The New Payday Lender Looks a Lot Like the Old Payday Lender (theatlantic.com) 78
Apps promising to "advance" a user's wages say they aren't payday lenders. So what are they? From a report: Earnin does not call its service a loan. Rather, it's an "advance": Users are borrowing from their own paychecks -- not from the app. It does not require a credit check, and promises no hidden fees or additional financing charges, even if users don't tip or repay. Its terms of service say it will never attempt to collect on an advance that wasn't repaid. Earnin is one of a new class of online lending apps, marketed as frictionless alternatives to traditional payday lenders. They are advertised on dating apps, YouTube, and in between episodes of a Hulu binge. Crucially, rather than charging interest or a financing fee, these apps collect their money via those "tips," as do the companies Dave and Moneylion. Unlike with, say, a food-delivery app, tips don't go toward augmenting a low-wage worker's hourly rate, but simply toward the companies themselves: Dave says tips are "what keep our lights on," and Moneylion says its tips "help us cover the high costs of keeping Instacash interest free."
Earlier this year, after a probe by New York State regulators, Earnin ended its practice of increasing users' borrowing limit based on how much they tipped. It still tells users "if the Earnin community keeps [tipping], we'll be able to expand our services." There's an analog for the services these apps offer: payday lending, which more than a dozen states have effectively prohibited. Payday lenders peddle small-dollar loans, available right away, then debit the amount borrowed, plus a financing fee, on the borrower's next payday. The financing fees and interest rates associated with payday loans are enormously high, as much as $30 per every $100 borrowed, according to the Consumer Finance Protection Bureau.
Earlier this year, after a probe by New York State regulators, Earnin ended its practice of increasing users' borrowing limit based on how much they tipped. It still tells users "if the Earnin community keeps [tipping], we'll be able to expand our services." There's an analog for the services these apps offer: payday lending, which more than a dozen states have effectively prohibited. Payday lenders peddle small-dollar loans, available right away, then debit the amount borrowed, plus a financing fee, on the borrower's next payday. The financing fees and interest rates associated with payday loans are enormously high, as much as $30 per every $100 borrowed, according to the Consumer Finance Protection Bureau.
student loans are easy to get (Score:2)
student loans are easy to get
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Until the 1960s, people could turn to the post office to deposit money or build a savings fund. Born out of the financial crisis known as the Panic of 1907 and taking off in popularity after the Great Depression, postal banking flourished for a time — at one point holding about 10% of all commercial banking assets in the U.S. — before the system was abolished in 1966, when community banks proliferated.
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Here in Canada, the banks are very opposed to post office banking. You can't blame them as they're not doing so good, currently bitching that they (the big 6 banks) only have $15 Billion in bonuses to give out this year, not including stock options, and the government is talking about taxing stock options over $200,000 and next they might make the banks pay taxes on their profits of $46.6 billion. Besides it's only 2 million Canadians (out of about 35 million including children etc) who have to use pay day
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The real problem is the economics of the differs from the moral aspect.
The person who has less money is at a higher risk of not paying it back. To cover the risk the lender will give a higher interest rate, in which the person will have a harder time paying back.
Those who needs the money the most will have to pay the most to buy it.
Christian and Muslim religions actually had found this to be a moral problem, thus made moral rules against loans, which were not followed, because economics will normally trump
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Muslim regions still mostly enforce the moral rules against interest.
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Yes, with workarounds.
The idea is that banks buy the things you want to buy (ex: a car) and lease it back to you. Of course, the sum of the installments is more than the original price but it is like, totally not interest.
I am sure that there are some subtleties that make it different from a regular loan, but it looks a lot like a hack to me.
Re: God forbid! (Score:2)
The big difference is that it is always fixed payment schedules defined up front. None of the minimum payments stuff most non asset backed loans do
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Maybe not be a scum-sucking landlord?
Profiting on someone else's need to shelter is the right thing to do.
I know, it's hard to process.
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People that may or may not be able to afford to repay loans, get the chance to put themselves into crippling debt that will cause a spiralling financial situation from which there are no good outcomes.
It's almost as though the Finance industry has an obligation to protect the people that seek its services.
(In case you're wondering, that obligation is legally defined in the UK)
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Earnin requires constant access to users’ ba (Score:2)
Earnin requires constant access to users’ bank-account well let's see how long before the laws put an stop to this.
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Earnin requires constant access to usersâ(TM) bank-account well let's see how long before the laws put an stop to this.
So how do they actually work with that?
Is it set up to watch for their paycheck direct deposit, and automatically start a transfer of it to the loan company account?
Securing an advance is one of the biggest problems for why the loan/advance industry is as shitty as it is.
From the loan company side, if you can't 100% guarantee repayment, honest business won't want anything to do with it, leaving the bottom of the barrel scum as the only ones willing to offer such service.
From the customer side, there will al
Annualized $30 per $100...whoa (Score:2)
I'm too lazy to calculate that rate but it must be enormous if payday is a barely week away.
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Yep, the interest rates were always enormous....as were the risks since there was no credit check.
Payday lenders did serve a purpose as a "lender of last resort" for when shit hit the fan. Unfortunately, shit can hit the fan more than once, resulting in the borrower rolling over those loans over and over again, producing headline-grabbing numbers.
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Card flipping in the $500 range is pretty common.
Re: Annualized $30 per $100...whoa (Score:2)
But the 'loan sharks' are not people the average Joe would know; but the ones he can do business with happen to have a store front offering say, cash for your car title or payslip.
Re: Annualized $30 per $100...whoa (Score:2)
Like one guy said here before, each one is just a transmission problem or medical bill away from catastrophe. At least we have these go-to guys (or apps)
Re:Annualized $30 per $100...whoa (Score:4, Informative)
The typical fee in my area is $75 every 2 weeks for $500.
Basically they give you $500, and withdraw $75 every 2 weeks from your account without covering any principal until you specifically make the $500 payoff.
It comes to 400% non compounding interest annually.
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My math:
(($75 fee/interest / 500)/14 Days)*365 Days * 100 = 391 APR
How are you calculating it?
I've really been scratching my head with this one, in your example:
152 in fees/ 300 loan / 90 days *365 * 100 gets me 205 APR
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The typical fee in my area is $75 every 2 weeks for $500.
Basically they give you $500, and withdraw $75 every 2 weeks from your account without covering any principal until you specifically make the $500 payoff.
It comes to 400% non compounding interest annually.
We called that a "vig" and it was 10% due weekly. Don't forget to make your payment or Guido will have to come collect...
So your $500 loan would cost you $50 every week. Plus the original $500.
Re: Annualized $30 per $100...whoa (Score:2)
33% isn't a bad surcharge for not needing a bank.
Yeah ridiculous interest is the problem with old-f (Score:3)
Yeah the old-fashioned payday lenders charge RIDICULOUS rates. Absolutely crazy. Which is the big problem with them.
If these apps indeed don't charge interest or large fees, that's a totally different situation. I'm suspicious, but it sounds very different.
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Forgive me for not being angry enough (Score:2)
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There are situations where people need cash fast.
Then ask your butler to sell some of the silverware.
Some people need a payday lender, and some people have to pawn or sell possessions.
Pawn is a loan, backed by an object of value as collateral. The normal terms for a pawn is that you'll return with cash plus fee to get your item back. It's a very simple kind of loan with a fixed charge rather than compound interest. The main way the pawn shop gets you is the value they offer for a good is way below what it might sell for. If you're looking to sell stuff, pawning is usually a bad way to go.
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I'll judge the payday lender for their practices. Especially because of the person who needs it. Someone trying to weasel out of being regulated like one is probably trying to be worse than something that's already bad.
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Re: Forgive me for not being angry enough (Score:2)
payday lenders (Score:5, Informative)
payday lenders my foot! call them what they really are - loan sharks.
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So, don't be so cruel as to compare your local shylock to scum like payday lenders.
Here's a tip (Score:2)
They never attempt to collect? (Score:1)
Ummm, what?
OK. I would like to advance 50 years of paychecks please. BYEEEEEEEEEEEEEEEEEEEEEEEEEEEEE!
Price to pay for access to credit (Score:5, Insightful)
The financing fees and interest rates associated with payday loans are enormously high, as much as $30 per every $100 borrowed, according to the Consumer Finance Protection Bureau.
We need to decide if we want everyone to have access to credit or if we want low rates.
It's crazy to think that people with no collateral and a poor credit history should get a good rate on their loan. That loan rate is high because the default rate is high. It's just not profitable to offer the low rate that people with good credit get to people with bad credit.
Re:Price to pay for access to credit (Score:4, Insightful)
The decision is simple, really. No, not everyone should have access to credit. Even on a personal level, think of that deadbeat relative who always begs family members for money and makes promises to pay them back that never materialize. Would you keep loaning them money, or get angry that others in the family stopped doing so?
Receiving credit should be a privilege that you're extended because you're NOT a poor risk of repaying the debt.
These loan sharks with stupidly high rates aren't really doing their customers any favors. I'm not big on government regulating them because as long as they're not lying about the terms and conditions for the loans they offer people, it seems to me like it should be legal. But the harsh reality is, if you're in such a bad financial situation so you need that relatively small sum of money immediately, despite the terrible interest rate or fee? You're already unable to keep up with the bills you owe. This will just postpone the inevitable for you and make a deeper debt hole to try to get back out from under in the end.
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With payday loans, they at least have bankruptcy protection.
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In practice, most of these people need a payday loan to make up for paying off their last payday loan in a never-ending cycle. They only wish it was 30% for falling short one time. This helps very few people and financially ruins many. Whose needs are we really thinking about here? At the very least, cyclical borrowing could be should be put to a stop because everyone knows it will never end well.
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Not exactly. (Score:3)
WeWork got $1.75B line of credit from Goldman - cosigned by Softbank (a $90B holding company) - so it is actually secured with collateral - it is just that it is not WeWork's collateral.
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I can't be in the only place in the countries where credit unions are doing *exactly* that . . . they advertise for it--and with the loan, at a fraction of the price as for the parasites, comes a dose of borrower education to help the borrower break this vicious cycle . . .
hawk
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"We need to decide if we want everyone to have access to credit or if we want low rates."
Fine, then: no, not everyone should have access to credit.
Individual responsibility is a fine thing, *if* you are responsible. Here, the underlying problem is that some people are terrible at managing their money. They are not capable of being responsible. Allowing payday lending is allowing unscrupulous scum to take advantage of these people.
FWIW: The people who cannot manage their money are likely to be the ones on pu
Tip? (Score:2)
TIP?!
What the heck? Should I be tipping the clerk at the bank now? How about my pharmacist?
Re: Tip? (Score:2)
Looks like I'll be playing the world's smallest ðYZ violin...
Stupid people (Score:2)
There is this one Earnin commercial that makes me want to punch through my TV screen to hit the people that live inside it.
It says something like how some new shoes are coming out this week, but you won't have the cash to buy them, so use Earnin! WTF? If you don't have the money to buy something, then DON'T BUY IT!
https://vimeo.com/41152287 [vimeo.com]
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If you don't have the money today, you're not going to have it when the bill comes due either. If you can't afford food, you do NOT buy food on credit. You apply for aid, visit a food bank, etc.
There is never a case in the history of time when taking out a payday loan improved someone's financial situation.
Tip is higher than interests (Score:2)
When I travel to the US I am always amazed at the amount of tip payed to bartenders. It's around 15%. Comparatively, personal loans use to be in the 6-20% range -- and that's YEARLY.
With this mentality, tips are a much better source of income - even if some people do not tip.
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You can get a personal loan for 3-5%. The catch is that you have to have a credit history that convinces the bank that you'll pay them back.
Employers should allow advances (Score:4, Interesting)
The last one seemed to be the fairest distribution of work and financial risk. So I figured companies would pay you in the middle of the month. Silly me.
Later when I was running my own company with employees, I learned some of them were going to these payday loan places (legalized robbery IMHO). So I instituted a policy where a limited number of times a year, you could request to get your paycheck early. You could receive up to the number of days/hours you'd worked at the time of the request. So if you were paid every 2 weeks and had worked 1 week (40 hours), you could request to get an advance on your paycheck one week early for up to 40 hours of work. No risk to the company since you'd already done the work and were going to be paid the money eventually anyway. It was just a little more work for the accounting department.
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That *has* to be a typo in the article... (Score:2)
So... if I am to read this literally, I can get an advance, *NOT* repay it, and they will not ever try to collect it?
That can't possibly be what they mean.... although the sadist in me thinks it would be funny as hell if it's actually in their real T.O.S. that way and someone takes them to task on it.
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You can't have both (Score:2)
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And the idea that you need to charge >1000% (I've seen up to 1600%!) interest for poor people to be able to borrow is absurd. You might as well legalize loan sharks at that point, they charge a much lower rate and, in the end, cause far less damage.
So how exactly does the headline fit the facts? (Score:3)
The simple answer is that the headline is a lie. There is no resemblance beyond the core concept of getting money before getting paid, which doesn't even happen the same way! One is a usurious loan, the other a simple advance on pay.