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Comment by chasedehan | Hacker News Reader

While at first I saw this announcement and applauded (it seems like something Stripe would be great at administering), the structure of these loans is almost exactly the same as a payday loan, even if the APR is dramatically less.

What is crazy, is how eerily similar Patrick's response is with the Payday Industry's response about why Payday Loans are good for consumers.

>the downside risk of credit obligations they can't meet ... substantially outweighs the theoretical "risk" of a higher effective APR.

"The $15 cost of a $100 payday loan also pales in comparison with the lost income when a car is out of commission and a job lost. Good payday lenders clearly disclose their loan terms and conditions, including the dollar amount of any fees and the APR."[1] Payday loans are clearly bad for the consumer, even as much as the industry tries to defend it.

[1]https://www.americanbanker.com/opinion/why-payday-loans-are-...

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This is so wrong. A payday loan is due on your next payday, no matter what. This loan flexes the term based on ability to pay.

The better analogy would be a fixed-cost loan with variable installments based on your income- a much, much friendlier loan structure for consumers.

What makes payday loans unaffordable is their structure, more than their cost. In California, a typical payday loan goes like this:

1- You write me a $300 check and date it for two weeks from now (when you get paid)

2- I give you $250 in cash

3- Two weeks later, I cash the check

If you had to borrow $250, what are the chances that you have $300 left over on your next paycheck? Zero. So really, it's:

3^- You come back to the store and say "don't cash that check, I'll get hit with a $25 overdraft fee."

4- I say "ok, give me $50 and I'll move your due date back 2 weeks."

5- You say "phew, thank goodness!"

6- Two weeks later, goto 3*

So the one-time payment is what makes it horrible. Even if they charged 0% APR and all you had due was $250, you'd still be hosed. An installment loan, though, where you pay $50 every two weeks for N months is clearly better, as proven by step 4 here.

> the structure of these loans is almost exactly the same as a payday loan, even if the APR is dramatically less.

I don’t think this is the case. Payday loans compound interest, don’t they? You end up owing more money the longer you take to pay them off. With this, you only ever have to pay back the advance and fixed fee no matter how long it takes.

One would assume that there is a difference between what is a "predatory" offering to irrational individuals, and what is a "predatory" offering to mostly-rational corporations. For the same reason that individuals gambling is considered not-so-sensible, but corporations holding liquidity in the form of investments isn't so much; or the same reason that individuals purchasing on a lease are usually being screwed, while corporations leasing e.g. equipment aren't. Unlike people, businesses don't tend to take these deals if they're sub-optimal for them. If they're taking them, they are usually the best solution, even after all the NPV calculations.

No, payday loans are a different and much more exploitative beast. This seems closer to a shared earnings agreement - Stripe puts in day 10k in exchange for 8% of your daily earnings, with a cap of 12k. If you do well cash out within a week, that’s that. Or your hypothesis was wrong and it takes three years to pay that back, that’s also fine. Your downside is capped at receiving 92% of your income until then, nothing more. No shakedowns, no legal threats, no jail time, no repossession, nothing.

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