
Google Bans Payday Ads, but Also Backs a Payday Lender - edtrudeau
http://www.wsj.com/articles/google-invests-in-payday-lender-but-could-have-to-ban-its-ads-1463650204
======
lpolovets
LendUp's CEO posted a response here: [https://library.gv.com/google-is-right-
to-ban-short-term-loa...](https://library.gv.com/google-is-right-to-ban-short-
term-loan-ads-but-i-wont-stop-offering-short-term-loans-here-s-
why-3f386e6fbeba#.nhwfuxmo7)

~~~
x0x0
blah blah blah, filled with mistruths too

eg

    
    
       If your score is below 680 and you don’t already have a “respectable” credit 
       line, there are few paths for you to get ahead.
    

That's cap1's core customer base, and they report to all 3 CRAs and will allow
you to move up in quality in their cards then transition to prime lenders.

~~~
scarface74
And considering that you can get an FHA approved mortgage with a less than 5%
APR (including PMI) with a 600 credit score, I can't help but agree.

~~~
lujim
You said it right there though. FHA approved which means Uncle Sam (who has a
decent credit rating and the ability to print US Dollars) has your back AND
it's considered a secured loan since the house itself is collateral.

------
yongjik
In case you think that Google is being dysfunctional, well, maybe it is, but
consider the alternative: Would you like it if Google's ad system admins first
consult Google's investment arm before deciding whether to ban a certain
category of ads?

~~~
phunehehe0
Good point. I think it's strange to talk about Google and GV as if they are
one company, while also acknowledging they aren't. Even for one company if the
size is large enough, you almost never get all the decision makers together
anyway.

------
sundvor
Are payday loans all evil? I thought so too, until I listened to a very
interesting Freakonomics podcast which showed it to be more than just black or
white: [http://freakonomics.com/podcast/payday-
loans/](http://freakonomics.com/podcast/payday-loans/) .

~~~
dublinben
Instead of accepting the 'need' for usurious loans, we should resolve the
underlying problem. Nobody should be in a financial situation where they
'need' one of these loans.

~~~
cylinder
How do you ensure that? Even if you give people a basic income they can
mismanage it and end up needing a loan.

~~~
kevin_thibedeau
Start by forcing the banking system to offer minimal modern services for the
poor without escalating fees for trifles.

~~~
AnthonyMouse
> Start by forcing the banking system to offer minimal modern services for the
> poor without escalating fees for trifles.

In this case the problem isn't the banks. It's that given the choice between
paying $10/month for banking service and "Free* Banking" with escalating fees
for trifles, people pick the second one and the bank that offers the first one
loses customers.

But payday loan companies are lenders, not savings banks. The problem there
isn't transaction fees, it's interest rates. And that isn't a problem you can
solve unless you can somehow reduce the number of people who default on their
loans. And most of the ways to do that are worse-than-the-disease solutions
like restricting bankruptcy, garnishing wages, debtor's prison, etc.

------
Animats
Support California's coalition to put an interest rate cap on payday loans.[1]

[1] [http://www.calreinvest.org/crc-issues/payday-lenders-in-
cali...](http://www.calreinvest.org/crc-issues/payday-lenders-in-california-
how-predatory-lenders-trap-consumers)

------
aavotins
I was born in a post-USSR, but now European country, where payday loans
entered the market in 2009. All I can say is - Google did it the right way, as
this business model is very, very evil. Until strict regulation takes place,
payday loans with APR in hundreds of percents should be considered loan
sharks.

They don't do any good, I've seen it with my own eyes. At first it seems like
a nice idea, but eventually poorer and socially endangered groups of people
use these loans to pay off other loans or just to make ends meet - again,
again and again. That essentially binds them in an infinite loop, which is
bad. APR of 300% is madness per se!

~~~
lujim
This whole argument has been rehashed over and over. The argument for allowing
payday loans are generally. \- If the default rate is very high, then the
option is high APR payday type loans, or no loans. You just can't provide
prime interest rate loans that have 50% default rates. \- Saying the APR is
300% is just like saying the cost of living is $30,000 per year because that
is the annual cost of a hotel room. Hotels are not meant to be used a year at
a time.

------
justsaysmthng
As a person living Europe, who also grew up in a culture were credit was not
available, the obsession with credit in the US is very strange to me.

Why do people need to borrow money so often ?

Is it really so hard to live within means ?

And how come the government allows these sharks to operate freely - isn't this
the business that the Mafia used to be famous for ?

------
tommynicholas
Nothing boils my blood more than someone referring to all short term loans as
"payday loans". Lendup is a fantastic company offering completely reasonable
loans to customers with a strong need.

There was an article bashing Uber for helping to advance pay for their drivers
with Clearbanc in Pando this week too. Ridiculous.

~~~
Someone1234
But LendUp is a payday loan company. 369.69% APR for a 30 day loan is
definitely within the realm. Or $28 for a $200 loan/30 days.

Sorry but not seeing how they're different.

~~~
ChuckMcM
This is exactly it. Now if LendUp would lend someone $200 for 30 days for a
$1.50 (APR of 9%) they wouldn't be extortionate in their rates, but they would
be leaving money on the table that they could be taking from people who really
need a loan. And what lender ever likes to leave money on the table?

~~~
Lazare
> if LendUp would lend someone $200 for 30 days for a $1.50 (APR of 9%) they
> wouldn't be extortionate in their rates

They also wouldn't be making money. Keep in mind:

1) APR rolls up all interest, charges, surcharges, fees, etc. (which is fine)

2) Small short duration loans have a significant amount of paperwork (and it
just increases with new "know your customer" laws, money laundering rules,
anti-terrorism rules, etc.), plus all the normal overheads of business: Staff,
training, rent, buildings, insurance, whatever.

A fair _interest rate_ on a loan of the type being discussed is, sure, a few
percent, maybe even under 10% (although, you know, my _credit card_ has a
higher rate than that, so let's not go overboard here). But a fair _fee_ to
process a loan app is going to be fairly high; $20-30 is honestly low if
you're doing the application in person at a storefront. But if you lend
someone $300 for two weeks at a 5% annual interest rate and a $25 fee, the APR
isn't 5%, it's well over 200%.

Nonprofits which have tried to venture into the payday lending space have
found themselves forced to charge eye-watering APRs, not because they're
trying not to "leave money on the table", but because you cannot usefully
compare an APR between a 20 year mortgage and a two week payday loan, because
the cost of processing an app for a $500k mortgage and a $50 payday loan is a
lot less different than the face value would suggest.

I see a lot of people are talking about defaults, but it's not the defaults
(which aren't even that high), it's the fees when calculated on low value,
short term loans.

Edit: Not saying payday lenders are amazing (or even that they should be
legal) just that a naive comparison of the APR of a payday loan to an auto
loan conceals more than it reveals. Payday loans are a very expensive product
which some very poor people really, _really_ need. Wishing it was cheap
doesn't make it less expensive; banning it doesn't make the need go away.
There's not a lot of good answers.

~~~
AnthonyMouse
It seems like the solution might be to make the term of the loan longer.
Paying $30 of interest on a $200 payday loan _once_ shouldn't really break
anybody, the problem is people are doing it every payday.

What happens if you borrow $200 and pay it back at $20/month over the course
of a year? Then next month you don't need another loan because you still have
$180 left from the original loan, instead of having -$30 from having already
paid it back with interest.

~~~
thaumasiotes
Well, paying $240 for a $200 loan over twelve months as opposed to $230 for a
$200 loan over three weeks certainly lowers the APR, but it also makes the
loan _more expensive_. I don't think people really care about APR for its own
sake.

> Then next month you don't need another loan because you still have $180 left
> from the original loan, instead of having -$30 from having already paid it
> back with interest.

As an empirical matter, a lot of the people who do badly by using payday loans
will not behave in the way you're suggesting -- they will spend the money they
have, and are likely to need another loan next month anyway (although getting
it will be harder since they now have an outstanding loan). People who
currently use payday loans responsibly won't have that problem, but they will
have the problem that you just increased their borrowing costs by 33%.

~~~
Dylan16807
> likely to need another loan next month anyway (although getting it will be
> harder since they now have an outstanding loan).

When they only have to make a small payment, they effectively _already have_
another payday loan equivalent. Before, they had to scrounge up $230 to pay
off the loan, and they could get another $200 loan back out immediately. Now,
they can take $230 from their paycheck, move $200 from one pocket to another,
pay off $20, and have a bonus $10.

In other words, any money they would have gotten from 'another loan' is an
illusion, because that loan was sourced directly from their own wallet, with
someone else taking a cut. They don't need 'another loan'.

For someone's borrowing costs to increase, they have to be in one of two
scenarios: The first is taking out a payday loan once and never rolling it
over. That scenario is not a big deal because the total cost is small by
definition. The other scenario is someone that takes out the same value in
one-year loans every month that they would have taken out in payday loans.
This is not a reasonable comparison, because this person has _ten times as
much outstanding debt_.

~~~
thaumasiotes
> When they only have to make a small payment, they effectively already have
> another payday loan equivalent. Before, they had to scrounge up $230 to pay
> off the loan, and they could get another $200 loan back out immediately.
> Now, they can take $230 from their paycheck, move $200 from one pocket to
> another, pay off $20, and have a bonus $10.

> In other words, any money they would have gotten from 'another loan' is an
> illusion, because that loan was sourced directly from their own wallet, with
> someone else taking a cut. They don't need 'another loan'.

Well, obviously exactly the same argument applies to the first loan -- it's
sourced directly from their own wallet, with someone else taking a cut. But
you don't see a lot of people arguing that therefore there was never a need
for any lending in the first place (actually, you do; old religions have quite
a bit to say about this. You don't see a lot of people making the argument
_today_ ).

You're ignoring the point I was making, though. Compare:
[http://slatestarcodex.com/2014/05/25/apologia-pro-vita-
sua/](http://slatestarcodex.com/2014/05/25/apologia-pro-vita-sua/)

> I do occasional work for my hospital’s Addiction Medicine service, and a lot
> of our conversations go the same way.

> My attending tells a patient trying to quit that she must take a certain
> pill that will decrease her drug cravings. He says it is mostly covered by
> insurance, but that there will be a copay of about one hundred dollars a
> week.

> The patient freaks out. “A hundred dollars a week? There’s no way I can get
> that much money!”

> My attending asks the patient how much she spends on heroin.

> The patient gives a number like thirty or forty dollars a day, every day.

> My attending notes that this comes out to $210 to $280 dollars a week, and
> suggests that she quit heroin, take the anti-addiction pill, and make a
> “profit” of $110.

> At this point the patient always shoots my attending an incredibly dirty
> look. Like he’s cheating somehow. Just because she has $210 a week to spend
> on heroin doesn’t mean that after getting rid of that she’d have $210 to
> spend on _medication_. Sure, these fancy doctors think they’re so smart,
> what with their "mathematics" and their "subtracting numbers from other
> numbers", but they’re not going to fool _her_.

If we divide payday lendees into two classes, the ones who get stuck in a
cycle of rolling over their loans are behaving like the heroin users. They
won't be helped by the higher-cost lower-APR loan because they will not "take
$230 from their paycheck, move $200 from one pocket to another, pay off $20,
and have a bonus $10", and don't understand that process. They will take $20
from their paycheck, pay off $20, spend the rest of their paycheck on
analogical heroin, and wind up with $0, which is less than $10.

The ones who don't get stuck in a cycle of rolling over their loans won't do
that, but they weren't doing it anyway. You haven't benefited them; you've
made their operating costs significantly higher. No one benefited from your
change to the system.

~~~
Dylan16807
> But you don't see a lot of people arguing that therefore there was never a
> need for any lending in the first place

Because loans give you money now to repay later. It's not loans that are
unnecessary, it's _rolling over_ loans that is bad when you could have gotten
a longer loan at the start.

> You haven't benefited them; you've made their operating costs significantly
> higher. No one benefited from your change to the system.

You're forgetting your own words. Getting extra loans when they already have
loans becomes harder. They won't be able to get so many loans that the cost is
higher overall. They will be stuck with 'merely' 2-3 times as much loan money,
for example. It will be impossible for them to have higher costs.

> They won't be helped by the higher-cost lower-APR loan because they will not
> "take $230 from their paycheck, move $200 from one pocket to another, pay
> off $20, and have a bonus $10", and don't understand that process. They will
> take $20 from their paycheck, pay off $20, spend the rest of their paycheck
> on analogical heroin, and wind up with $0, which is less than $10.

You're not arguing against what I said, you're just saying that the $10 they
didn't spend on fees gets spent on something else. Well that's the goal, isn't
it?

They always get their paycheck. They don't have to understand loaning for that
to happen. At the end of they day they have $210 in their pocket when they
used to have $200. They might spend it all on heroin, but they will have $10
more of it.

> [http://slatestarcodex.com/2014/05/25/apologia-pro-vita-
> sua/](http://slatestarcodex.com/2014/05/25/apologia-pro-vita-sua/)

Okay, reading that I see the following quote:

"I think that they would be literally unable to summon the motivation
necessary to get that kind of cash if it were for anything less desperate than
feeding an addiction."

That's an extremely valid argument for that particular situation, but it does
not apply to paycheck money. You already put in the effort, and earned it.
You're just making a slightly different transaction on the way home.

~~~
thaumasiotes
>> I think that they would be literally unable to summon the motivation
necessary to get that kind of cash if it were for anything less desperate than
feeding an addiction.

> That's an extremely valid argument for that particular situation, but it
> does not apply to paycheck money. You already put in the effort, and earned
> it. You're just making a slightly different transaction on the way home.

If you read even farther than that, you'll see the author apply the same
argument to his own time, which everyone earns equally. The easiest and most
common way to find the money for something is to take that money away from
less-important uses, not to earn extra money.

~~~
Dylan16807
There is either equivalent effort or _less_ effort when the loan is long-term
instead of constantly making new loans. Less paperwork, possibly fewer trips
to the place you got the loan. And it's not just the amount, the actions you
go through are nearly identical in either case. There is no motivational or
time or money benefit to the payday loan scenario.

------
Overtonwindow
Unfortunately for every predatory business that prays on the poor, a another
will fill its place somehow. The poor are never ending, and capitalism will
unfortunately find a way to exploit them.

~~~
lujim
Capitalism just means you need to pay your own bills to keep your doors open
and you have to provide something that people value more than the money they
are willing to pay for it.

Capitalism has provided a wide group of people a better standard of living
than 99.9% of humans that came before it. Even countries with a bit more
socialist flavor benefit from the advances in health care, biotech, technology
etc that originates in countries where turning a profit is one of the primary
motivation for operating a business.

~~~
Overtonwindow
I'm not saying there's anything wrong with capitalism, I'm just pointing out
that where there's a market, a business will find a way to supply that market.

------
vgeek
How is LendUp rated on Thumbtack?

