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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 t

by bko 8y ago

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 often prefers a brick and mortar location and personalized service.

hobs 8y ago
Then they could offer a flat fee instead of an ever compounding one that is predatory to their clients (but they dont.)
- pochamago 8y ago
  That sounds very preferable for me as a consumer, you should start a company and see if it keeps you in business
- bko 8y ago
  It is a flat fee... $15 per two weeks
clairity 8y ago
> “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.

by bko 8y ago

hobs 8y ago

Then they could offer a flat fee instead of an ever compounding one that is predatory to their clients (but they dont.)

pochamago 8y ago
That sounds very preferable for me as a consumer, you should start a company and see if it keeps you in business
bko 8y ago
It is a flat fee... $15 per two weeks

clairity 8y ago

> “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.