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How private equity firms make money offering loans to cash-strapped Americans
- 1024core 8y ago> The company declined to say how many unsolicited checks it mails out So they send out a check randomly: who is to verify that the recipient is the one who encashed it? I think there's a law in the US that any item sent unsolicited can be considered a "gift" and you don't have to pay for it. Why doesn't that apply here? In general, stories like this make me very sad. Motherfuckers like Geithner and Schwarzmann, etc. have all the money in the world they could ask for. Then why prey on poor people? Just enjoy your fucking dollars and leave these people alone!
- icelancer 8y agoThere are contracts attached to the check, written on the check, and documentation sent in addition to it.
- jschwartzi 8y agoYeah, but literally anyone can sign the contract. If I move out tomorrow and one of these checks lands in the new tenant's mailbox with my name on it there's nothing stopping that tenant from cashing the check by attempting to forge my signature. It's fraud, but now it's my problem because the idiots at the company put my name on the check. This kind of despicable practice should be illegal.
- PurpleBoxDragon 8y agoThe entire notion of identity theft should be inverted. It wasn't your identity that was stolen, it was the money of which ever place didn't verify the person taking the money. So it should be their problem, not your problem.
- timerol 8y agoA comedic explanation is given by Mitchell & Webb: https://www.youtube.com/watch?v=CS9ptA3Ya9E https://www.youtube.com/watch?v=CS9ptA3Ya9E "Some logged in on the bank website and committed identity theft electronically." "I see, did they take anything else?" "Uh, no." "Oh, good, so all the money's still there?" "What?" It's just my identity that's gone. None of your money?"
- nimish 8y agoIt is (or was) for credit cards. The banks, of course, figured out loopholes and with the CFPB out of commission, welcome to finance in America
- 1024core 8y agoOnce I got a Discover Card offer in the mail. I had become tired of these "offers", so I wrote in large black marker "TAKE ME OFF YOUR LIST" on this 'offer' and sent it back. Lo and behold, I get a Discover card in the mail a few weeks later. So I called them up: I did not sign up, why did you send me the card? They insisted I had signed up. So I asked them to send me a copy of the application, with my signature on it (which they agreed to do). And a few days later, I get a printed copy of, basically, a database record listing the automatically filled-in information. Nothing else.
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- munificent 8y ago> have all the money in the world they could ask for. Then why prey on poor people? How do you think they got that money in the first place?
- 1024core 8y agoI don't think they got rich stealing from poor people (at least, I don't think Geithner did; he was the chair of the NY Fed). They have plenty of money to start with, before they jumped on this "opportunity". Shame on them.
- mindslight 8y agoI agree with you in spirit, but it looks like the unsolicited gifts law is explicitly for "merchandise". Giving someone a deposit check is a common way of making a serious offer for eg real estate, and is likely to happen through the mail. It would be an interesting argument if said check were cashed without knowledge of any implicit contract (say another person opening+discarding the rest of the correspondence, or just simply someone who can't read well). I'd imagine if you complained and really pushed after getting the first bill, they'd just void the arrangement upon your returning the money. If you couldn't pay it back immediately, there's a good argument to be made that you're entitled to a payment plan that is not their terms, but it's not like these scams are targeting people who have access to equal protection! (I also have to wonder about a limited power of attorney with the ability to endorse checks, but not to form contracts)
- lliamander 8y ago> A company sends you a gift in the mail...Whatever you do, don’t pay for it — and don’t get conned if the sender follows up with a phone call or visit. By law, unsolicited merchandise is yours to keep. https://about.usps.com/publications/pub300a/pub300a_tech_021.htm https://about.usps.com/publications/pub300a/pub300a_tech_021... EDIT: IANAL
- menacingly 8y agoSo, this guy received a loan check in the mail with an outrageous interest rate, and cashed it when his truck broke down. Is the preference here that the guy didn't have the option of fixing his truck?
- moonka 8y ago>Is the preference here that the guy didn't have the option of fixing his truck? It would be nice if people weren't running so close to the edge that an emergency can ruin them. I don't know the particulars of this guy's story, there must be many people who are in this situation since this is such a profitable industry. Maybe that speaks to a larger issue of inequality in our society. I'm not sure that relying on predatory loans to be a safety net are the only or best option for society.
- menacingly 8y agoThose are great points, they're just further up the chain than where we are when we're trying to execute our day to day. It was an option on the table he didn't have to take. He's a grown man, and he made a call. It may have even been the right one. I come from a "payday-loan poor" family, and spent a good chunk of my adult life there myself. It's hard, but people with comfy salaries paternalistically taking options away because they know better really agitates me.
- moonka 8y ago>It may have even been the right one. Absolutely, I just think it's a shame that there aren't alternatives available. Normally I'd assume that interest rates are that high because that's what is required to remain profitable while lending to the market, but I can't help wonder if consolidation and wall street ownership means there's a large profit margin and some gouging happening.
- menacingly 8y agoWell, then we're on the same page. I don't want him to need the loan, but I respect him enough to trust him with the option. I'd prefer a competitive marketplace for his loans to shaming the concept of an alternative financial system, and I absolutely would not put it past capital to collude to keep the interest rates high. I don't know that, though, since these are risky loans. Case in point, this very dude didn't pay it back.
- cwal37 8y agoSomething that stands out to me is the extent to which PE is in all kinds of different agencies through various sector-specific funds. I recognized several of the firms mentioned from the power sector, where they have a habit of acquiring somewhat distressed assets that still have some value in one of the market structures (e.g., selling capacity) even if they don't really expect the plant to run very much at all. In one sense it's good that someone has the flexibility to maintain an asset that still has real value but a different use case than its original intention, but on the other side that money could be propping up something that doesn't really have long-term value; distorting the market by delaying entries by newer or more efficient technologies. I remember seeing a comment the other day about how the next recession could probably/easily not be housing (the last one) or tech (the one before that), but the next big chunk of the economy that's under-studied and not well known. Maybe it's these pools of cash at the top extracting more $ from everyone below them on the global financial stage. Not sure what the failure point or mechanism would be though.
- mbesto 8y agoPE advisor guy here. I'm not sure why the author acting as if the negative externalities of subprime lending are all of the sudden new because PE firms are taking stakes in them. Are they "supercharged" because of mega PE funds? Probably, but I think the fact that these firms are so profitable (regardless of PE) is the bigger topic at hand. Problem here is two-fold: 1. Why isn't the regulation that does exist working like it should? 2. Assuming you think these loans should just not exist - think again. First, it's obvious there is demand for this type of lending. Second, I would love for someone to tell me how for-profit entities in this space would avoid using dark patterns to get people to pay them back. There's usually a reason many entrepreneurs stay away from these business models - they are notoriously scummy for a reason. This all reminds me of dark patterns technology managers implement to increase conversions (which IMHO is no different than what subprime lenders do). So for people who read this and think "oh this is so wrong"...is it ok for you to maximize profits using dark patterns (and thus extracting value to the wealth of your company) but not for a sub-prime lending? For record - I'm not arguing one way or the other, just something for the HN crowd to ponder. For more details on this topic, great documentary on netflix: https://www.imdb.com/title/tt7909178/ https://www.imdb.com/title/tt7909178/
- nimish 8y ago1. Because the industry lobbied heavily for the CFPB and others to be neutered 2. There is demand for short term cash. But not for usurious loan sharking that has deep social consequences. Many of the "services" provided here are predatory rather than rehabilitative and it's entirely possible to have the latter without the former, ideally via something like a post office bank. That the firms are profitable is secondary to whether it's a useful social good.
- avgDev 8y agoI have watched an interesting documentary on Scott Tucker that is currently serving time in prison for collecting $1.3 billion in illegal interest payments as some people paid a total of almost $1,000 to settle a $300 loan. He was an owner of a quick loan company. The guy and his wife felt they were wrongfully stripped of their wealth. They did not feel bad for people who struggled to survive, and felt 0 remorse. I recommend reading about this or finding the documentary as I can't recall the name at the moment. These loans should be strictly regulated. They are preying on people who may lack basic understanding of loans or a barely scraping by. These companies use very aggressive tactics when trying to recover the money + interest. These loans are a cancer to a society. As it pushes people very close to an edge.
- JumpCrisscross 8y ago> These loans are a cancer to a society Subprime loans should be strictly regulated to (a) ensure the borrower understands what they're getting into ex ante and (b) minimize systemic effects. But they're also a symptom of American poverty. There are people who, strictly speaking, are better off for having taken a subprime loan. (Classic example: truck they need for work breaks down and they have no rainy day fund.) Banning the loans won't fix the underlying problem.
- frgtpsswrdlame 8y ago>minimize systemic effects Those three words seem to be doing a lot of work. How would you minimize systemic effects? What systemic effects even need to be minimized?
- JumpCrisscross 8y ago> How would you minimize systemic effects? What systemic effects even need to be minimized? Subprime loans have higher default rates than prime loans. You want to make sure the lender can bear that risk. (Subprime mortgages getting into places they shouldn't have been was a proximate cause of the financial crisis.)
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- apazzolini 8y agoIt's very expensive to be poor in America.
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