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PE 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 tak
by mbesto 8y ago
PE 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.
- whatok 8y agoWhat's the right price for short-term cash not secured by any assets for a customer who does not have any record of displaying creditworthiness?
- nimish 8y agoCertainly not bankruptcy or the use of public resources like courts to collect debts Predatory lending relies on an uninformed target.
- whatok 8y agoThat doesn't answer my question at all.
- nimish 8y agoIt does. The fair price of the loan is the price that doesn't cause social harm. The lender figures out how to translate that into APRs and possibly turn a profit, or perhaps there's no price that's profitable and socially good. That's perfectly fine.
- frgtpsswrdlame 8y agoIn a competitive market the right price would be one which generates a positive but very tiny profit. These big payday lenders make money hand over fist though.
- whatok 8y agoI agree with your first statement but do not have any aggregate numbers to argue against the second. Do you have any?
- vageli 8y ago> In a competitive market the right price would be one which generates a positive but very tiny profit. These big payday lenders make money hand over fist though. Is this not an inversion of the risk associated with these loans? It was my understanding that riskier loans are assessed at higher rates of interest _because of_ the likelihood of default. Thus, extract as much as quickly as possible before the default. How would companies profit if the successfully serviced loans did not offset the defaults, given these loans are not secured with another asset?
- mbesto 8y ago> it's entirely possible to have the latter without the former, ideally via something like a post office bank. If it's possible, there's money to be made, and we live in the capitalist society I know exists in the US - how come you don't see it happening then? I would like to think if the market were truly that way then you would see it happening.
- s73v3r_ 8y agoBecause there's more money to be made in screwing poor people. Just because something can make money doesn't mean anyone would be interested or have the resources to do it, especially when there's an alternative that makes more money.
- throwaway-hn123 8y agoCunt.
- tomjen3 8y ago> 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 Eh, that is quite simple: if at any point a company has used a dark pattern, the loan in full is invalidated. Now no company will dare to use a dark pattern.
- throwaway-hn123 8y agoI guess the money you make replaces the need to have morals or values. Cunt.