Regulators Shut Down Lending Platform (YC Alum) LendUp
consumerfinance.gov
consumerfinance.gov
It is a trap sprung at the very start of your adult life when you’re most vulnerable, as a student loan.
It’s sprung when you’ve lost your job, are vulnerable and are about to become homeless.
It’s sprung when you’re already in debt and vulnerable, by other lenders.
Anyone see a pattern here? Debt preys on the vulnerable, turns them into something that delivers returns for decades to the holders, and wraps all that up into tidy looking financial products.
The business of debt is the financial equivalent of the US pork industry: Everyone treats it as part of American life, but the details would make most people throw up.
Anyone remember microfinance? That was the same play: usury with a fresh coat of paint.
I’m seeing posts here making it sound like 36% APR is acceptable. Look up usury folks. This is it. Debt that is intentionally structured so that it can never be repaid and keeps the borrower harnessed to the cart.
It’s incredible how folks, particularly in the US, have become this morally uncalibrated.
There is a lot of open disdain for it outside of the SFBA startup bubble.
This site is incredibly censored. Their mod system is very gamed with people who know how to build up credit and downvote en masse.
Whether or not the founders support this behavior, it exists. There is a nasty, nasty f-in power culture that censors people along a political power axis these days. You cannot understand YC/HN without understanding this puritanical (left-wing) culture that has burrowed its way into VC backed companies.
Ignore me, dismiss me, whatever. But the censorious culture of the Bay Area is the very opposite of the (pretty neat and good) hippy dippy free culture of the 60s. It's the reason people are leaving, because their free-wheeling ideas are encouraged elsewhere.
You clearly don't know what "left-wing" means if you think that a bunch of upper middle class highly compensated engineers are that... Actual "left-wing" comments on HN are generally downvoted quite intensely.
EDIT: I just want to add how ... odd... it is to slap a "left wing" accusation about YC-backed companies as we sit here on a thread talking about a YC-backed company that was basically a loan-shark pay-day lender. WTF? That's left-wing? Ok then.
note: I'm also an immigrant, now citizen. I get the right to complain cause I pay taxes.
No debt here and my credit score is great. You don’t have to be in debt to have a good credit score.
But you don’t need to go into debt to have a credit history. Anyone with a credit card who pays it off monthly is building a strong credit history despite never paying any interest.
It’s standard practice to use credit cards for this reason. Credit cards also have a lot of buyer protections that debit cards and checks generally don’t.
If I owe someone $100 then I have a debt of $100, even if I've also got $100,000 in my bank account.
(Then you can siphon back a fraction of the card interchange fees already baked into the price of goods sold via rewards/cash back. Just another regressive aspect of our financial system.)
Or look at it this way, are you in debt to your electric company, cell phone provider, or water utility? You use those services but don't pay for them until a month or more later. Technically you are, but I doubt you'd feel the need to prepay for those services just to make sure you have no debt.
In this context of this thread, someone made the claim that credit scores are "an enforcement system to ensure you're constantly in debt." That's an overly-cynical look at it. I see them as a simple risk indicator.
A lot of people have this mistaken beleif that paying more interest on loans will "buy" a higher score. It's just not true.
https://www.bloomberg.com/opinion/articles/2021-12-16/the-se...
Credit building
This one is not a new SEC proposal, this one is just fun.
If you are a young person with no credit history, or a person with bad credit history, you will want to “build your credit.” This consists basically of creating a long record of reliably repaying your debts, so that credit reporting bureaus think you are a good credit, so that banks will happily lend you money, so that you can buy stuff on credit cards and get leases and mortgages and car loans. If you have no or bad credit this is hard, though, since no one will advance you any credit, so you won’t have any debts to pay, so you won’t build credit.
There are canonical approaches. Banks will give you credit cards with low credit limits so you can start small and build from there. Or they will give you secured credit cards: You put $1,000 in a bank account, you get a linked credit card with a $1,000 limit, the credit advanced to you is secured by the money in your account, the bank takes no credit risk but reports repayments to the credit bureaus, etc.
What if there was a simpler way? Yesterday reader Sark Asadourian sent me a link to a Credit Building product from Canadian fintech Koho, and I haven’t stopped laughing about it since. Here is the “How it works” section of the website:
1 Start by subscribing to Credit Building for $7/month in-app
2 Sit back. We'll report your progress to a major credit bureau and help you grow your credit score in just 6 months — without having to lift a finger
3 Ensure there’s $7 in your Spendable account each month to cover the subscription fee. That’s it!
They will demonstrate to a credit bureau that you pay your bills, by sending you a $7 bill each month, which you will pay. What is the bill for? For demonstrating that you pay your bills. They’ll charge you $7 a month for charging you $7 a month. What you get for the $7 is a record that you paid $7. Which could conceivably be worth $7 to you! Possibly this is good for the customers! I cannot stop laughing. This is maybe the best financial product I have ever seen.[13] “For the low cost of $7 a month, you can pay us $7 a month.” Everything else is so dull and overelaborated. Imagine being the person who came up with this. Imagine the bright wild gleam in your eye, coming in to work that day to tell your colleagues.
Also though imagine messing this up. You’re a young person, money is tight, you sign up for Credit Building, you pay them $7 a month for a few months but then life gets complicated, your account balance gets below $7 and you miss a payment. Do they report that to a credit bureau? Does it hurt your credit? Oh you’d better believe it:
Just as making your payments on time will positively impact your credit score, the inverse is true. Not making your payments on time will hurt your credit score.
To keep it simple: We advise you to let KOHO do all the work after you register. Just ensure there is $7 in your Spendable balance for the subscription fee each month and you won’t miss a payment!
Seems harsh!
[13] Exercise for the reader: What do you think are the margins on this product? My guess is “surprisingly low, depending on how you count.”
Mortgages are different because your house isn't going anywhere. The bank can come get it if you stop paying.
See, over here, banks treat it as a good thing that you never had debt on your name. Throw in a stable and reasonably high income and you can get loans basically on a whim. Because why wouldn't you, being as low risk as a person as you can be.
EDIT: Now that I remember. We have very fucked up quirk in the way credit scores are calculated in Germany. Asking for a credit has an impact on it already, because it is assumed that you need money which makes you a risky person because you obviously don't have enough of it. With the very "funny" side effect that shopping around for a mortgage can have a negative impact on the interest rate you can get, up to the point that it can be difficult to get one at all. The trick is to go through a broker that is not sharing his clients, your, name with lenders.
Technically that's true but it leaves out the very major caveat that your credit score is not usable without accompanying credit history. What is credit history? Debt. It seems like you think it's OK for the system to force people to go into debt every month as long as they pay it off. What happens when one month they can't? They are then blamed for moral failing when probably they would have preferred to never use debt for regular payment in the first place.
There's nothing wrong with a credit card company giving out free 30 day loans with reasonable interest if they are not repaid on time.
The US has relatively generous bankruptcy laws. Many people go through bankruptcy and rebuild their credit over several years.
It’s not true that you’re a “slave for the rest of your life”. Student loans (which are much lower interest rate and nothing like these loans) can’t be discharged in bankruptcy but even those are open to modification or discharge in the event of hardship.
> I’m seeing posts here making it sound like 36% APR is acceptable.
These are exactly the type of loans dischargeable in bankruptcy. The people requesting these loans had almost certainly been denied lower interest rate loans because they were likely to go bankrupt.
The alternative isn’t that these people get lower interest rates. The alternative is that they don’t get approved for any loans at all. Frankly I think that’s the best option for most of them, but that’s not really my choice to make. It’s theirs.
> It’s incredible how folks, particularly in the US, have become this morally uncalibrated.
The US gives people a lot of freedom to make their own choices. Still, we do have a lot of protections, but even those are delegated to individual states. In fact, many states do have laws that limit interest rates to as low as 4-5% (bank installment loans). That doesn't mean people in those states are all entitled to cheap loans, but it does mean that anyone with poor credit can't willingly enter into high-APR loans even if they need a short float until their next payday.
[1] https://upsolve.org/learn/how-often-can-you-file-bankruptcy/ (Control-F “Time Limits”)
Are you happy to say this with a straight face?
Honestly, what would you prefer? That people are forced to repay loans they can't afford? Or that nobody is allowed to take out a loan unless they have enough capital in the bank to repay the loan anyway (e.g. loans are only for rich people)?
Does it though? I thought the same thing until I started paying tuition for my kids private elementary schools. It’s almost as much as college and no loans around to distort prices.
Moreover, the owner of the school drives a Toyota. I think my point is that the cost of providing an education is greater than many people think. It's not like colleges are turning a profit off of tuition.
As a result, private school remains kind of a luxury product for people who don't like the free public offering and can afford to pay to send their kids somewhere else.
I can only imagine that if we extended some version of our school loan program to primary/secondary education we would have a lot of highly indebted parents or, god forbid, children, and an explosion of private schools.
Ultimately, it would also drive prices up. The high end would need to be more exclusive (expensive) and everyone else would compete on perceived quality more than price.
Just pay off the money and then you're out, right?
In my personal opinion a free financial course should be required before you first get your SSN and then no higher than a $500 credit limit for 6 months after.
People declaring bankruptcy aren't in a position to have good credit scores or acquire more assets anyway. If you can't service your debts, you're not going to be securing more loans and buying more assets.
Bankruptcy is a chance to reset the debt to $0 and start over. The bankruptcy even drops off your credit score entirely after several years, making it a complete reset.
Bankruptcy is better in every way than forcing people to service those debts forever.
That's... kinda ridiculous. My twitter feed[1] is absolutely filled with flush 20-somethings who clearly aren't seven years into their careers showing off their NFTs and cars and condos and whatnot.
People right out of college with zero assets are getting loans. People right out of bankruptcy can't. So it's not the same.
[1] Seeded, it seems, from my following of a few Tesla-related accounts. There's... a somewhat distressing level of overlap.
Student loan debt should be able to be discharged in bankruptcy. If an institution gives someone a $200k education and that person can’t pay the debt back with their career, it was overpriced and should have never been give a loan.
I’ve seen people flee the country and live in Australia or Germany so as just to escape their student loans. Bad on them for making the poor financial choice but good for them sticking it to the industry that gives out these loans.
State schools and schools with high admission percentages might get cheaper in tuition, but it’s still going to be expensive to live and eat for 4 years with no income coming in for most of the year.
Why would a student not want to work part time to have a little income? I found it beneficial.
1 in 20 applicants is only the top 5%. Being in the top 5% income earners in the country is not a high enough bar to shell out $50k a year extra post tax to pay a child’s tuition.
Harvard draws from all over the world and many US upper-middle class parents/grandparents are willing to save for 20 years or use HELOCs; they don’t have to pay out of current income. Upper class can just pay for it (there are well over 1M households in the US alone with a net worth over $10M; those people would barely notice putting little Chris through Harvard).
If student loans were entirely outlawed, Harvard wouldn’t need to lower its prices; it would just end up not having poor people attending.
For example, how do you prevent people from finishing college, immediately declaring bankruptcy, and then getting a high-paying job with their degree? Unlike a house or car, the education can't be repossessed so the holder retains all of the upside.
It would be the ultimate financial hack to get a medical degree, declare bankruptcy, and then immediately start practicing once the bankruptcy went through.
So obviously there would need to be a lot of protections against abuse. Perhaps a provision that the student loan could only be discharged after a protracted period (many years) of too-low income.
Ironically, there's a huge resistance to this idea from within humanities departments. They fear (rightly so) that such provisions would make it harder to get loans for humanities degrees because they pay significantly less. I don't think that's really a bad thing, but you'll find some outspoken arguments against this from people in the academic world.
If you're suggesting that some things are only possible to fund through slavery, may I humbly submit that slavery is still wrong, and things which cannot be funded except through slavery have no right to existence?
It is entirely possible to have fair deals where you get an education in exchange for X percent of the income you have over Y minimum, for Z years.
Specifically, you're selling future labor in exchange for an asset that you can't immediately liquidate to pay off the debt. This is not acceptable, if the counterparty makes a profit from it. (If you could immediately liquidate it, at that point there would be no need to make recourse to your earning power)
And I personally wouldn't call a 10 year 0-10% cut of income "indentured servitude" so that's not a very useful way to figure things out.
> Specifically, you're selling future labor in exchange for an asset that you can't immediately liquidate to pay off the debt. This is not acceptable, if the counterparty makes a profit from it. (If you could immediately liquidate it, at that point there would be no need to make recourse to your earning power)
Doesn't the same thing happen if I use a loan to buy almost any product? As soon as it becomes mine, it becomes used, and liquidating it wouldn't be enough to pay off the loan. I don't think all those loans are immoral.
Is there a difference? Or do you think both are unacceptable?
And look, I'm fine with saying you could discharge this college revenue-repayment loan in bankruptcy if you were actually in need of doing so, but I'm trying to describe the kind of repayment terms where that would basically never be needed. If your income isn't above the threshold then you owe $0 and the loan goes away by itself after a few years.
Loans by themselves are acceptable; loans with interest are not, because you're making a profit from what could potentially be slavery.
A licit way to do it would be to have a purchase-repurchase agreement. I pay $5000 to "buy" a car, and I'm guaranteed to be able to sell it back for let's say $4000 a week later. That way, if I default on it, I can never end up in debt.
Loans backed by people's ability to earn income are a form of slavery, and earning interest off this is not licit.
If you want it to be easy to get the loan payments reduced or even cancelled when you're having money problems, then you need to make a profit off the people that do have plenty of money. And isn't that even better than returning what you got?
> Loans backed by people's ability to earn income are a form of slavery, and earning interest off this is not licit.
To my mind, the whole point of the minimum threshold for the type of loan I'm describing is so it can't be slavery. If you don't have lots of money, the debt just disappears. If you're wealthy... then you're wealthy, not a debt slave.
Teenagers applying for college usually don't have personal credit histories to be evaluated. Either we give out lots of student loans, or we don't.
While I appreciate the sentiment, SSN is required for anyone to be claimed as a dependent. My Children had theirs issued shortly after birth. I rather see something alonog a required class before you can open your first credit card. I got mine in college and had a $25k credit limit by the time I graduated. It was very easy for classmates of mine to get into serious debt.
And when you have a lawsuit filed against you in a comparative negligence[0] jurisdiction, even if you have no debt at all, bankruptcy may be your only choice -- when the lawyer's fees will bankrupt you even if you win the lawsuit (let alone having to pay even a small percentage of a seven or eight-figure judgement).
What financial advice (free or otherwise) can you give to someone in that situation? I was in that situation and faced either bankruptcy after trial (even if I won) or bankruptcy before trial and still lose access to favorable credit terms.
Bankruptcy guaranteed. With no bad financial decisions or lack of financial education needed.
If your scenario (ignorant people making bad financial decision) were the only issue, I might agree with you. But there are a whole bunch of other scenarios that don't include bad decisions.
All you need is someone to sue you for some large amount of money (even if there's no merit to the suit, the lawyer's fees for going to trial will do the job) or incur large medical bills for injuries/illnesses that have nothing to do with poor choices.
[0] https://www.law.cornell.edu/wex/comparative_negligence
Edit: Added the missing link.
Chapter 13 bankruptcy is deleted from your credit report seven years from the filing date.
Chapter 7 bankruptcy is deleted 10 years from the filing date.
This means no one can even tell you were bankrupt after 7-10 years, which is pretty incredible feature for borrowers.
Except the banks who loaned you money! There aren't that many banks, and credit reports aren't their only source of intelligence.
I'm always amazed at the number of people who recommend bankruptcy as, like, an investment or risk management tactic. It's a huge mess, and seven years is a long time.
I don't think they have that info. It's not like you go take a walk down to your local bank and talk to a loan officer that grew up with you. It's a faceless nameless corporation that does very standard checks. They often don't even hold the debt. Trust me, they want to give you a loan and don't have their shit together enough to get unofficial credit history that they're not legally allowed to use.
I can confirm this.
I'm 30+ years out from getting a couple thousand written off by Amex and 20+ years out from bankruptcy (a single "debtor" who was the plaintiff in a lawsuit against me, and during which no loans or credit cards were defaulted on) and American Express still won't do business with me, even after being their employee (and having to pay back every penny that was written off before they'd issue me a corporate card) for several years.
I'd also note that American Express does not report payment histories on their charge products to the credit bureaus. But they do have a very long memory.
Edit: I'd note that I still had a 700+ credit score within the 10 year window after bankruptcy, and my score is in the mid 800s.
Being bankrupt is great if you are poor.
Chapter 13 bankruptcy is deleted from your credit report seven years from the discharge date, which comes 3 to 5 years after you file (because there's a 3 to 5 year payment plan). So if you measure from the filing date, Chapter 13 takes 7 + 3-to-5 years to come off your credit report, which is 10 to 12 years from the filing date.
Similarly, Chapter 7 bankruptcy is deleted 10 years from the discharge date. In a typical Chapter 7 bankruptcy, the debtor receives a discharge 4 months after filing. So your statement is actually quite close, but to be pedantic, it's 10.33 years from the filing date.
In my experience, most Chapter 7 filers can fully recover after about 2 years, provided they are able to make their payments on-time after the bankruptcy.
Bankruptcy stays with you forever.
I mean, I don't know that it is perfect, but I think the bankruptcy laws in the US are pretty decent at least.
More and more you can't even opt out of consumer credit. I have attempted to opt out of it by not holding any credit, except I apparently need good credit to live somewhere, or a credit card to rent a car or do some kinds of money transfers.
Telling people they can file bankruptcy, "reset to 0", and have another chance to redeem themselves is bullshit. The only place it disappears from is your credit report, and implying that covers it is a brazen lie. It really doesn't. Fuck credit scores. What about the ability to get a job, or not live on the street? Having a bankruptcy from 30 years ago can negatively impact your ability to do either of those things.
The credit industry is so deluded that they think your credit report is all that matters, and that's how they want you to think. In reality, it's all that matters to them and they can't wait to get you back in the game.
Their goal is to make money.
If you go them and say "I want to make a very unfavorable to myself deal, that will make you lots of money" then they'll say "Yes."
Caveat emptor by default, with specific exclusions for some worse cases, generally governs financial contracts in the US.
In other words, you have the right to agree to whatever you want to agree to. If you choose to use that power to blow your foot off... well, that can happen.
Really it is about whether the government's job is to forcibly not govern, or to get involved.
Because "very worst" (or even just "bad") deals is a loaded term. Why? For whom? When?
As discussed in this topic, a high-interest rate loan is a bad deal, unless it's the best option you have. Would no loan be better than that loan? Maybe. Should we take away someone's ability to make that decision? I'm not convinced.
At some point, the cost of freedom is freedom to fail. So it's always a balancing act between not making that failure hurt too much or too easy to inadvertently stumble into... and giving people autonomy.
You'd think engineers would understand that you can't optimize for everything at once.
For loans over a certain size (definitely anything mortgage size) there is no limit on the length of the credit report given to them. They may not care when it's been so long, but they can see it all.
Go here: https://www.law.cornell.edu/uscode/text/15/1681c
Search on that page for "Exempted Cases"
All of the language about how long negative information can be shown on a credit report is exempted when the loan principle is $150K or greater.
This is absolutely not true. The record of your bankruptcy lives in the public records of the bankruptcy court forever.
Private student loans currently can be as high as 12.99% fixed: https://www.bankrate.com/loans/student-loans/current-interes...
I was making about $35K per year but was careful to have excellent credit. It can be done.
Renegotiating isn't the same as refinancing. You can see the refinance rates lower down on the page you linked above. The rates are significantly lower.
Refinancing student loan debt is an extremely common scenario. It's not an impossible edge case. It would be difficult to do if the person had worked themselves into a situation where they have unreasonably high debt burdens (e.g. $200K+) but no career to speak of, so it's not a magic bullet.
There is a way: income-driven repayment plans. There are several flavors, but you pay ~10% of (your_income - 1.5 x federal_poverty_wage). The poverty guideline depends on household size (info here: https://aspe.hhs.gov/topics/poverty-economic-mobility/povert...). Most loans are eligible.
Any balance that is left after 20 years is forgiven. It’s a lot harder to default on these loans, and it’s the best way out for people with an insurmountable amount of debt. Actually, it’s probably the best repayment plan for most people, and there has been talk about making them the default plan.
However, you may have to pay taxes in the forgiven amount. There are some edge cases where you could pay more over the life of the loan if your income increases dramatically, but it’s unlikely.
More info: https://studentaid.gov/manage-loans/repayment/plans/income-d...
The estimated 2021 cost of attendance at the public school i graduated from are low enough that you should still be able to graduate with less then "6 figures debt" scenario that's tossed around, especially if you're working a part-time job throughout your education. If in-state schools are too expensive for federal govt to fund, then that's the state's problem to solve since that seems like a broken public college system.
Kids should have a right to education, but if someone doesn't have the money or is getting a degree without prospect of sustainable financial return then they should be prevented from making the bad decision of going to a more expensive private university.
Yo, student loan rates are like 7%. It's not a payday loan, but it is still essentially unfinanceable.
Source: https://www.bankrate.com/loans/student-loans/current-interes...
Of course it's always possible to go find higher rates depending on the situation, but the averages are closer to 3-4% than 7%.
Yo, only parent and graduate loans are close to that, of federal loans (private loans are another issue, and also probably involve an unaccredited institution that doesn't qualify for federal loans):
https://studentaid.gov/understand-aid/types/loans/interest-r...
And since raising rates is the way they're going to stop inflation, like it or not, that 4% is going to end real soon and kids will be back to 5-7% in the next few years.
Subsidized loans were at 6.80% for the first two years they used fixed interest (the academic years 2006-2007 and 2007-2008); this is the highest they have ever been under the fixed interest regime; there are three additional years they were at 5% or higher.
Under the variable interest regime before that, they spent some time at 7% or above in the 1990s, but those would have fallen with general interest rates.
Student loans are not so easily discharged. Yes, in theory they can be written off in cases of "undue hardship." But in practice, good luck finding an attorney willing to take your case.
They had gone to a UK debt management company that seeks to compound your debt by asking your creditors to accept an Individual Voluntary Agreement where you agree to pay back a certain amount per month for a fixed period and then get it written off. In practice it affects your credit rating like bankruptcy. They were advised by that company to do exactly what the person above said, max their credit cards first. Cash advance if possible.
Not the first time I have heard this
Federal Plus loans were 8.5% until that program was shut down in 2010. [0][1]
Graduate Direct Subsidized and Subsidized Federal loan rates were 7.9% from 2006-2013 and have not dropped below 6.3% since. [1]
[0] https://en.wikipedia.org/wiki/Federal_Family_Education_Loan_... [1] https://www.finder.com/federal-student-loan-interest-rates-b...
Federal PLUS loans were never shut down, are still available [0]; what was shut down was non-Direct federal loans, including the non-Direct PLUS loans, which had a higher interest rate than Direct PLUS loans. [1]
[0] https://studentaid.gov/understand-aid/types/loans/plus
[1] scroll down to “Interest Rates on Federal PLUS loans” which shows historical direct and non-Direct (FFEL) rates: https://www.savingforcollege.com/article/historical-federal-...
In the Netherlands, students loans are guven by the state. The interest rate is legally set to a mix of government bond interest (10 and 5 years). They included a clause that the interest never goes negative.
Any evidence to support that?
The only thing that thwarts this is sky high inflation, which is not foreseeable… this is because they have the biggest inflation enhancement on full bore (these literal monthly rent payments or better in student loan deference) and it’s only caused 7% cpi or whatever… that’s anemic
Not for student loans.
https://bostonstudentloanlawyer.com/the-death-and-bankruptcy...
Like federal student loans, private student loans typically cannot be discharged in bankruptcy (although it is not impossible).
...
Many (although not all) private student loans have this tiny little clause, often hidden away in the obscure depths of the promissory note (the loan contract that you signed, but probably didn’t read, when you first got the loan). The clause basically says the following (and I’m paraphrasing here): If the co-signer or the borrower dies or declares bankruptcy, the entire balance of the loan will be come due immediately.To continue with the dinosaur park analogy, you could then look at a country like Canada as an alternative zoological park, where you must sacrifice a bit of freedom by staying within designated lanes, but in return you don't run into situations where medical debt beasts can bite your head off in the first place.
So the park's elements are here by design.
2. Your interpretation of its meaning is, frankly, bizarre
[1] https://www.monticello.org/site/research-and-collections/ete...
However the idea that they are one of the kinds of threat that a democracy needs to be vigilant against doesn’t seem bizarre in the least.
You can get thrown in jail for: holding the wrong kind of plant; associating/trading with/helping a persona-non-grata or a person from the “wrong” country; speaking up about military misconduct; sharing a copy of music you bought with friends...
And that’s just what’s imposed by by federal law. “The land of the free” is a mirage and hasn’t been reality for decades, maybe centuries.
Besides, the point wasn't about platonic freedom, but instead about a specific flavor of "freedom" that exists in US culture. In the dinosaur park analogy, the electric fences can be likened to government safety net programs. As you may be familiar with, there is a political faction in the US that dislikes the idea of being "forced" to pay taxes to fund programs to help the less fortunate, and a lot of the issues related to various forms of crushing debt stem from that ideology that a rich person should be "free" to be selfish.
The US' top federal marginal rate of 37% is pretty low.
In countries with more expansivo safety nets, it looks like it's up around 50%.
But that doesn't change the fact that we're talking about the government taking an asset (the 13%) from an individual.
It's hard to bill that as a zero-impact action with regards to freedom.
One might say "I think net freedom is increased by redistributing money from the extraordinarily wealthy to the broader population." But it seems illogical to say "We can create more freedom by taxing the wealthy, because that creates more freedom for everyone not wealthy, and has no impact on the wealthy."
I'm hard pressed to come up with a justified "No" to answer that question.
Let's hear some specifics. Name one specific thing someone at this level of income might do that extra income that meaningfully impacts their life. Your inability or refusal to do so so far seems to support my point here.
Here's my concrete example: if we added +13% to Jeff Bezos's accounts, do you really think that would change his life even a tiny bit? Would it change meaningfully even if we subtracted 13%? I'm just gonna say that's a no either way.
Which one can feel on way or the other about, but it's disingenuous to claim that's nothing. It's not nothing.
So make the full claim you want ("I support laws that tax the rich and decrease their freedom, so that poorer people can have a stronger social safety net and more freedom."), being honest about all sides, instead of the edited version ("I support laws that increase freedom for everyone {because money doesn't have value to rich people}.").
And recognize that if it's moral umbrage you're taking, the same reasoning extends down the income scale. (Making the assumption that you're not making minimum wage, and I'm not) Presumably someone who is making minimum wage would believe many of the things we do with our additional income, but would not do without it, are "not meaningful."
For example, it might mean someone has to work a year longer before accumulating wealth and retiring. The benefit far outweighs the cost, but the cost is still there.
Taxes are inherently a restriction on what one can do with their money. That said, without them we wouldn’t have roads, police, healthcare, social security, etc…which does add freedom to many peoples lives. I think another comment said it best, laws can increase overall freedom in a society, but they do still restrict individuals.
Let's avoid the faux intellectualism of "if [cherrypicked example], is the whole invalid?" Freedom isn't a black-or-white matter, you can simultaneously be prohibited from killing and free to speak your mind while jaywalking on a quiet street. But IMHO, one ought to consider topics like maslow's hierarchy of needs and human rights conventions before bringing things like music piracy into the topic of freedom.
With the same kind reasoning you could argue that the DPRK is the freeest country in the world, for "their flavor of freedom".
Or we could just fix the system so that people don't need to use bankruptcy in the first place.
The only people who benefit from the "there's always bankruptcy" attitude is lawyers.
But also, the ambitious and valuable people are the ones who can pay back their loans.
[1] https://thehill.com/blogs/congress-blog/economy-budget/28362...
Private lenders do try and cherry-pick the very best borrowers out of the federal system; my wife graduated 5 years ago with a doctorate in Pharmacy and >100,000 in debt, and she got many advertisements to refinance her education loans because she was a pharmacist who was paying enough to finish off her loans in 5 years- she was a great bet to pay off her loans in total, so SoFi, Navient and a whole bunch of their competitors wanted her to refinance through them, but only the DoE was interested in paying for her at the beginning of grad school.
Sure, the student loan can only go to a school but neither has any collateral which makes them the most similar loan products. So go get any 18 year old to try to get a $20,000 personal loan without any credit and see what the rates are and if lenders would even give it to them.
There was an immediate patch to this, and then longer term solutions as well. The basic, Econ101 level thought behind this is that if you go into debt to buy a car or a house or anything tangible and the debt proves too much the bank can take those assets back if you declare bankruptcy.[1] But how does that work for a degree or the knowledge in your head? What can they take from that?
Another issue is fairness. If student loans paid attention to how likely they were to be paid back then, as a first approximation, they would only be offered to people with above average income attending elite schools and poor people would be cut out of college more completely than they currently are- and they would pay much more attention to your degree, school etc. Everyone who goes to a Ivy would get loans, many people who go to regional schools wouldn't, because they aren't good bets to pay off the loans (people who graduate, as a first approximation, pay off loans; people who drop out don't, and community colleges and regional schools which focus on non-traditional students who have real lives already have much higher drop-out rates than Harvard- this is different in practice because of Pell Grants but that's a different issue). The reason that they are offered student loans is because the government guarantees them, so they have lower interest rates (yes its higher than a mortgage, but its much lower than a credit card or payday loan, which are the other unsecured loans the average person has access to), ignore your school, major, etc. and are available to every US citizen.
But if the government guarantees the loan, then isn't someone who defaults on this unsecured debt ripping off the American taxpayer? Easy to see how this can be gamed and the student portrayed as the bad guy, because of how the system works. Even those doctors at the beginning deserve a better system, but Americans first instinct wasn't 'let's fix this so that the doctors don't go into such debt' it was "lets make sure those cheaters don't profit off of ripping off the taxpayer." And that instinct is how we ended up here.
[1]: Obviously if you buy a new car the debt will be greater than the value of the car (because the car loses so much value when you drive it off the lot) but they have fancy economic models to account for that, and the house has an appraisal to prove that it can be sold for more than they are loaning out.
That's why student loans shouldn't exist; if the federal government is going to subsidize higher education, it should be by grants, student out-of-pocket cost limits tied to accepting federal research and other funding, and other non-loan mechanisms, not forcing students into debt.
(Private student loans, OTOH, should be dischargeable the same as other unsecured debt, and if lenders don't like it they don't have to issue loans.)
For reference, visit any nation with these rights. You will find more small businesses, fewer franchised chains, and happier people.
That's the whole thesis behind making the loans in the first place.
Same reason they can collect the debt using wage garnishments and property liens, methods that aren't available to most creditors.
This is only explained to some students (it was to me). But no one plans on not having money in the far future, regardless of what warnings they receive
No, it's not; it predates direct loans existing, much less being the only form of federal student loan, and applies to private, non-government-guaranteed student loans, as well.
> Same reason they can collect the debt using wage garnishments and property liens, methods that aren't available to most creditors.
Property liens and garnishment are available to most creditors after securing a judgement against a debtor.
> This is only explained to some students (it was to me).
It’s good that only some students are subject to that complete fabrication, though it would be better if none were.
The government does not need a court judgement against a debtor before garnishing wages, withholding returns, etc. This is why the majority of these actions are for child support and student debt, not for consumer debt.
The rules for student debt repayment started with the premise that a different process was in use for money owed to (or backed by) the federal government
This is a common misconception. Student loans are commonly discharged in bankruptcy. Enough people believe this that they don’t even try. The only additional rule for student loans is “undue hardship” which is not difficult to prove or argue for in bankruptcy.
https://www.npr.org/2020/01/22/797330613/myth-busted-turns-o...
It’s like saying that you don’t need seatbelts in the car, because you have good medical insurance.
USA obsession with credit is the root cause of the issue, and relatively generous bankruptcy laws are a smoke gun to keep the show going and make people comfortable with a system rigged against them.
Credit makes a lot of money for a lot of companies, and risk of customers bankruptcy is just a cost of business for them, designed carefully to ensure they still end up making money.
Because I've always thought that was a very generous law indeed.
I am in the UK
This astounded me. Bankruptcy in the UK would wipe out student loans. However it is fair to say that bankruptcy also carries a stigma in the UK. It also restricts you from certain professions
We absolutely need to destigmatize bankruptcy, too. And also do things like make medical and student debt dischargeable. Debt is and always should be a risk -- for the lender, who is literally getting free money out of the contract.
On one hand debt causes issues for those who lack knowledge, but on the other hand it allows a great degree of near-term accelerated growth and societal load-balancing. The fact that society enables folks to collectively trust others to pay their debts is why we're not still stuck with a barter economy and the inherent inefficiencies of a "trust-less" economic approach.
So much of present growth and fruitfulness is rooted in the future faith that others will make good on their promises (debt). Debt is a great thing in moderation.
The value of a car is also substantially greater (making a cash purchase less practical) and your odds of recovering a substantial portion of the purchase price through resale are much better (indeed with a TV you'll likely pay to get rid of it).
I think this kind of highlights the issues that GP was pointing out though. I have stellar credit so I qualify for amazing rates. Folks who are perpetually in debt and don't have great credit will always have the worst rates. Being poor is expensive.
For reasons other then cash-flow, I wouldn't take a credit for things other then a house or true business investments (as: my company needs a credit as a way of financing).
In some countries, debt follows you forever and even gets passed to your family when you die.
If you're an average American you start getting into debt very early in your life. This is not how young people should be entering adult lives. What you Americans think is normal, really isn't.
It's normal for people here to enter their adult lives with between 20 to 80 k of debt from university
Have you by any chance heard of places like Switzerland or Monaco? Even Germany beats USA in terms of poverty and malnutrition among children.
Have you tried to open an options trading account? There are usually multiple levels of authorization and LOTS of e-paperwork to fill out explaining your age, financial situation, and financial education.
Think Alex Kearns, the 20 year old RobinHood trader who was trading options, and said in his suicide note that he didn't know what he was doing, was fully vetted?
Options are unbelievably complex. 99.9% of traders don't even know what Black Scholes is and can't read financials. They're exotic instruments used as a hedging strategy against black swan events as part of a much larger portfolio, and the hedging strategy is designed to lose continuously for a decade if needed.
It's become a casino that lets kids make cheap short term bets against a stock making big moves, for a price far lower than the underlying asset.
But the trouble with options is this: With stock you're betting on one thing: Stock goes up. That's it. With options you have to predict direction, timing, magnitude, and a wrong bet is guaranteed to lose 100% of your investment immediately on expiry. No riding it out.
We've had a huge bull market. When the market turns, and it always does, and the suicides start, and the stories of ruined families emerge, then the post-mortem will begin and we'll all heal together and, in time, we'll forget about the victims, as we always do. But their lives will remain in ruin. And the predatory cycle will repeat. As it always has.
That said, when do 20 year olds have agency but should still be infantalized? I’m good with shades of gray, but the HNaleriat seems filled with absolutists.
Not to mention that in the current climate, limiting access to these markets would be interpreted as some conspiracy by the elite hedge funds or something. Look at how many call to remove qualifications to be come qualified investors.
Robin Hood grants access to option trading to just about anyone and if the client fails and rides himself into deep sh*t, they just throw up their hands and claim "personal accountability", in the end meaning that the social system in some way has to bail out the person so that Robin Hood doesn't suffer any significant losses.
That doesn't seem fair.
What's important is to mandate detailed and clear information so that consumers understand what the rate exactly means and what the consequences or not repaying quickly are before they sign up. Then it's a personal choice and responsibility.
This is simply being in the business of gouging people who will end up needing to carry loans over and are better off having bad credit but never really have a point of change where they realize they need to declare bankruptcy or take other financial advice.
you probably mean Utahraptor; velociraptors were rather smallish, contrary to what the movies would have you believe.
https://upload.wikimedia.org/wikipedia/commons/f/f9/Dromie_s...
The pedantic point would be "the movie meant Utahraptor" or such, but not that the parent commenter did.
But on the other hand, healthy debt is what grows the economy and it's a necessity. There should be more regulation / laws toward loan grants and far more regulation toward APR.
One thing for sure is that the system cannot favor lenders over borrowers or vice versa because failure on either side results in collapsing the system.
> to end up a slave for the rest of your life to one of the predators
One of the best parts of the US system is that you can always file bankruptcy and live to fight another day
[1] https://theconversation.com/the-debt-jubilee-an-old-testamen...
This is Brazil or Mexico. Or payday loans. It's emphatically not America at large unless you live in SF.
Please leave your bubble.
Payday loans are America at large. And don't forget Credit Cards rates.
You mean those 18 month 0% APR rates for credit balance transfers? The US has huge rates for long term debt, but this is silly.
One can't help but wonder if our society being so deviant from the historical norm is evidence of its long-term unsustainability.
Traditionally, the Catholic Church has made a distinction between loans ultimately backed by an individual's ability to sell their labor for money (mutuum loans), and loans ultimately backed by assets (societas loans).
For societas loans, such as a non-recourse mortgage or a business loan, there is no regulation whatsoever. This is just equivalent to moving property around.
For mutuum loans, these are considered as a form of slavery. If a profit is being made on it, it is illicit. The reason it's slavery is that it allows you to sell your time before you have it. If that money is spent, you are now in a position where you are being forced to work for nothing, i.e. textbook slavery.
There's a good FAQ at https://zippycatholic.wordpress.com/2014/11/10/usury-faq-or-..., but I would like to learn more about this topic. Any good books?
On the other hand, the European culture pushes back quite heavily towards fitting in and against entrepreneurship, so neither of them is perfect.
I've lived in Europe (a few different countries) over 40 years. What your saying is simply not true.
Europe?
For anyone actually interested in "looking up usury", I highly recommend: A History of Central Banking and the Enslavement of Mankind
Note: you can't buy it on Amazon. Surprise surprise.
https://www.barnesandnoble.com/w/a-history-of-central-bankin...
When I got married, I brought in a lot of personal credit card debt, and we ended up using our wedding gift money to pay it off. It was extremely humiliating.
Since then, I have lived quite frugally, and avoided all personal debt; paying off credit cards in total, each month. By the time we were ready to purchase a house, our credit was sky-high, and getting a decent mortgage rate wasn’t difficult. Our house is tiny. We live in a middle-class neighborhood. No Teslas on our block.
I also saved between 25-40% of my income in as many ways as possible, including some fairly decent funds.
I have habitually avoided debt, and lived quite humbly, my entire adult life. I have never wanted for anything, and have always been able to afford top-shelf equipment for my software development work, but I suspect that a lot of folks here, would sneer at my life.
Good thing, too. When I left my job of almost 27 years, and started looking for work, I learned that no one wants to work with “olds.” That too, was humiliating, and infuriating. In fairly short order, I just threw in the towel. I won’t go where I’m not wanted.
My savings allowed me to set up a small corporation to buy equipment and software, while I pursued my “dream job,” of working for free. I am working with a 501(c)(3), giving them software that would make a lot of “big league” corporations green with envy. I have the skills and experience to make others a lot of money, but my grey hair is so terrifying, that no one pays attention to my qualifications. I quickly learned to just avoid the agita. NPOs are grateful for whatever they can get, and I am appreciated.
I couldn’t be happier.
The amount of discipline required to save and defer gratification is enormous, and it is a continuous effort, particularly in this country. You are one of the few. One of the brave. Congratulations!
You need to position yourself as a consultant with a clearly defined area of expertise, your own site, blog, etc. A salaried employee these days is first and foremost a team monkey hired to please the boss, and only then a skilled professional. When you need someone with actual expertise, you hire them transactionally to solve the problem and keep them on a separate frequency from the usual chicken coup business.
I always knew those chickens would revolt one day! (think you meant chicken coop...)
I'm starting to see the pattern too. You hire for "team spirit", i.e., people that are happy to sacrifice their weekends and evenings for the mission of your company.
Old dogs, as I'm starting to become, will rather tell you that you need to work harder on your strategy, work harder on your product, avoid feature creep and sales outflanking. They might also tell you that you need management more than engineering. But enough of inconvenient truth, back to hiring juniors.
Just to make sure I don't offered anyone. A successful org needs both: fresh minds and experience.
you're proposing the same monkey dance that signal "skilled, but will ccept to be treated as a cog" which hr loves but is ultimately demeaning and dehumanizing - while the valuable jobs market moves on completely different gears
we're specialized knowledge worker, which just happen to have had our profession born after feudal ages, otherwise we'd be in the lawyer/architect/doctor brackets. we're slowly raising up there but just because of the labor market growth is getting stripped by the labor demand growth in our sector, but take not of this, unless something changes fast about how we see and market our profession, we're going to get pushed back into blu collars bracket as soon as the situation stabilizes.
The best coworkers I’ve learned the most from were more experienced older devs. Now I’m the most experienced dev typically, which is good for my wallet, sure, but means learning from others becomes more difficult
Similarly, people are happy to see that networking in Kubernetes "just works". Once you ask them to run it on a provider without a Kubernetes-native load-balancer, say just use some BGP anycast magic, they are lost.
ageism (in our field) is not about age, ageism is about having a family with all that entails - an higher asked wage, stable working conditions, stick to the contracted hours
no amount of engineering skill gap can cover for that
One of the things about their HR policy (I’m not sure if it was written, but it may have been), is that certain levels of seniority required that you be a certain age. No matter how much of a hot shot you were, you weren’t going to get your own team until your thirty-fifth birthday.
These days, you have billionaires in their twenties. They don’t need anything from older folks, so there are no constraints on them.
Also, and I won’t go into the reasons, there’s now a lot of actual hatred between the generations. This time, it’s personal. I feel that.
In my job search, I was struck by the fact that the people interacting with me seemed to have a need to dominate and humiliate me. It wasn’t just a negotiation tactic. They hated me, and I had no idea why.
Working as you do for a nonprofit sounds fantastic. My setup is a bit similar - after years of devotion, a good small company basically bought my freelance time in bulk and gave me 5% ownership, and I get to build beautiful software and set my own life.
Great job!
On the spectrum of all humanity, inheriting $40k in your twenties is on the lucky side, but it's also pretty basic. I wasn't born a Brahmin and I didn't exactly inherit Dubai. I also know a lot of people who were trust funders from birth and threw it all away, or blew their money on bad ideas. Or blew it up their noses and committed suicide - I knew several of those. Just from my own observation, most people who get money and don't know how to manage it are parted from it pretty quickly. This isn't to say I deserved to inherit something, just that, life finds a way to equalize out stupid behavior pretty quickly.
Reminding myself that that's the case is probably the only way for me not to go broke.
I hate buying gas and feel guilty about it, but also would like to be able to seat 6 people, so suddenly a Model Y seems "reasonable". But sitting down and doing the math shows that even if my goals are environmental, keeping the 12 year old Honda and getting a rental car now and then is much better than a brand new EV (and vastly cheaper) - but before thinking about it carefully, I was tempted.
A lot of people seem to have the idea that being a full-grown human is being rich. To me, it's being able to plug all the holes in your own roof and always bearing in mind that we're just here for a limited period of time, to gain knowledge and experience, not things to make us lazy and comfortable. But maybe that's just like some weird post-religious self denial predilection I hold onto.
I appreciate the attraction of the simplicity of older cars, but you are accepting that a crash could turn you into pink mist if you are lucky, lifetime of pain and disability if you are unlucky.
"But we must not follow those who advise us, being men, to think of human things, and, being mortal, of mortal things, but must, so far as we can, make ourselves immortal, and strain every nerve to live in accordance with the best thing in us; for even if it be small in bulk, much more does it in power and worth surpass everything."-Aristotle, Nichomachaen Ethics, Book X, 6
Not to mention that we're in a society that incentivizes people to be irresponsible. I'm not allowed to earn six-figures or I'll lose healthcare. Same with inheriting/having more than a certain amount saved. My meds cost 300k/yr, so I hit OOP max the first month of ANY health insurance plan I have EVERY year. The wrong plan can cost me over 20k/yr.
There are two things that practically every rich person I've met have in common (where rich is assets over about $100m that aren't inherited). The first is focus. They have the ability to see an idea through to the end. They believe in themselves, they believe in an idea, and they execute. By the sounds of it noduerme might have that sort of focus. To live frugally when you don't need to sounds like someone who has an idea and is sticking with it. That's awesome.
The second thing is need. Actually needing money, either just to start out, or to fund a lavish lifestyle, or to keep up status, is a powerful driving force. Setting up your life up in a way that removes the force stops most people executing on their ideas.
This is advice for anyone who wants to get rich - if you slowly grow your assets to a point where you're very comfortable, you probably won't ever level up to the point where you can buy a Lamborghini because you just won't need to. If your goal is to become rich most people don't seem to be able do it by slowly growing their wealth and then working on an idea. You have to use the need to be "%^&* you money" rich to drive your idea.
(This isn't universal of course. Some people come up with an idea later in life after they've got a house and assets and still execute brilliantly. But it's much more common to see younger founders who need success pushing an idea to a big exit.)
Just since we're speaking very bluntly. I found that when I'm single, I can usually meet a girl if I stick around somewhere until the end of the night. But I usually don't do that unless I'm starving. So you're exactly right, having the focus and having the need are two different things.
The only place where I personally think you're wrong is your overall pitch - "don't be this guy [noduerme]" - to young fellas that think getting rich is the end-all. Like said, if I needed it enough, I'd spend my time trying to get fuck-you money and be rich by those standards. But proving the size of my dick just isn't something I need to do, know what I'm sayin? And funny enough, that blase attitude I've developed about it really fucking pisses off the ultra-rich people in my life.
The thing about socializing is you discover that if someone has one of these hangups (women, money, intelligence) everyone around them will let them demonstrate it. It's painful to watch sometimes. "Sure I'll try your car one more time". "Wow you're really smart".
By contrast I know genuinely megarich people who can't be identified as such, because they just don't have that need for approval.
Speaking from experience, I don’t care if girls want me for my $. But I’m not looking for a wife right now. If I was, I would probably date women that I meet at higher social events instead of lingerie models.
I have a couple friends from before I got rich, but most of my friends now have similar status.
Those aren't friends. They're friendly competition. At best they're good to commiserate with. They're out to prove the same thing; they wouldn't be friends with you if you weren't rich. For proof, they think they have a lot of friends, but those people work for them.
> I don’t care if girls want me for my $
Recipe for disaster. I've seen so many people use their wealth as a tool of attracting women. You just magnetize the worst possible people to you. Tempting as it is - I'd rather front as a poor hippie and meet girls who like my personality. If they find out I have money, that's a bonus later, once I know they're solid & trustworthy people.
I think I see the reasoning for this, but empirically, I don't agree. The need may be necessary, but it's clearly not sufficient for many people.
I would even say that it's just one of the possible means to get the focus going, but not the only one.
In my case, I have written infrastructure software that has, and will, change the world. It has already become a worldwide standard, and is used daily, by thousands of people around the world. It is not hyperbole to say that the software saves lives. That’s exactly why I wrote it.
I never made a dime on it. In fact, I spent thousands of dollars of my own money, and ten years of my life, shepherding it to the point where it could be taken over by a new team, and become ubiquitous. It was a difficult journey. The demographics of the users of my software are … challenging. I often weathered torrents of abuse, sabotage, and opposition, during the project. The new team will never have to suffer those particular slings and arrows. I’m an ornery, stubborn old coot, and could take it. I knew what I was signing up for, and many folks would consider me insane for doing it (they may have a point).
I’ll never get an award, and I have almost no recognition at all. Every day, I interact with people that use my software, and have no idea that I was the original author. I also deal with folks that know what I did, but don’t really understand what it took to get where we are. They seem to think that I sat down, and churned it out in a couple of months.
Not every achievement should be measured in money, and that’s great.
I love this lifestyle.
It was pleasant to wake up, and see where this thread went.
I think that happiness is alignment of wants and needs, coupled with the means to satisfy them.
Some people need to be rich, as it satisfies an internal metric, of some kind, so the enormous work and sacrifice that are required to be rich are worth it. Unless you are born into wealth, getting there is a great deal of work (and some breaks, but it’s always work). I have known folks that got there, and were devastated to find that it did not make them happy.
I need to be a craftsman, to work “with my hands” (so to speak), on small-batch, artisanal creations, so my work has been focused on getting to the point where I can do that.
See the comment I responded to below. I have a hard time with that mentality, but I get it.
> I need to be craftsman
I relate to this so much. Most of my best friends are mechanics, cooks, butchers, musicians. I actually only have one friend who's a programmer, and he's a craftsman too... I know him because we drunk-coded at the same bar for a couple years. People look at programming and don't get it...(yet - they don't understand yet, in 2021, but they will in 2040) ...that it's a clock maker's job. One friend who's a mechanic builds his own engines - just glorious, gleaming machines, one piece at a time. One time I was in his shop taking a distributor apart and said my job is like this, and he looked at me like I'm nuts. No, it's like this. Taking things apart to see how they work, and figuring out how to put them together. Lines of code are just like screws and weights and this thing that flies around the middle, distributing spark, that's like a for/next loop.
My Dad was a lawyer and he said, when I was a kid, "poor people work with their hands, rich people work with their minds." Well, I told him when I was 13 I would rather make something with my hands because it's honest. Programming, done right, is honest work - no better or worse than a creative mechanic's job. And it can be very artisinal in a way that satisfies your aesthetic sense and your sense of a job done beautifully. I don't think lawyers get that type of satisfaction.
Working with a master for a few years to learn the craft, step by step, always under an experienced gaze.
Or conversely, imagine what a clock would look like if it was cobbled together by someone who has just gone through a few weeks of clock-making bootcamp. I feel this is what some of our software looks like.
I stayed at my last company for almost 27 years. When I mention that in venues like HN, it’s usually mocked, and I’m basically called a “chump,” for doing it.
I get a sense that you exist like myself, and other coders I've known, outside the furious competition for status in a FAANG, doing our own thing and crafting our own art. It's kinda calming and peaceful to watch from the grandstands while the central rat race shit show goes on.
[edit] I was also banned from here for 8 years for personally insulting the founder, who encourages and finances, uh, certain stereotypical corporate rat race bullshit.
The experience was fairly pleasant. I liked the people, but decided that the company wasn't really one that I wanted to join.
I was talking to one of the managers, there, and he boasted that he had been at Facebook longer than at any other company in his career. Since he was fairly young, I was curious.
"How long is that?" I asked.
"Twenty-seven months!" he proudly stated.
Was a lot of fun but if we hadn’t been able to do it with airline miles I don’t think I could have stomached the cost. We could afford it, it just doesn’t feel right to spend that type of money on a few days away.
What makes you think that everyone buying stuff is doing it to show off to people. I'd much rather spend money on stuff than experiences. Experiences are ephemeral and, once completed, exist only in your memory. The stuff I buy is generally something that going to make my life better in a continuous and ongoing way. A pond in the back yard, a nicer car (I buy used, but I buy a nice used car, with the bells and whistles that I think are important), a console system to play with my child, etc. I spend most of my life in or around my house... spending my money to make that time better seems fairly optimal behavior.
That’s why I consider it financial insanity to spend your 20s traveling the world and “finding yourself” instead of working and saving. A year of 401k contributions when you are 20 probably results in subtracting 3 years from your retirement age. Make hay while the sun shines.
I think it’s important to learn about the world and take in many experiences while we are young and capable because too many people don’t make it to retirement or can’t physically do the things they wanted to when they were 20-40
I spent my 20s unemployed due to MS. I'm screwed for my whole life now. Then again I don't get to plan when I retire either so I guess it works out?
Yeah, that's what my stuff is: an addition to the fabric and experience of my life.
Spending money on pure "experiences" is, for me, wasted money. A memory of a vacation is worth less to me than some "stuff" I will use for the next 10 to 15 years[1].
For me, it depends on utility. I'm willing to spend on things I find useful, and I'm willing to spend on things I enjoy. Given the option between a vacation and replacing my 12 year old car, I'd replace the car.
I'm typing this on my main personal computer, which is a first generation i7, so at least ten years old at this point.
I dont pay it in full each month dude, I pay it ... EACH TRANSACTION :D There s no reason to defer payment even by one week and each time you do delay your brain is telling a different story than if you just extracted money out of your account immediately.
Why do you think humans should permanently borrow to the next month to buy tomatoes at the super market ?
To me a credit card always feels "dirtier" because of the connotation that it produces debt and that I have to rely on someone else extending me credit, even if momentarily. It seems much cleaner to just spend your own money directly with as little middlemen as possible.
Even if you are not earning extra points, using a credit card may be helpful for some who are trying to establish a credit history, which will be important if they wish to borrow larger sums (auto loans, home mortgages) in the future.
Ah, that explains part of it, I guess. This isn't a thing in my European country.
What I don't understand is why simply using a credit card would count more towards establishing you as a good creditor than not even having to use a credit card at all. I guess that's a weird bias in the system?
Not borrowing any money, and hence not having any history of repaying borrowed money is zero signal.
If it was true that people who never borrowed money were more likely than repaying borrowed money on time than people who regularly borrowed money, then a lender would have already noticed this in their data and would have offered a more competitive financing product in the marketplace.
Since that has not happened, it is reasonable to surmise that the tiny signal of maintaining a small revolving credit card loan with timely payments is better than the zero signal of not maintaining any loan balance.
Note that having many tiny credit card revolving loan amounts is viewed negatively.
As long as interest is avoided, rewards and protection. I end up with a 'free' plane ticket to Europe every year through my primary CC. The Apple Card gives 3% back on anything Apple (plus some others like TMO), and allows you buy almost any Apple item with 12 month, 0% payments. I could spend the 2k on that laptop or keep that money invested and just pay 166/month. The Amazon card is 5% back on anything Amazon (and Whole foods if that's your thing). I bought a 'free' TV with the rewards last year.
I've had my CCs stolen many times, and the buffer means I've never had that money leave my bank account.
I was taught early on in life that cash is king. The longer you can keep the cash in your control the better. Using CCs to provide a buffer does exactly that. And the rewards are a bonus for money I'm spending anyway.
In the US, you lose out on 2%+ cash back rewards when you do not use credit card (because the price for purchasing with a credit card is the same as not using a credit card, and the minimum cash back rewards in free credit cards is 2%).
Merchants (generally large merchants) do not offer a discount for paying with debit cards because people spend more money when using credit cards.
There are some notable exceptions that offer cheaper prices for using debit card, such as Target that offers a 5% discount for using a debit card to pay. Hence I pay at Target with a debit card.
Basically, other people’s cash flow problems and/or inability to resist temptations to spend more than what they have results in profit for merchants, banks, and people that pay their credit card balance every month.
Also, I assume that most credit companies (VISA, MC, etc.), have rules, expressly forbidding charging different rates for the use of credit cards. It makes sense, because they don't want to be avoided as a payment option.
I learned this, when I did my first shopping cart, and read the whole freakin' VISA Merchant's Manual.
There was some kind of loophole that gas stations used.
https://www.ftc.gov/tips-advice/business-center/guidance/new...
> A PCN cannot stop you from offering your customers a discount or another incentive for using a certain method of payment, as long as you offer it to all your customers and disclose the offer clearly and conspicuously. For example, you can offer your customers a discount or a coupon if they pay with cash or a debit card rather than a credit card.
In Mar 2017, Supreme Court went further and said state laws banning credit card surcharges were a violation of merchants’ first amendment rights:
https://en.wikipedia.org/wiki/Expressions_Hair_Design_v._Sch...
What you may be thinking about is rules prohibiting charging different payment card network prices for various credit cards (i.e. different price for Visa vs Amex vs Mastercard vs Discover). This was deemed allowable by the Supreme Court in Jun 2018:
https://en.wikipedia.org/wiki/Ohio_v._American_Express_Co.
As an aside, this Ohio v AmEx ruling was of great benefit to tech companies that operated market places, because
> This decision was considered to have created a new type of rule that could make it difficult to seek antitrust litigation; with credit cards being a two-sided market serving two distinct sets of customers, a successful antitrust argument would have to show how both sides of the market were harmed.
Another reason is that a CC usually allows higher offline transaction limits, which might be valuable for some.
Just because your direct debit scheme makes sense to you doesn't mean it makes sense for EVERYONE.
I have a VISA debit card and a Mastercard CC. I use debit the most (commonplace in Sweden) but keep the CC around as an extra if my bank has downtime or if I'm traveling the less connected parts of the world.
Widen your views, things are different all over the world. Imagine billions of people don't have access to the internet and you'll find that your way isn't the only way, in some places they pay with sex, food, cattle, cash, CC, direct debit, crypto, futures or whatever convoluted (in my opinion) system they can come up with.
If you're in an AMUSEMENT PARK or A BATHHOUSE you might transact with a tag and pay when you leave.
That is the issue though. Why? It makes no sense. You gave this condescending lecture about understanding other cultures but didn't take a sentence to even try to explain.
Anyway it doesn’t have to be like this. In China you scan a merchant code and enter the amount you want to pay on your phone, much like a bank transfer, but it happens instantly.
All that requires discipline and planning of course. If you don't trust yourself with being able to keep it up for years - get a debit.
I believe that self-discipline is extremely important for a life of happiness and fulfillment. Sounds like you have that. Good show.
But nobody in France, or in Hong Kong, would take a 30-year student loan. It seems nearly possible in the U.S., at the start of your life. How can they do that to each other, ofc kids are stupid and think college is about "the college experience" that the loan makers pushed via financing movies about it and won't choose the local one with good enough teachers that cost nothing and move on.
I think they should really close the ivy league schools, opt out of Shanghai ranking, forbid foreigners - just like France does involuntarily (no top school, Shanghai snubs us, foreigners don't care about education in the French language) which ends up with cheap colleges for local kids with good enough teachers. But admittedly poorer research funding, but I never understood why we need to learn corporate finance or java enterprise deployment or heart surgery from researchers writing theoretical papers ONLY.
What you’re approach is, is to just han things because “people are too dumb to make good choices”. I’d prefer not to live in a society like that.
And I’m kinda surprised you left out mortgages. The US has far less mortgage debt than other Western countries. Sure they don’t take on student loans, but they seem happy to take on massive mortgages.
I grew up very rural and solidly lower middle class. We learned to balance checkbooks in 8th grade, had an accounting class in 11th, and a “life skills” required course that taught about budgets, loans, interest rates, credit cards, apartment leases, and so on.
I am in my late 30s and everyone Ive ever mentioned this to was exposed to pretty much the same set of things before they left high school.
I guess I'd also be curious how deep those topics went. Like for apartment leases, notions of how to find out tenants rights in your area and how to push back on bad landlords. For budgets, what do you do if you can't make a budget work. Things to watch out for when considering employers and common scams.
A lot of this stuff I was able to pick up over the years but if you get screwed early on it can really affect your life trajectory. Sources seem less objective than when I was learning this stuff.
If you're first gen semi-wealthy - say a SWE in the valley - there's a whole other education that's necessary... I have talked to many SWEs that don't understand their comp.
I mean it's great to pay your way out of debt but the game is rigged exactly as you state. And I deeply wonder about the hidden costs of having so much of our population saddled with this debt. No proof but I'll bet it outweighs the cost of canceling that debt not that we'll ever know.
It's terrifying how many Americans on this thread defend this despicable system as something normal and expected.
https://www.youtube.com/watch?v=n6yBiasqMnM
https://www.detainedindubai.org/post/the-truth-about-leaving...
https://www.jpost.com/special-content/the-fall-of-payday-loa...
I was not referring to just payday loans.
And the best part is that education wasn't even expensive for me - esp with the govt scholarship. But even that little money was a huge expense for my family. I know so many other fellow students who had a similar story. It's hard to imagine how many other families could have been lifted if they were given an opportunity like I had.
https://repository.law.umich.edu/cgi/viewcontent.cgi?referer...
I have made the exact comment to many over the years and I hope that more people such as yourself are as eloquent and succinct in conveying this point.
XO
The entire tone of your post would be different if you realized that it’s like the game Jurassic Park, not the movie, because you can start over whenever you lose. The way to win in the US is lots of tries, not guaranteed wins.
Not to say anything about predatory lenders, who all belong in hell right next to the people selling miracle cures for Covid, but come on. The only reason there are so many people who fall for these traps is that the economy has grown and grown thanks to the endless influx of immigrants who create value. Left to their own devices, without immigrants who work and save, Americans would end up an impoverished banana republic within one generation.
I mean, I think you can call this a trap, or you can call it a life raft. If you take away the option of debt, the option that remains is homelessness. I'm not really sure its fair to call that a trap.
If there is a trap there, it's the fact that the person was in a position to become homeless in the first place. Not that some lender offered them a temporary respite.
Predatory corporations rule America today so the Jurassic Park comparison is quite apt. There is very solid middle ground in a social market economy.
We built societies as a construct to support the people living in them, but America is all about competition and individuals. There is barely any sense of community left unless media frames it like a sports event (team blue vs. team red or whatever).
Not all debt is bad. It allows businesses to function and to go grow. We can see the effects of trying to have debt free societies in Islamic countries, it stunts economic growth.
Student debt in America is another thing, not allowing bankruptcy in this situation is horrendous.
People don't have infinite time and knowledge to identify all the things, behaviors, products, services that "they are free not to choose". They can't read all the legalistic fine print designed by professionals to deceive and obfuscate while keeping them unaccountable.
This is particularly problematic as the "freedom principle" gets applied differentially in sectoral silos: When you go to the supermarket, you don't have to choose what will not kill you. Ditto when you select a car, a medical procedure or drug. Why should the financial sector (or the tech sector for that matter, as the two increasingly merge) be any different?
When people are increasingly data mined, algorithmically and behaviorally goaded to overconsumption patterns, instant gratification, addiction etc. the argument that they "are free to choose" is more than hollow. Until the US (and imitators) address this moral rot at the core of its socioeconomic system it will be rolling from crisis to crisis. This will only open the door for worse alternatives.
Individual responsibility should only be invoked when the individuals concerned have all the required information and ability and can be reasonably expected to excercise that agency given their context across the entire spectrum of economic interactions.
Being an immigrant, of course, makes you an expert.
212%!!!!
Vultures.
Visiting The States, gave me an impression that the country does not really like their residents. If you trip once in your life path, you have quite big chance that it's all done for you, and in one of the best scenarios you will end up with huge loans. Many people prefer not to go to a doctor, or not to go to study, people are not guaranteed any paid holidays etc. How this is making anyone confident? How an uncertain public can be productive?
Plus super expensive plasterboard houses everywhere (however that's not unique for the US), guns to anyone and quite dirty (compared to what I'm used to see) food places. I really didn't like what I saw and I became more glad that I live in my country. Of course there no only bad things that I noticed, I do like the military effort that protects the status-quo (I wouldn't risk going to army in my country), or ease of opening a business etc. but overall balance for me was not in favour for the US.
While the initial founding direction seems well intentioned, it sounds like they were scamming customers, or unable to actually follow-through on the promise to consumers. Glad the regulators are actually enforcing some of the rules.
Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting). Following through would mean exposing the business to risk that customers, in spite of climbing their made up ladder, still made payments. Considering the other shady stuff that this thread is talking about, it doesn't surprise me that they didn't choose to take on that risk.
Of course the irony in all of this is that the very thing that would've prevented customers from making the right choice even though they were gaining financial knowledge is the loans that LendUp was handing out. I wonder if the pitfalls of payday loans was part of that knowledge track. I doubt it.
But their entire premise was that they weren’t simply going to use existing credit scores.
> Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting).
Over $350m to be a middle man for small loans seems like an absurd amount of funding. I assumed and hope all that cash was because they’re actually lending directly.
It’s not typical that you lend your own money out, and banking 101 is usually that you borrow money from one person (E.g. someone who has a bank account with you that you pay interest) to lend it to another at a premium (and you get the profit between those two figures in return for holding the risk if there is a default).
Investors will typically expect a much higher return on their own funds than the loan APR (unless the APR is eye wateringly high).
Edit: Apologies I stand corrected - I’ve just looked at the internet archive and it shows rates of up to 1825% APR. These loans are definitely predatory and so could have been done directly from the capital. Not surprised they got shut down, similar companies operating in the UK got shut down years ago and pretty much everyone is better off for it. It’s a hugely predatory industry.
Sheesh, APR on loans in Switzerland - Not exactly known as a socialist hell hole - are capped by law at 15%.
Anything above this is usury and a criminal offence.
* Interest must not exceed 0.8% per day.
* The total cost of any loan must not exceed 100% of the original loan amount.
(NB: This is only for consumer loans, commercial loans do not have a cap.)
It is a hugely predatory industry that ought to be shut down. Unfortunately the "payday loan" industry is still 100% legal here in the USA :( It looks like LendUp got shut down for the misleading marketing about their evil lending practices, and not the fact that it was evil in the first place.
So YC funded a payday lender that targeted active duty military service members?
https://debanked.com/2019/01/lendup-gets-a-shake-up/
https://www.crunchbase.com/person/jacob-rosenberg (it would seem Rosenberg actually left in 2018)
Though according to the first one Orloff stayed on the board even after that point.
It's not like this is esoteric finance law either, I've worked in fintech lending during this whole time period and some of these violations are lending regulation 101. Military Lending Act compliance at the very least is dead simple to comply with and is the very first thing most lenders ensure compliance with (due to it being federal, whereas some more esoteric state level stuff can often get missed).
But here's an article from 2016 about what LendUp was trying to do back then: https://techcrunch.com/2016/01/22/the-loan-dolphin/#.4sfbucn...
I don't know much about LendUp at all, but I do remember the surprise - and feeling it myself - when it was announced that YC was funding a payday lending company. Then I remember the thinking behind it being explained (perhaps on HN, perhaps elsewhere) and seeing that the founders seemed to be making a sincere effort to offer something that was at least just less-terrible than the existing payday lending options around (many of which involve dealing with crime gangs), which made me think "OK, I guess it's worth a try". I presume YC thought the same thing when they invested almost ten years ago.
If it turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before, I still don't think it's reprehensible that YC thought it was worth backing founders that seemed to be making a sincere effort to try.
This is a disingenuous response because this space is highly competitive and most of the big names in it have not gone out of business due to flagrantly breaking the law. Just because LendUp broke the law and went out of business does not mean there are no sustainable, legal entities operating in it.
I said very clearly I have no specific knowledge on LendUp. I also know little about the space (apart from that it's a nightmare). The only specific insight I have here is on YC's history and ethical track record.
That said, can you educate me and other readers by linking to examples of companies that are doing well in this space (specifically, offering a better lending option than payday loans in the U.S.)?
* Sustainable, legal lending businesses operating in the payday loan space * Better lending options than payday loans
I am not an expert in either of these [though I have worked with numerous people who are experts in these] so will not make blanket statements (which is why your statement was disingenuous, rather than saying look I don't know anything about this you instead chose to make an authoritative statement indicating sustainable business was not possible in this industry which is untrue) about them, rather only indicate some of the information available:
In the first group you have companies like: * Enova [CashNet USA] - Had CFPB enforcement * Avant - Also from a YC founder, had FTC enforcement action * OneMain - Caps interest at 36%, actually has a carve-out in California lending law
These companies have been operating sustainably for years and looks like business is booming for them. Note how despite receiving enforcement action they were not shut down nor called "cheaters" by the CFPB like LendUp was? This is indicative that one can commit predatory actions in this industry and still be sustainable.
Now for the second group of better lending options than PayDay loans, that's a very wide field but let's assume we want to specifically discuss people who would otherwise be going for a PayDay loan. I'm going to link here to NerdWallet which actually has great overview of options: https://www.nerdwallet.com/article/loans/personal-loans/alte... Specifically, I would call out local credit unions as being a "good" option that is often overlooked despite providing a ton of loan capital in the U.S.
There are also a number of non-profits working to try to help people fall into the Pay Day loan space, in which I would specifically call out SaverLife https://about.saverlife.org/
Arguing whether or not PayDay loans are good (ethical) or not is subjective, as others have noted a high-interest loan can often be better than no loan, but what I would personally argue is that continued and improved government support for credit union payday lending (e.g. https://www.ncua.gov/support-services/access/advancing-commu... ) as well as more available physical lending options (e.g. Go to the Post Office for a loan) are very much worth exploring and supporting.
You've only cited companies/orgs that are operating legally, not ones that are demonstrated to be highly ethical and substantially better for borrowers to deal with than the payday lending companies that existed when LendUp was conceived around 10 years ago.
Clearly, LendUp was talking about trying to build something much better for borrowers than what existed then, and that's what was compelling to YC (as I said in an earlier comment, I vaguely remember discussions about this being had at the time, and thinking it would be interesting to see how their plans would play out).
Exactly what went wrong along the way, I don't know, and I haven't seen any comments here explaining it - only indignant comments leaping to the conclusion that everyone involved must have had malicious intentions from the start but not offering any evidence for this.
If you want to weigh in with your "hot take" you should at least read the article, rather than coming in claiming LendUp did nothing wrong and then when presented with evidence fall back on well "I don't know" and "know little about the space".
This is exactly why your comment is disingenuous, because you specifically stated "turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before" as a defense of LendUp's actions, when as I have pointed out to you, there are plenty of sustainable businesses operating in this sector. If you want to quibble around "sustainable" vs. "good" then at the very least you should acknowledge there are companies that are operating legally vs. ones shut down (e.g. LendUp) after committing multiple violations.
I mean seriously, are you just going to ignore this statement:
“LendUp was backed by some of the biggest names in venture capital,” said CFPB director Rohit Chopra. “We are shuttering the lending operations of this fintech for repeatedly lying and illegally cheating its customers.”
The Director of the CFPB doesn't just come out and call everyone liars and cheaters.
This is very much worth harping on, because you are perpetuating and defending the idea that YC can do no wrong, instead of accepting that it is possible it made a mistake in funding and supporting these founders.
The claim I’m disputing is that the original founders, when founding the company ten years ago, set out with malicious intentions to defraud people, and that YC and other investors knew and supported this.
(Others have later claimed that this wasn’t the allegation, and it was rather that YC made a mistake to invest in this company, in which case, fine, I have no major quarrel with that - most of YC’s investments turn out to be mistakes, that’s how their model works.)
But for those who insist that the original founders’ intentions from the start were nefarious and that YC was aware and complicit, this needs to be pushed back on, hard, as there’s no evidence for it and it makes no sense as you can’t build a successful business that way.
That the founders had high-minded ambitions that later turned out to be unachievable is the simplest explanation. Legal issues several years later, or examples of different companies doing different things to what the founders set out to do are not proof of malice on the part of the founders or YC, or of my dishonesty, and further wordy and aggressive replies from you won’t change that.
Seriously, the legal process has worked and the company has been shut down. Put away the pitchforks and torches.
That said, the "traditional" payday lenders all turn out to be quite predatory, don't they? (I understand that's what the original founding premise of LendUp was intended to address, even if they couldn't make it work.)
But aside from that, will the traditional payday lenders lend to everyone and anyone, no matter their circumstances? If not, what are the options for people who they won't deal with?
There of course is another possibility: the founding team in 2011 was proposing a concept that seemed ethical and an improvement over payday lending options that existed at the time, but over time the company's idea or execution changed for some reason, in which case, there was neither poor ethics nor poor judgement on YC's part.
Occam's razor would require us to accept this explanation unless there was substantive evidence for another scenario.
I hope you know your words hold a ton of moral and social weight in this community.
To say "YC wouldn't do that" is strong language, especially given the facts.
To say, "YC would only have invested in such a startup if they believed it could truly be of benefit to people" is better, because it acknowledges that while YC had the best of intentions, it could have made a mistake in funding these founders rather than give an idea that YC can do no wrong.
The founders, the ones funded by YC, created a company that committed financial crimes before they left the company. Those founders should be seen in that light, regardless of their intentions.
Tax evasion wasn't Al Capone's primary crime either.
According to Crunchbase, LendUp has $361M in funding. Maybe they thought that a few million here and there is a drop in the bucket, and they stand to lose more if reforming themselves impacts growth. Turns out you have more to worry about than escalating fines.
Of course they could just stop the predatory practices, but lets not be crazy here.
> The order would also impose a $100,000 civil money penalty based on LendUp’s demonstrated inability to pay.
They were ordered to pay $1.2 million in fines and restitution for the military lending violations earlier this year, and ordered not to collect (or sell or assign) on a bunch of those illegal loans, plus the new case has them prohibited from making any new loans and from collecting (selling/assigning) on a large share of their remaining outstanding loans.
So, yeah, they are having financial problems.
The Marquette decision allowed companies to export their interest rates, such that they could use usury laws in the state where the card is issued, NOT where the bank is headquartered. This is what made credit cards profitable.
https://youtube.com/watch?v=2mHsTKvAuZc&t=393
It’s rarely mentioned in “history of credit cards” pop history. Somehow all the “Jurassic park” aspects of America seem to start with a little sprinkle of deregulation.
Basically, locales realize they can get a huge economic boon to themselves that is only possible because they are essentially exporting their shitty policy outside their borders.
Tax havens are perhaps the best example. No country could survive as a tax shelter if businesses could only do business within their borders. But instead, you have small countries that offer no/low taxes because they can pull in tons of business from gigantic markets outside their borders.
It happens all over the place:
1. In the Marquette example, states try to pull in lots of banking business by having easy usury laws, but the vast majority of those banks's customers are from other states.
2. A couple states have gotten rid of "the rule against perpetuities" to attract perpetual trusts, even though most of the trust business occurs elsewhere.
3. Businesses can extract huge tax concessions from states by offering to set up headquarters in a state, even if most of the business is done outside that state.
Intranational competition/racing to the bottom is fine within the bounds of regulation -- capitalism is a powerful force but in my opinion the job of the government is to set the guard rails.
The EU problem is an international problem which is why it's so much harder to solve. You can't force another nation to charge certain % for taxes but there are other things you can do. Unfortunately most of the actions you can take to disincentivize that behavior aren't quite so friendly, so the politics intensifies and countries go for what they can get away with. The control dynamic is different compared to intranational regulation.
There's certainly competition between states and companies but it's always when the guard rails bend/break that we see explosions in a certain kind of activity and then the repercussions 5-10 years later. It happens over and over again in history -- regulations that reduce corporate tax rates, roll back environmental protections, etc -- it happens across party lines, and there's usually a happy/boom period for a while for some market participants... Then the chickens come home to roost.
The addition of regulation can do it too, of course, and some of the time the ambitions are noble, but to me the removal of regulation that was well established (for a good reason) and the subsequent ill effects always feels the most avoidable.
> The MLA puts in place protections in connection with extensions of consumer credit for active-duty servicemembers and their dependents, who are defined as “covered borrowers.” These protections include a maximum allowable annual percentage rate of 36%, known as a Military Annual Percentage Rate (MAPR), a prohibition against required arbitration, and certain mandatory loan disclosures.
These seem like good[1], common-sense, consumer protections. Why aren't these extended to credit consumers in general and not just military personnel?
[1] I think one quibble might be the 36% max APR. This might be too low for some high risk customers to be able to get credit at all. But I'm not sure if there's any research around what a reasonable number might be instead.
Take your pick:
- Finance companies have effective lobbyists.
- Americans demand All The Freedoms. (Except for those freedoms.)
Americans do not take kindly to voluntary transaction meddling by the government because who is the government to say what two private parties agree on so long as it does not infringe on the rights of others?
That social part of our society has cottoned onto the idea that for the poor among us the game is rigged--and that it is not merely rigged but it is being played such that the information necessary to know about the choices to get out of it show up far too late to be of use, or not at all.
And while that is speaking of a just government, and ours is frequently unjust--sometimes it gets something right.
While the government thinks they just saved people from an evil corporation, all they've done is completely prohibit such customers from acquiring loans.
If there is opportunity for arbitrage, you or I or anyone could step in and create a seemingly profitable business while also providing a social benefit.
The moral hazard introduced by the government is the issue.
It could also be that undercutting that 36% rate does not make you competitive (instead of profitable) against less scrupulous actors (they can advertise more and lobby more; convincing society that they are necessary). Also, it is a kind of business that has a very very high barriers to entry (enormous amounts of capital, regulatory, etc.).
Competition alone can not solve profitable abuse (particularly on those with no options). The less scrupulous you are the more you can abuse, the more you can profit, and the more you drive your competition to implement your practices. The only limit is that fine-tuned equilibrium of casinos: only constrained to the point that allows the larger proportions of your customers just get by earning & spending (as long as minimizing the ones that get under the bus does not reduce the income generated by the majority kept at equilibrium).
This is still consistent with profitability. If you're not competitive, you can't earn customers. Businesses are thought to set prices at the level where the margin cost of acquiring a new customer is 0.
However, if you could find a more efficient way to deliver value, reduce costs, etc. you could do so and flourish at a price lower than your competition.
> Also, it is a kind of business that has a very very high barriers to entry (enormous amounts of capital, regulatory, etc.).
Part of the barriers to entry are exactly the regulatory hurdles in place, which are totally unnecessary in my opinion.
Two parties could draft a contract and sign it voluntarily, without government oversight, and petition the courts if any grievances occurr. Keeps government out and lowers costs, likely lowering the necessary apr charged.
> Competition alone can not solve profitable abuse (particularly on those with no options).
This completely violates the idea of a market economy. There are laws against collusion to fix prices. Such laws exist precisely because competition is the mechanism to prevent abuse.
> The only limit is that fine-tuned equilibrium of casinos: only constrained to the point that allows the larger proportions of your customers just get by earning & spending.
While true, this is still not a problem. People are voluntarily transacting at the casino. It's not for a 3rd party to determine if they can or cannot give it a shot to get under the bus.
Would you be opposed to a sole proprietor offering loans at 200% apr?
The people who are going to take those loans because they can't get one at 150|100|50|whatever% are going to have a huge challenge, if they are even (blood from a stone) able to.
And while you as the lender may "enforce" repayment with guns and violence, you can only hurt someone so much, and the dead don't repay loans. You can't visit that violence on family and friends, because that is a crime, even if in the most wild west environment you're being allowed to enforce repayment from the lendee with violence. And in the end, while beating the shit out of someone delinquent may be psychologically satisfying to your psycopathic or sadistic ways, you're still out your principal.
The wise lenders will rapidly find the sweet spot between repayment and default.
Awfully suspect that people start coming out of the woodwork with arguments from “principle” coincidentally with them having a vested economic interest in a weak dollar/weak state generally (or at least thinking they have interests in those things).
Meddling in the affairs of any corporation that handles just a single US dollar transaction is the opposite of interpersonal freedom. I am not sure how you can get this far into thinking about the subject while holding such a bizarrely cognitively dissonant belief.
What evidence do you have for it being profitable (to whom?) to exploit (how?) the American people (by whom?)?
As it derives its power from the delegates of the states, it has to appease them even if it has the power to regulate all facets of life. So there isn't a law for all people as not enough delegates can stomach that, but for the military its easy.
I always found it amusing how the "patriots" worshipping the military are pretty much the same people who hate any kind of government intervention in their lives.
I almost never got adequate medical care. The medical system was strange and winding. There were all kinds of approvals needed for very simple things.
The food standards were absolutely terrible. I don't know if it was an actual thing, but I was told there was a threshold for the number of roaches that could be present on food dispensing equipment before they'd throw the food out.
The housing was disgusting. I lived in a barracks built in 1945 with inadequate parking, sewage that once popped a goldfish into a toilet bowl, water that occasionally would turn totally brown or yellow and is now known to have made people sick. There was a door to the interior of the building where ducts, pipes, and internet were run that all contained asbestos and asbestos warnings.
The worst part, you had no option to say, "Give me the dollar amount you spend on this so I can find my own options" but they'll gladly tell you what they spent at an inflated rate.
These are just the ones off the top of my head.
Sounds like you had a bad experience and things could certainly improve. The military won't always offer a stellar experience, and Marines are often rough with their surroundings. Just ask people deployed to Iraq and Afghanistan.
I'm not a socialist, BTW.
This awful poisoning shit is still happening right now. [1] The officers who run particular installations DGAF about the health of people living there. They just want to "accomplish their objectives" which is invariably some wargames bullshit or fake statistical readiness scam. They get their ribbons or promotions or whatever and GTFO. Their grandkids won't have to drink tetrachloroethylene when they're living in some swanky NoVA suburb.
[0] https://www.washingtonpost.com/opinions/a-trust-betrayed-the...
[1] https://www.hawaiinewsnow.com/2021/12/22/two-red-hill-spills...
The military implements socialism _poorly_.
By contrast, when I had a horrific gout flareup in Australia, there was no approvals needed to admit me for a nine day inpatient stay with rheumatologist, PT, etc.
I am getting surgery on a heavily deviated septum, in the US. It shows up on imaging so notably that even when I had a head CT for something completely else, the radiologist flagged it as being of note. When I went to an ENT, he confirmed a "90%+" occlusion that would need septoplasty and a bilateral turbinate reduction to relieve. He talked me through the pros and cons of surgery for informed consent purposes.
"I'm fine with all of that, let's schedule."
"So, no. Not yet. First I'm going to give you these two nasal sprays for six weeks, that you'll take and come back and tell me didn't resolve your issue, and _then_ we can schedule. That way your insurance won't reject it."
I had to spend $180 on two nasal sprays that, according to my insurer, may have resolved a cartilage issue in my nose.
i.e. 1) the non-socialist system in the US also requires all kinds of approvals (I'm also a paramedic - UHC years ago got fined for denying Heli EMS coverage for people involved in among other things, car accidents, for "lack of preapproval"), and 2) "socialist" systems in other countries don't require all kinds of approvals - that isn't an inherent aspect of the socialism.
It gets even weirder when the same person also rants about the federal (FBI, BATFE, DEA etc) "jack-booted thugs". This is incredibly common in the right-wing gun owner community.
Congress passes these protections, the military just lobbies for them internally because they cause problems with the operations of the military. Some things I saw a lot:
- A Private, PFC, or Lance Corporal who lives in the barracks (therefore has the most straight-forward pay with little extra incentives) [1] gets approved for a car loan on a used car at 20%+ APR or credit cards which revolve into 20%+ APR with caps well above their means. When they can't pay they will attempt to contact the chain of command and pressure the military into intervening. Eventually they'll settle, the car or items get returned, the Marine gets busted down, and then they go on to do the same thing all over again with the same car.
- Lending services know that military are fixed income and that they are also low income, and will therefore shop predatory rates to them as a means of "refinancing". Really, it's debt consolidation because military members also have a high rate of divorce and debt.
- Banks will attempt to repossess homes while military members are on deployment and cannot access internet or financial services. Also happens to reservists who are without their primary income and are deployed. (ServiceMembers Civil Relief Act) [2]
Military just face some very unique situations, but a lot of it derives from the fact that we pay enlisted personnel (the greatest in number) dirt for their trade.
[1]: Note, these are pre-tax: https://militarybenefits.info/2021-military-pay-charts/
[2]: https://www.texasbar.com/flashdrive/materials/military_law/M...
What logic does this follow? Like, why would I ask my employer to intervene if I have taken some loan with bad conditions?
The military exercises a lot influence over troops, they can bust you down or remove your security clearance. They can also push you into payment plans and reflect these situations in your performance reviews. The military, for all intents and purposes, acts as much more than just a simple employer and lending services (among other businesses and people) exploit that.
While in some regards the military is like an employer, in other regards it's very different.
I don't imagine there are many protections for active duty folks that are designed purely to protect the individual. I suspect the primary motivation to get most of these types of laws passed is to protect the government.
I pointed out how the risk is different than the assumed free for all that is the free market. I will not potentially get thrown in the brig for defaulting on a payment. A private could be.
On the contrary, for reasons political ('everyone loves the troops'), administrative (Congress in many ways writes the 'Employee Handbook' for military personnel), and logistical (the military is heavily made up of people straight out of high school), there are several protections in law designed to protect military on active duty.
We can cancel leases with landlords with nothing more than valid assignment orders, at any time. We can vote in elections using the easiest process there is, including instant registration and the ability to fax the vote over. And, yes, there are restrictions on lending to those on active duty to try to keep us out of trouble.
Even though active duty personnel do make convenient targets of political affection, it's not all done out of a sense to protect the individual. Active duty personnel have clearances, access to government facilities, and so on. Protecting them from getting into stupid situations is to the government's benefit.
But that all said, we get a lot of protections that exceed what the government deems necessary for its benefit. Just look at the differential treatment provided to military and government civilians (who also have clearances, access, etc etc) if you want to see.
There's a time and place for everything and that probably includes high interest loans as well.
Playing the devil's advocate here...loans with interest rates higher than 36% are generally reserved for subprime lending - payday loans being the most prominent. As long as we live in a society (talking US here) where minimum wages don't keep up with inflation and benefits, then these products in some sense need to exist to satisfy that subprime group. Otherwise it's literally impossible to create a profit on payday loans if these rates are much lower.
Note - I don't know what the "right APR" is to make them profitable, but I certainly can fathom why there might be a 1000% interest rate on a 7 day loan of $100 so someone can get their car out of the pound so they can drive to work. The administrative overhead to lend $100 and only make pennies is simply not worth it.
Also, yes gigantic interest rates ruin lives...more importantly predatory sales practices to get people to buy them. But maybe we should focus on why so many Americans get to that in the first place (looking at your healthcare) - thats a much easier market creation.
Some people make good use of these, as timely sources of money when there's not a lot of other options (not everyone has credit or saving or friends and family that can help). At the same time, it is extremely predatory, and the lenders are constantly trying to maximize the money they can get from people (such as rolling a new loan into the payment of the original, meaning only the interest is functionally required on the due date, and they get to skirt the laws of the loan required to be short term).
It's one of those catch-22 situations where doing away with the market entirely hurts those you're trying to protect, but it's hard to regulate effectively because the benefit is it's quick and short, meaning too many hurdles might be the same effectively as doing away with them completely.
That's a very narrow definition of capitalism. It's not just 'stuff' that is privately held, it is also the means to generate profit and a very large chunk of the available capital. The effects of that go way beyond just 'stuff', and can make it next to impossible for someone born at the bottom of the stack to work their way up. Of course, some inevitably succeed at this and they are held up with great fanfare to prove that 'the system works' but on average, if you are born at the bottom your life will likely continue to at that level of society without much chance of upward mobility because the system is stacked against you.
And payday loans at exorbitant rates are a mechanism that keeps people down.
Perhaps the most realistic definition.
You could also restate it as "most people don't have lots of money"
Regardless of how much you yourself actually have at the time.
I think it's good to look at "capital" as "other people's money" (OPM).
Of course if you have enough of your own you might not really need any of OPM if you don't want to get involved.
OTOH in that case you might be one lending out some of your own "underutilized" money to others who are "interested" in OPM of some sort.
The repayment includes the interest intended to compensate for the risk & delay in repayment, so it simply means more of OPM is coming back than yours that went out.
If none of this OPM was changing hands there would still be the same amount of capital.
But the capital-ism where the system is structured so financial rewards of labor are subjugated to the financial rewards of capital itself according to its magnitude would not be as much of an actual thing.
And it's this feature that can be exploited by greed in the most disadvantageous way compared to less OPM-oriented financial foundations. Regardless of the mathematically enhanced returns to the most shrewd capitalists, the greed itself subtracts from what actually could have been overall.
As the magnitude of the money that most people don't have a lot of, becomes less significant compared to the some people who have lots of money, the unlevel playing field tends to tilt toward the vertical as a function of greed.
[0] https://www.cambridge.org/core/journals/perspectives-on-poli...
"Communist" China is a lot better if you're rich. So is "socialist" Europe. So is "capitalist" America.
The -isms have never really mattered.
The golden rule truly is "whoever has the gold makes the rules".
No, it's private ownership and trade of stuff. That seems nitpicky, until you contrast it with other economic systems, in which case trade is strictly regulated, and it becomes obvious that's a large part of it.
> the generations of economic nuance we have developed
You mean the nuance that takes us further from a pure capitalistic and free market system into a hybrid system where there are regulations and communal (government) efforts to counteract the portions of capitalism and free markets that are not palatable for a modern society because they fail to lead to outcomes we want?
There are reasons why the poor of today are better off of the poor of a century ago, and many of those reasons are not much in line with capitalism and the free market, while others are. Minimum wage, regulations on predatory practices, etc account for a lot of that, while advancements in technology and medicine much of the rest.
Without regulations, which are a restriction on private trade, we'd still be dealing with the things Upton Sinclair chronicled so long ago (whether embellished or not).
In the UK, the consumer finance regulator the FCA did an in depth analysis of subprime lending and concluded that "fair" maximum charges were interest rates of 0.8% per day and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.
source?
>and concluded that "fair" maximum charges were interest rates of 0.8% per day
"fair" in this case being what? The interest rate being enough to offset defaults? Or enough to offset defaults + overhead + profit?
>and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.
I find this baffling. 0.8% per day compounded for a year is 18.3%, but they say that total costs can be equal to the principal? That means the effective APR can be up to 100% (if borrowing for a year), more than 5x the "fair" APR from before. Speaking of which, why isn't the length of the loan factored in? Surely a 1 week loan should have a lower "total cost" than a one year loan?
From this post:
Martin Wheatley, the FCA's chief executive officer, said:
'I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.
'For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.'
So who in their right mind would provide such a service if there was no path to a profit? /headscratch
If someone is NOT acting in their own best interest, then there are an infinite number of things that need to be removed from their options.
Borrowing $500 for one month and paying $15 in interest would be completely worth it and beneficial to the borrower. That's what 36% annualized interest would look like for a single month.
Do people get in trouble with debt? Yes. And that's why we have bankruptcy. But not everyone gets in trouble with debt. I don't think it's fair to make it unavailable to everyone to protect those that fall into arrears -- because, again, that's what bankruptcy is for.
Well, that's your problem right there. Unless you have routine access to spending opportunities that yield more than 36% in yearly returns, which I'm going to assume is pretty unlikely.
What you do is you starve a day or two and sell your food bank food. Everyone is capable of generating income while depleting from stores.
Of course the real problem is many jobs don't pay enough.
In fact not getting paid enough - and therefore being unable to budget - is considered evidence of poor character, while not paying enough is considered evidence of enlightened and mature rationality.
It's quite a strange view of the world.
so you'd be in favor of payday loans if they were limited to n times per year?
>If you haven't been able to save $100 a month for five months, you just won't be able to save five times as much, let's be realistic.
what about people who have the free cash flow, but can't save for various reasons? eg. friends/family asking for money, poor self control, etc.?
Unbounded APR and "letting the market figure it out" is not the solution.
BTW, right now US treasury bonds have a higher 10y yield than Italy.
Sure, we could find each of these risky situations and try to regulate them, but you won't even know of them because most people will never get towed. It's better to improve access to credit.
The guy could get $100 the next day, but not $100+storage-fee/day. It's like $70/day. Any loan that goes between 0% per day and 70% per day simple interest would have been a net win for this guy.
Obviously, having eavesdropped on the whole thing, I paid it as I was leaving but I think perhaps those of us with easy cash liquidity should perhaps build some intuition on what kinds of situations cause people to take on onerous credit.
EDIT: Oh, I recalled a detail I'd forgotten when first relating the tale. He wanted to go get his phone from the van so he could call for help but they wouldn't let you in the yard without paying to release. I imagine he was going to have a damned hard time asking for help without the phone.
"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."
I went through my fair share of Walmart black no slip shoes before moving into tech. I hope financial hardship is in your future as well as your past. Maybe you'll figure it out the second time around.
Wow.. I had to check your post history to make sure I didn’t misinterpret your words. There was a clear pattern. You seem smart, maybe you can find it too.
My dear internet stranger and fellow HNer: I hope you find more love in your life and the ability to see it in, and give it to others. All the best to you!
Would'nt it be better to rack up a $500 loan and then try to pay $100 per month so that it can be paid off in 6-9 months - even with 36% interest ?
Don't most metro areas have public transit? Perhaps buses are not the most comfortable or convenient, but they do exist, and for good reason.
Actual democracy is an extreme negative, not a positive approach to organizing society.
You can claim the majority would benefit from eating the wealth of Sergey Brin and Larry Page at this point, they no longer operate Google, they're just ~50 year olds sitting on $200 billion in Google shares, piddling around until the day they die. So why not let society benefit sooner rather than later by consuming their wealth to its (supposed) benefit, divvy up their wealth to the poorest 51%.
You can invent a huge number of scenarios for doing things like that, where society supposedly is better off if we violate the property rights of some minority group. Why shouldn't some minority of people be allowed to lend at 43% interest if there are takers at that rate? Because you say so? Why shouldn't their property rights be respected - the property right to lend their money out at the rates they can command - and why should the majority get to arbitrarily restrict their property rights? It sets up an obvious exploitation situation, which is always the case in democracy, where the majority can endlessly torture, exploit and abuse the minority.
It would very clearly be better for the top 51% (far more than that actually) - the majority of society - if the economic bottom 10% did not exist (a group that rarely holds a job, has vast health & drug addiction problems, rarely pays taxes into the system, rarely contributes much of anything; and in fact that's true in nearly all welfare states, including the US). So they should all be gotten rid of, is that right? Democracy in action. The tax paying majority is sick and tired of carrying the never-tax-paying economic segments at the bottom, time to get rid of them, for the benefit of "society" (aka the majority power herd).
https://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_a...
Those seem like damn good odds for something that is necessarily a zero sum.
I would expect that as you get lower down (say bottom 10) it becomes even more volatile since the wealth needed to get out gets even lower.
For the same reasons we have regulations and standards in construction, transportation, etc. Because we know that uninspected cars will leads to death and injury on the roads. So laws and regulations are there to reduce selling and using blatantly unsafe vehicles.
And they happily drive off the lot with a $80k car loan at 36%. People are, pardon my french, dumb as shit when it comes to car purchases. They are very happy to lose a guaranteed $10k/year in deprecation, so they won't get hit by a $2000 surprise bill.
While I was a student over the span of 5 years I had spent to the mechanic more than what I had paid the dealer for my 10 yo used car. Without the help of my parents I am not sure how I would be able to spit enough money to pay all of these bills.
So yes paying 400 per month for 7 years with high interest is a better deal that getting a car that you can afford with cash.
I just don’t have that kind of liquidity.
I can turn the required savings/stock in to cash with 3-5 days of lag. But not the same day.
This is where a subprime loan would be useful as a bridge, and in that situation I don’t think it would ruin my life.
Consumers know what’s best for them. As long as the APR is accurately advertised, I don’t see why people should be jammed up because some people think interest is a sin.
>Consumers know what’s best for them.
Yeah that didn't work out the last time
Margin has a bad name as a "high risk" activity, but that's mostly when you have a concentrated position and are taking out a margin loan to double down on that concentrated position. Using margin as a bridge cash loan for a few days is a fairly low-risk proposition.
The rest of the world would prefer you not to crash the world economy like it happened in 2008, for the sake of a clueless aphorism.
Just because it looks scary to you, people go to these kinds of tools because they need them. When those tools are taken away, they will go down riskier paths, or fail to pay bills (which can lead to worse outcomes). Don't treat everyone like they can't think for themselves and understand what they are getting into. Sometimes solutions like these are needed.
Playing devil's advocate: it depends. When I was younger, there were times when, if you lent money at only 36% per month interest, you'd be losing money. You'd have to lend at rates higher than that, just to break even, no matter how low the risk was.
This is some sort of fallacy, but I don't know the name of it.
Anyway, as a counter point, I'm here from an alternative reality where we instead instituted this law limiting APR a year before google started. Google still managed to buy servers despite the law (I think that story's apocryphal, but even if it's true, they just got them at lower interest rates or got like 2 fewer servers and google was slower for a few months).
However, in this alternate future, there's also another company that did a lot of really good things founded by someone who in this reality ended up the victim of a payday loan, penniless, and is still struggling with the after effects of declaring personal bankruptcy. His even-better-company didn't happen.
Do you sorta see what I'm trying to say here?
Maybe the fallacy is just a bias towards some specific vaguely related anecdotes over data? The sorta "I agree in general drunk driving is bad, but doesn't Steve Ballmer actually drives better while drunk so maybe it's too broad of a brush to outlaw it?"
Edit: also it seems like the fallacy would be in the other direction. Up through the Middle Ages, charging any interest at all was “usury”, because no one saw the difference between “non-exploitive business loans” vs preying on the desperate; the former was the bizarre special case, until the exception became the rule.
1. Pay the loan on-time (more than 90%; Community Financial Services Association of America, "About the Payday Industry: Myth vs. Reality.")
2. Do not roll over the loan (same source)
3. Are able, in advance, to accurately predict when they will be able to pay off the loan ( https://scholarship.law.columbia.edu/faculty_scholarship/594... )
4. Report having been satisfied with the experience as a whole ( http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.554... )
Furthermore, evidence shows that, on the whole, loans of this nature prevent bankruptcy, foreclosure, bounced checks, and other outcomes ranging from extremely devastating to merely disruptive ( https://www.researchgate.net/publication/5051409_Payday_Holi... ; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1344397 ; https://digitalcommons.chapman.edu/economics_articles/104/ ).
I think fortunately/unfortunately, most HN readers won't be familiar with the benefits quick, easy access to capital can have for a person, especially those living on the margins of poverty, where missing one e.g. auto or phone payment can have cascading, long-lasting effects, such as losing a job. The nice thing about our distributed, relatively free-market economy though is that every person can act as an independent agent, analyze their own risk tolerance and ability to make responsible use of the financial products available to them, and make choices leveraging personal information that no centralized authority (or blanket rule, such as "loans with interest above 36% should not be permissible in any circumstance") could possibly have access to.
We're living in near-zero interest rate land. 36% is usury, even 20% is that.
Maybe the US should not only put a hard cap for any kind of loan at FED interest rate + 10%, but also force through an actual livable minimum wage so even the poorest classes don't have to choose between ridiculously expensive credit card debt or starving/dying because they can't afford healthcare.
IF someone's credit won't support a 20% interest rate then I don't think they should be leant money in the traditional sense. Either the purchase isn't required (in which case it shouldn't happen), or if its essential they should be supported by mechanisms to get people out of debt. Governments can make low value loans available to help here. In Australia, your entitled to a loan if your on benefits (centrelink) in which repayments are deducted from your welfare payments but charged no interest.
Hypothetically if you need a $700 payday advance today, paid back in 2 weeks when you are paid, a credit card level (25% apr) would be an extremely small amount of money paid to the servicer (like 7 dollars total).
Oh and exempt workplace from two-party consent recording rules.
https://www.sec.gov/whistleblower
> The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected.
Someone made $114M this way.
https://www.sec.gov/news/press-release/2020-266
If you like the idea, there's a bill proposed to give the same ability to the CFBP.
https://www.banking.senate.gov/newsroom/majority/cortez-mast...
Where I'd really like it to be done is minimum wage law violations. Of course, that'll never happen.
https://www.cnbc.com/2021/02/16/map-shows-typical-payday-loa...
I'm not defending payday loans but it seems like an intentionally skewed comparison when you're looking at installment loans of terms in the years or something revolving like a credit card.
As someone that's had their ass saved by payday loans a couple times, I'll gladly defend them every day of the week and twice Sunday. At no point was I ever unclear about payback schedules, the cost of the financing, penalties, any of it, and neither is anyone else with the financial literacy to have a bank account, a job, and regular paychecks/deposits, all of which are a requirement from your average lender.
I can't do the math to answer this question in my head. I suspect you can't either. The point of normalizing the cost of borrowing money to an APR is so that a consumer can make this decision without having to solve exponential equations.
This hypothetical doesn't happen in the real world; there's no time where even the most awful subprime credit card (even at cash advance rates!) will be cheaper than a payday loan.
Its usefulness as a metric for a loan intended to be held for a couple of weeks to a month is very limited. Maybe when shopping across short-term lenders, but at that point, it's more intuitive to think in terms of how much the fee is in absolute terms.
Yes. Because annual interest rates are the standard of this country. That means you compare the interest rates apples-to-apples.
My credit card is 13% annual rate, even if I only ever borrow money for 30-days at the max. Comparing this platform vs my credit card on an apples-to-apples basis (APY) is just fair.
Credit card checks can also be used in many cases where credit cards cannot, and those don't always have the fee or immediate interest of cash advances.
Why shouldn't consumers be able to easily compare rates other than making it easier to mislead them? Arguably not proving an APR is an "intentionally skewed comparison."
Can someone please explain why isn't this akin to comparing the price of a gallon of water to that of printer ink and then thinking: "hmm, the water is way cheaper. I'll take a dozen of bottles, yet I'll be spending less."?
Because the thing you're buying is short term, unsecured credit, it's generally pretty fungible. Regardless of the credit product - payday loan, credit card, line of credit, or something else - what you're paying for is immediate access to money. And in most cases, these products allow you to borrow as much (or as little) as you want - so you're not going to "overborrow". This is more like comparing the cost of buying 30L of water in 330ml containers for $2/ea vs. in 481ml containers for $3/ea except the math for compound interest is harder to do correctly.
Same thing with interest. Unless it's normalised ( in a yearly equivalent), it's very hard to know how expensive the loan will be. That's why in France it's mandatory when advertising loans to state the yearly interest rate and the total amount paid in the end, just to be clear what you're getting into.
A $100 that I don't have to pay back until one year later for $200 has an APR of 100%.
I fail to see how APR is useful in any way whatsoever when comparing those two loans.
Example to illustrate: Let's say I ask you for a personal loan. If I need $100,000 and I want to pay you back over a few years, let's say you charge me 5% APR. You write me a check and you can roughly count on the fact that I'm going to pay you ~$5,000 a year for the service. I get the money I need, you make a nice return, we're both happy.
Now let's say I need $100 for a week. If you charged me the same 5% APR, that means I pay you back about $100.096 next week. Is it worth it? Pretty good deal for me - I'm happy to get a week's usage of $100 and it only cost me a dime. Pretty bad deal for you - and in fact, I expect you wouldn't want to even do the deal. Not worth the risk!
So what do you charge me? What's it worth to hand me a $100 and hope you'll get it back in a week? $1? Still pretty low - and that's 52% APR! $5? Getting closer - now you can buy a beer or two at the bar next week. But that's 260%! $10? Now we're at 520% APR.
It doesn't really scale at low numbers.
https://www.kucoin.com/margin/lend/USDT
USD transaction cost might be too high if the technology doesn't exist
But if you were a safe enough borrower to even get a $100k loan, then you're sfe to loan $100 to for a tiny return also. Payday loans probably tend to be for people who can't get better loans of any size.
https://www.pymnts.com/loans/2019/lendup-credit-card-busines...
Why? Surely simple things like "Your advertising misrepresents the way your service works" can be fixed by adding a few more weasel words to the claims?
https://youtu.be/uvw-u99yj8w?t=1077
Great advice from Jared but the example is unfortunate with this news. Would love to hear/see writeups/talks on how YC and the founders handle this unique situation in the future -- what happens when regulators this deep in your fondue as a startup? Is it a reconsider-pivot-and-proceed or a burn-it-all-down moment?
In addition to extremely high interest rates, a lot of these companies rely on being pretty aggressive to get people to pay. I kind of assume that without that these products don't really work.
Was the idea that the "ladder" was meant to be a carrot sub for the near "we'll break your legs" stick tactics that a lot of other lenders in that space use?
Juicy!
We need to have officers and directors of those companies to go to jail.
Alas CFPB is pretty toothless.
The business is still available to do anything and is well capitalized.
The regulator has to make it seem like a laser strike from orbit, using words like “LendUp was backed by some” in the past tense as if the company is dissolved, but its not and still is backed by the same capital sources.
Time to remedy the operation, challenge the CFPB in court, pivot etc
> The order would also impose a $100,000 civil money penalty based on LendUp’s demonstrated inability to pay.
Does this mean the fine is levied against individual executives, rather than the company itself?
As much as legal and compliance slow your work down, this is why they’re important folks!
Directors go to jail?
Directors get banned from being Directors?
Or they just walk away with their bonuses intact?
Like they couldn't find something else for that money to do?
Like even just giving it away.
So it’s no wonder this scam possess the smell test.