Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending • Hacker News Board

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#241

Post by doctorpangloss » Thu, Feb 07, 2019, 1:07 AM UTC

king_magic wrote: post #99

rayiner wrote: post #89

Earlier quoted context omitted.

The idea that selling products and services to poor people is “taking advantage of them” in the terms reality demands is bonkers.

You can’t possibly be serious w.r.t. payday lenders. I mean seriously, come on. It’s one of the most predatory types of lending that exists. They often provide loans with intentionally confusing and borderline disingenuous lending terms with the explicit goal of taking advantage of people. > The result is denying poor people access to credit. Lol, I mean, if being practically tricked into loans you can never pay off…

> The result is denying poor people access to credit.

I think it sort of boils down to rayinier's wrong, or at least hopelessly unsophisticated, understanding of credit.

When you don't pay your landlord on time, you definitely enter a debt relationship with your landlord. That's credit in every sense but financial.

Payday loan companies securitized a form of credit that had low effective "interest" (e.g., late payment penalties) and converted it into something with high interest.

Yes, nobody wants to be evicted. But surely, in a strictly rational economic sense, landlords don't want vacant properties either. It's not so obvious what is the "efficient rate," as rayinier says, because based on eviction rates for late payments of rents, it's probably not that high.

Foreclosing on people's homes, of course, was a huge disaster and the source of an incredible amount of national economic and emotional misery. So again, just within an economic positivist framework, it's not at all as simple to arrive at "efficient" rates as rayinier assumes.

I'm not sure if payday loan companies, which charge a higher interest rate to essentially victimize the same population at an industrial scale, is an economic positive, you know? I wish he would just admit that while some human beings will sometimes be landlords, and therefore deserve some protections, no normal person will literally ever be a payday loan lender, so it seems fit that we ought to use a credit system (late rental payments) that people can imagine justice inside of rather than an usurious credit system nobody will ever be on the right side of.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#242

Post by perl4ever » Thu, Feb 07, 2019, 1:10 AM UTC

iambateman wrote: post #239

rayiner wrote: post #89

Earlier quoted context omitted.

The idea that selling products and services to poor people is “taking advantage of them” in the terms reality demands is bonkers.

In that framework, is it possible to sell someone something (anything) they ought not purchase? Is there such a thing as a “poor choice”? The answer is yes! Fentanyl has a market. Student loans for a degree in Modern Studies have a market. Impossible health supplements have a market. Selling products can certainly take advantage of a person.

"Fentanyl has a market"

Are you saying that a cancer patient ought not to use Fentanyl when Oxycontin no longer is enough and go directly to morphine? This is not obviously a "poor choice" from my perspective.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#243

Post by pjscott » Thu, Feb 07, 2019, 1:10 AM UTC

Someone1234 wrote: post #69

seibelj wrote: post #56

There is still no law against spending your entire paycheck on lotto tickets, nor taking out a loan and spending it entirely on lotto tickets. The government seems to pick and choose what mistakes they allow their citizens to make.

Nowhere in the regulations is government banning PayDay loans (now or previously). This is about setting limits on just how much profit they can make per loan (since financial complexity makes it trivial to hide the true dollar cost). And actually lotteries are heavily regulated, particularly in relation to odds, costs, and complexities. You know, when you buy a ticket, exactly how little chance you have.

That is, in effect, a limit on how risky their loans can be if they want to stay in business. The more likely someone is to default on a loan, the higher the interest rate needs to be in order for it to have a positive expected value for the lender.

Or, to put it another way: the more restrictive the cap on interest, the more poor people become unable to get an emergency loan under any circumstances.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#244

Post by neveroffensive » Thu, Feb 07, 2019, 1:12 AM UTC

Arbalest wrote: post #109

rayiner wrote: post #89

Earlier quoted context omitted.

The idea that selling products and services to poor people is “taking advantage of them” in the terms reality demands is bonkers.

Stating that still assumes rational actors. It is based off the premise of "freedom" above all else. The problem with freedom is that the way it is defined really depends on what you want to achieve. Infinite choice is the simplest form of freedom, but in this case, you are enabling market forces to remove the ability for people with poor judgement to lose any capacity for future financial freedom, a form of freedom…

There is no such thing as "financial freedom". Financial freedom is a concept that arises from personal beliefs and practices.

There is only one universal freedom, the freedom of chioce. I think this is more important than any 21st century pay day lending problem. We need to preserve free choice not just for our generation/set of problems, but for all time.

Edit: Don't confuse living a long, healthy, happy life with freedom. They could not be more different.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#245

Post by clairity » Thu, Feb 07, 2019, 1:14 AM UTC

bko wrote: post #82

firasd wrote: post #31

Anytime I see people defend this kind of practice, the John Ruskin quote comes to mind: “The dullest of all excuses for usury is that some kind of good is done by the usurer.”

From another article: > A typical two-week payday loan comes with a $15 fee for every $100 borrowed and has an annual interest rate of nearly 400%, according to the CFPB. Over It's technically 400% APR, but its because the amount borrowed is very low. What should the rate be? 10% or ~$0.40 for the two week loan? There is a certain amount of overhead in processing a loan. Especially considering that the clientele ofte…

> “amount borrowed is very low.... There is a certain amount of overhead in processing a loan.”

this is the crux of the business challenge here, and it’s common for long-tail businesses like payday lending. fixed and marginal costs are high relative to marginal revenue and to loan amounts.

but the social and ethical issue is rooted in bias and discrimination mediated through the credit bureaus who have a poor track record with low-information and/or highly-dynamic credit landscapes. they apply a static model that works fine for the affluent while shutting out the poor.

payday lenders transfer default risk to borrowers through high fees rather than relying on imperfect creditworthiness models applied to borrowers that often have little credit history or bad credit from difficult life circumstances.

in that situation, is it possible to create credit models that better predict default risk based on information available in our interconnected age? some startups tried using social media data for this, but none seem to have emerged victorious.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#246

Post by perl4ever » Thu, Feb 07, 2019, 1:16 AM UTC

chipotle_coyote wrote: post #139

rayiner wrote: post #89

Earlier quoted context omitted.

The idea that selling products and services to poor people is “taking advantage of them” in the terms reality demands is bonkers.

So reality demands that we categorize charging desperate people an APR of 200%, 300% or more as "selling products and services to poor people," as if doing so is functionally indistinguishable from selling them a cheeseburger?

I don't think that just because a business exists, it isn't predatory. Maybe payday loans are on net bad and should be eliminated. Perhaps what people say about trapping customers in a cycle is true.

However, I don't think that just because an APR sounds extremely large, that makes the loan predatory or otherwise unnecessary. Just like with housing and everything else, when you rent something for a short period of time, there is a fixed overhead, and if you annualize it you can clutch your pearls over how high it is. But that doesn't in itself mean it's not a useful or even vital service at a fair price.

If people need money for a few days to avoid being evicted, jailed, losing their job, whatever, and the APR includes, say, a $20 service charge, it seems disingenuous to attack it solely on the annualized interest rate.

You might as well say that we should eliminate $100/night hotels because that equates to a $3,000/month price which is clearly outrageous.

On an unrelated note, I wonder if the payday loan places are the same as the check cashing places where you take your paycheck if you don't have a bank account. Should public policy consider that attacking one side of the business might affect another?

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#247

Post by rayiner » Thu, Feb 07, 2019, 1:19 AM UTC

stouset wrote: post #188

rayiner wrote: post #164

Earlier quoted context omitted.

Yes, I’m assuming poor people aren’t irrational. Silly me.

We’re all irrational. We all lack access to complete information about any market we’re acting in. Entire business models have been created to take advantage of and even maximize this type of information asymmetry. Legislation exists to curb the most egregious offenders. You can argue whether or not this specific case is egregious enough to warrant regulation. But implying we’re all fully rational actors who can make…

Information asymmetry results in market failures, and can justify regulation. But the Obama payday regulations aren’t directed to information asymmetry. They do not, for example, require certain transparency measures. Instead, what they do is place limits on who lenders and lend to.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#248

Post by fzeroracer » Thu, Feb 07, 2019, 1:34 AM UTC

jpindar wrote: post #236

Angostura wrote: post #119

Earlier quoted context omitted.

> If you take away that option, I don’t get my car fixed and lose my job. That’s the alternative. Except the rule that is being killed is the one that told lenders they needed to check to ensure that the borrower would be able to pay the loan back. In your case, with your car and your job, you would pass this test. And if you couldn’t then lending the money would put you in a worse position than immediate unemploymen…

What test? Please define "able to pay the loan back". AFAIK, payday loan companies do require the borrower to be employed, hence the name "payday".

Before I delve into my argument, you would actually be wrong. Names can be tricky, payday loans are typically just short term loans. You don't necessarily have to show current employment. Now, let me give you a hypothetical:

Let's say for example you have someone asking for a payday loan of $100. You are not 'required' to determine if someone can afford to pay that back or not. You offer them the loan, they take it. Turns out they can't afford to pay it back, so you sue them for over 36 times the amount. Now imagine that's not actually a hypothetical [1].

That's one real-world example of how payday loans are predatory. The incentive is to loan to people who can't pay it back, because you earn more in garnishing their wages than you do from the initial loan. A second example is imagine you offer them a loan for $100. Then you offer them a deal: I'll give you $200 for half the (initial) interest rate. They take it because you've convinced them it was a good deal, but they could only actually afford $100 and not $200. Now we're back to garnishing their wages and getting rich off of it.

This is why those regulations exist. This is an actual problem, not a hypothetical. The incentive for payday lenders is to scam people out of money because that's their entire business model.

[1] https://www.theguardian.com/us-news/2015/may/09/us-payday-lo...

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#249

Post by dragonwriter » Thu, Feb 07, 2019, 1:39 AM UTC

rayiner wrote: post #164

Arbalest wrote: post #109

Earlier quoted context omitted.

Stating that still assumes rational actors. It is based off the premise of "freedom" above all else. The problem with freedom is that the way it is defined really depends on what you want to achieve. Infinite choice is the simplest form of freedom, but in this case, you are enabling market forces to remove the ability for people with poor judgement to lose any capacity for future financial freedom, a form of freedom…

Yes, I’m assuming poor people aren’t irrational. Silly me.

> Yes, I’m assuming poor people aren’t irrational. Silly me.

Quite silly; that people in general are well modelled by the assumption of rationality is one of the most thoroughly disproven offer in the social sciences, and that the people who end up at the bottom end of the economic distribution disproportionately includes those who are particularly poorly modelled by the assumption of perfect utility maximization as if with full knowledge of the costs and utilities of all available should be fairly obvious.

Re: Consumer Protection Bureau Aims to Roll Back Rules for Payday Lending

#250

Post by hinkley » Thu, Feb 07, 2019, 1:42 AM UTC

njarboe wrote: post #41

andrewla wrote: post #22

Earlier quoted context omitted.

I saw a tweet [1] that followed a thread on the concept that paydays are not really a requirement any more -- it is totally possible with our existing banking infrastructure to pay salaries on a more continuous basis, but we've built up a huge amount of institutional momentum around the idea that running payroll is a complex and laborious process that we want to infrequently. By parallel in software engineering, bran…

You would have to have people's rent, mortgages, car loans, etc do the same or else people will not have enough money to pay them. The rent due at the beginning of the month right when people get a pay check is a very good idea to prevent defaults.

You’d probably have to go up the chain the other direction too.

Small companies that can’t afford to take payment +60 or +90 probably won’t have the liquidity to do +30 either, so if they have to pay people daily instead of every two weeks will probably struggle.