. You think they won't borrow anyway? They will. From a loan shark. They'll go into the black market.

They'll end up paying more for that loan since the shark now needs to cover the legal risk involved and if they don't pay it back, they may end up with broken legs.

How is that better?

The same could be said about allowing poor people to seek treatment from unlicensed medical practitioners "If we don't give them our substandard medical care, they'll get it from underground providers that will be even worse".

Or let them be served by an unregulated transportation providers "Well yeah, our buses aren't safe, some of our drivers have suspended licenses, but if they don't ride with us, they'll ride with someone worse".

Just because there are worse alternatives is no reason for the government to sanction exploitative businesses.

> The same could be said about allowing poor people to seek treatment from unlicensed medical practitioners

No, it can't. Because they can always walk into a hospital and receive treatment, even if they have no capacity to pay. A hospital may not refuse treatment.

> Or let them be served by an unregulated transportation providers

Like Uber?

Interestingly enough, if an unregulated method of transportation becomes popular enough, it gets regulated, not regulated out of existence.

There are a few startups, like Earnin, Even, and SoLo Funds trying to tackle this problem in different ways. Lending options for those markets are vitally important, for sure, but we can find a better way of doing it without abusing the ones who need it most.

I'd be curious to know -- if you issued loans via prepaid credit cards that explicitly could not be used for gambling/drug dealer payments - what happens to the default rate of your (remaining) customers ... - can you filter out enough high-risk scammers to serve a legitimate market segment (with more fairness) with this kind of tactic?

I’m not sure what you mean. I recently interviewed with Earnin and SoLo Funds, and they have their own risk and reputation algorithms based on many factors. All loans are no interest - borrowers pay a gratuity of their choosing. They are running at a much lower margin than traditional loans, and especially cash advance/payday loans, from what I understand.

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