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Regarding your New Republic link: I find a lot of these kinds of critiques of subprime lending to be disturbingly patronizing. The notion that some third party

by xp84 3y ago

Regarding your New Republic link: I find a lot of these kinds of critiques of subprime lending to be disturbingly patronizing. The notion that some third party (the government, presumably) ought to be decreeing that people whose credit is (in this article’s words) so bad that they can’t qualify for a $300 limit at 27% interest, should just not be allowed to access legal credit at all. Terms get worse as you prove you’re an unwise risk. That’s just math. If you ask the people who are opening these credit cards, they’ll tell you that yes they do want the credit. They would rather have that than not have it. And they’re adults. And suspiciously, it’s only years after voluntarily taking this money that some of them turn around and complain about “predatory lending.” If we ban all forms of subprime (or make it impossible with interest rate caps, etc) the most desperate bad-with-credit people, whom we’re supposedly trying to protect, will still find a way to borrow money anyway, at far worse terms—this is what loan sharks do. You can’t fix humans with regulation.

ryukoposting 3y ago
I've railed on this topic in the past on HN. We've built a society where debt (credit, loans, etc) in some form is essential to virtually anyone's participation in the economy. Blocking poor people out of this system doesn't do anything to help them, nor does it meaningfully move the needle in terms of the total risk existing in our economy. Nobody is better off without Discover or Capital One.
toomuchtodo 3y ago
Colorado’s HB1229 became law, and several other states have pending consumer lending legislation capping rates at 25%. You can’t fix humans (especially when they’re forced to exist in this dystopian economic system), but you can reduce the exploitation with legislation. Even adults need protection, depending on circumstances, and their status as an adult isn’t a free pass to harm. But heh, that’s just the law. We can change the definition of legal credit with the stroke of a pen (see above).
- RHSeeger 3y ago
  > Even adults need protection, depending on circumstances I think the argument is that it's not protection. If someone won't lend to you at 25% (but they would at 27%), then you can't borrow. Is it protection to just prevent those people from borrowing at all?
  - toomuchtodo 3y ago
    Yes. Usury law serves this purpose, to draw a line. https://www.law.cornell.edu/wex/usury https://www.law.cornell.edu/wex/usury At least in the case of auto loans, usury limits do not limit subprime credit access. If you want to refer specifically to deep subprime unsecured model profitability, if it’s profitable, clearly there is room for margin compression through interest rate limits. https://www.fdic.gov/analysis/cfr/consumer/2015/presentations/4a-schroeder.pdf https://www.fdic.gov/analysis/cfr/consumer/2015/presentation...
    - RHSeeger 3y ago
      > Yes. Usury law serves this purpose, to draw a line. I do not understand what you're trying to say here. We're talking about - putting an upper limit on the interest rate for loans (which is what said usary limits _are_), and - if that means some people cannot get loans, and - if that inability to get a loan is really helping that person The fact that usary law exists and puts a limit on the interest rate for loans doesn't answer the question, since it's only the starting point from which the question is asked. That being said, what you linked seems to say something along the lines of 1. For dealer + bank loan setups, the usary limits do indeed reduce the ability of the dealer setup a loan (with the bank) for a buyer. This is the case we were originally talking about, for which we have an unanswered question. 2. For BHPH (the car dealer is the one doing the loan), the limit is worked around by increasing the amount of the loan. This _seems_ to be similar to buying points on a loan. This seems like a better tradeoff than "a loan isn't possible", since the buyer still has an option (where they wind up paying more by the end, but with less risk; to both parties). My thought would be that this is actually helpful for the buyer, but it's debateable.
      - 3y ago
lokar 3y ago
The same companies that argue against rate limits also oppose rules that require the terms to be explained in writing in a way a high school dropout would understand (eg how much would you pay in total if you take 3/6/9/12 months to repay). And in a normal font size.

by xp84 3y ago

ryukoposting 3y ago

I've railed on this topic in the past on HN. We've built a society where debt (credit, loans, etc) in some form is essential to virtually anyone's participation in the economy. Blocking poor people out of this system doesn't do anything to help them, nor does it meaningfully move the needle in terms of the total risk existing in our economy. Nobody is better off without Discover or Capital One.

toomuchtodo 3y ago

Colorado’s HB1229 became law, and several other states have pending consumer lending legislation capping rates at 25%. You can’t fix humans (especially when they’re forced to exist in this dystopian economic system), but you can reduce the exploitation with legislation. Even adults need protection, depending on circumstances, and their status as an adult isn’t a free pass to harm. But heh, that’s just the law. We can change the definition of legal credit with the stroke of a pen (see above).

RHSeeger 3y ago
> Even adults need protection, depending on circumstances I think the argument is that it's not protection. If someone won't lend to you at 25% (but they would at 27%), then you can't borrow. Is it protection to just prevent those people from borrowing at all?
- toomuchtodo 3y ago
  Yes. Usury law serves this purpose, to draw a line. https://www.law.cornell.edu/wex/usury https://www.law.cornell.edu/wex/usury At least in the case of auto loans, usury limits do not limit subprime credit access. If you want to refer specifically to deep subprime unsecured model profitability, if it’s profitable, clearly there is room for margin compression through interest rate limits. https://www.fdic.gov/analysis/cfr/consumer/2015/presentations/4a-schroeder.pdf https://www.fdic.gov/analysis/cfr/consumer/2015/presentation...
  - RHSeeger 3y ago
    > Yes. Usury law serves this purpose, to draw a line. I do not understand what you're trying to say here. We're talking about - putting an upper limit on the interest rate for loans (which is what said usary limits _are_), and - if that means some people cannot get loans, and - if that inability to get a loan is really helping that person The fact that usary law exists and puts a limit on the interest rate for loans doesn't answer the question, since it's only the starting point from which the question is asked. That being said, what you linked seems to say something along the lines of 1. For dealer + bank loan setups, the usary limits do indeed reduce the ability of the dealer setup a loan (with the bank) for a buyer. This is the case we were originally talking about, for which we have an unanswered question. 2. For BHPH (the car dealer is the one doing the loan), the limit is worked around by increasing the amount of the loan. This _seems_ to be similar to buying points on a loan. This seems like a better tradeoff than "a loan isn't possible", since the buyer still has an option (where they wind up paying more by the end, but with less risk; to both parties). My thought would be that this is actually helpful for the buyer, but it's debateable.
    - 3y ago

lokar 3y ago

The same companies that argue against rate limits also oppose rules that require the terms to be explained in writing in a way a high school dropout would understand (eg how much would you pay in total if you take 3/6/9/12 months to repay). And in a normal font size.