Networks (credit card rails) are dead long term. Capital One is buying a less than prime customer base instead of organic growth (plus the deposits). The profit is in the revolving interest on a customer base that carries a balance, not the interchange and network.
https://investorrelations.discover.com/newsroom/press-releas...
This should come as no surprise, as subprime is what Capital One does.
https://newrepublic.com/article/155212/worked-capital-one-fi...
Tangentially, it’s questionable how sustainable this is. This customer base is under material financial stress, and no one knows what’s going to happen next.
https://fred.stlouisfed.org/series/CCLACBW027SBOG
https://fred.stlouisfed.org/series/DRCCLACBS
https://www.cnbc.com/2024/02/06/credit-card-delinquencies-su...
I find a lot of these kinds of critiques of subprime lending to be disturbingly patronizing. The notion that some third party (the government, presumably) ought to be decreeing that people whose credit is (in this article’s words) so bad that they can’t qualify for a $300 limit at 27% interest, should just not be allowed to access legal credit at all. Terms get worse as you prove you’re an unwise risk. That’s just math. If you ask the people who are opening these credit cards, they’ll tell you that yes they do want the credit. They would rather have that than not have it. And they’re adults. And suspiciously, it’s only years after voluntarily taking this money that some of them turn around and complain about “predatory lending.”
If we ban all forms of subprime (or make it impossible with interest rate caps, etc) the most desperate bad-with-credit people, whom we’re supposedly trying to protect, will still find a way to borrow money anyway, at far worse terms—this is what loan sharks do. You can’t fix humans with regulation.
But heh, that’s just the law. We can change the definition of legal credit with the stroke of a pen (see above).
I think the argument is that it's not protection. If someone won't lend to you at 25% (but they would at 27%), then you can't borrow. Is it protection to just prevent those people from borrowing at all?
https://www.law.cornell.edu/wex/usury
At least in the case of auto loans, usury limits do not limit subprime credit access. If you want to refer specifically to deep subprime unsecured model profitability, if it’s profitable, clearly there is room for margin compression through interest rate limits.
https://www.fdic.gov/analysis/cfr/consumer/2015/presentation...
I do not understand what you're trying to say here. We're talking about
- putting an upper limit on the interest rate for loans (which is what said usary limits _are_), and
- if that means some people cannot get loans, and
- if that inability to get a loan is really helping that person
The fact that usary law exists and puts a limit on the interest rate for loans doesn't answer the question, since it's only the starting point from which the question is asked.
That being said, what you linked seems to say something along the lines of
1. For dealer + bank loan setups, the usary limits do indeed reduce the ability of the dealer setup a loan (with the bank) for a buyer. This is the case we were originally talking about, for which we have an unanswered question.
2. For BHPH (the car dealer is the one doing the loan), the limit is worked around by increasing the amount of the loan. This _seems_ to be similar to buying points on a loan. This seems like a better tradeoff than "a loan isn't possible", since the buyer still has an option (where they wind up paying more by the end, but with less risk; to both parties). My thought would be that this is actually helpful for the buyer, but it's debateable.
And sometime the corporate body needs externally deroved guardrails.
That said, secured credit cards exist. No one need be given credit, to have a credit card. And secured can lead to unsecured in time.
Companies have this as a patch already. And they want to lend, so market forces work here.
And there already is a limit under ursary laws, and yet magically, we still have sub prime credit. So to both sides of this discussion I say, ursary doesn't solve having subprime, because there is always a subprime.
Remove existing subprime clients, and the next tier becomes the new subprime. It's merely a label for the "riskiest people we lend to".
Chase that label, and eventually no one will be lent to. At all.
What I'm saying is that it's hard to tell if the usary limits actually provide a benefit to the borrowers. And I'm discussing the topics related to figuring out if they do or don't.
And what you appear to be saying is that we need those limits because we've always had those limits, and because limits are good. And that the limits don't limit people because secured credit cards exist. Which doesn't really speak to the question I was trying to raise... of whether or not those usary limits provide the benefits they are supposed to.
Why? Because they've done a lot of research, and there was lead up, there were issues, that caused those laws to exist. Study that, before we ponder is what I say.
Yes, I understand and agree with the concept of Chesterton's Fence. And examining that context and the logic for those laws is precisely what I'm trying to do here.
But a lot of people just straight up don't understand interest (despite it being within their capabilities) and e.g. make minimum payments on their loans and complain when the balance goes up. A particularly egregious case (because the people in question are educated) is when people make minimum payments on student loans and don't seem to understand why the balance is increasing.
That's the entire profit margin of some businesses. At least some places like L.A. are taking tiny steps to prevent a total takeover by these assholes by outlawing "cashless" businesses.
I was disappointed by many of the "reforms" passed under Obama, but this one in particular and some other banking-related ones stand out as truly helpful.
Products that you buy have their marketing priced in. Even if you don't see the adds you are still paying for them.
Marketing costs are not included in Gross Profit Margin calculations, and don't have an impact on COGS.
Marketing spend is primarily used to grow your TAM and channel customers to your product, but is very marginal spend wise.
They are however building more “solutions” to try and capture more of the transaction fees, but most people’s disdain for the payment rails would be better redirected at the banks in this case.