
Chicago 28-year-old made $70 million off cash loans, now he's buying slums - wushupork
http://www.chicagobusiness.com/cgi-bin/article.pl?articleId=31483
======
pchristensen
Whatever philosophical complaints you have about the check cashing business,
CashNetUSA was a well run, professional business with great technology.

I interviewed at CashNetUSA last year. It was the second most-appealing job
I've ever been offered (I interviewed for my current job, the most appealing,
at the same time so I didn't end up working there). They had a great tech
team, extremely smart and experienced guys. They employed 400 people (mostly
call-center reps) and paid well (not sure how they're doing post-bust). They
sponsored and hosted meetings for the Chicago Lisp User Group when we were
active.

Site in RoR, they programmed their own call center using Asterisk, self-
managed Linux infrastructure, quants generating real-time risk assessments for
customers to determine individualized rates, etc.

~~~
jhancock
I received a call from a recruiter last summer. It was about flying to Chicago
to interview with Cash America. They needed a director of IT and had a lot of
RoR stuff on hand.

I politely made myself unavailable. Maybe its because I spent a decade, the
90s, building financial apps at large banks and insurance companies. Like so
many other IT guys, I know I had a hand in building some of the machinery that
has destroyed America and those that trusted it.

But even if you had never worked on the inside of Wall St. firms, you should
be able to spot a crack dealer when you see one (what do you think those call
center reps were doing?). I don't care if they are using Linux and pay well.
There is a reasons usury laws exist. The same reasons drug laws exist...usury
and drugs both eat at the bottom of society and destroy it.

~~~
dantheman
I'm going to have to completely disagree. Sure these loans are pretty bad, but
if you need cash at a moments notice and have no other options it can be
better than not having it. As for drug laws, you are very misinformed -- I
don't want to get into a long debate, but US drug policy is horrible and in
fact harms the bottom of society.

~~~
carbon8
_Sure these loans are pretty bad, but if you need cash at a moments notice and
have no other options it can be better than not having it_

People who use these services frequently get dependent on them, and not out of
necessity. That's a big part of why credit and loan industries have been
growing so much for the past decade; people want fast cash once or twice and
get stuck in the cycle.

Until recently a company in the debt collection industry I'm very familiar
with was giving advances on paychecks to certain employees. The practice was
recently stopped when the head of HR left and the result was basically
analogous forcing people to get off a drug. It's not like they didn't have
income, they just got locked into a cycle of dependency. The kicker: most of
the employees in this company who were hooked on the paycheck advances are
collectors themselves, dealing all day with other people dependent on debt.

------
Timothee
I wished the article explained a little better why his business was not shady.
From the article, it doesn't sound much different from the paycheck cashing
places...

Maybe his new real estate business is more respectable but it was made
possible by his previous business.

Can anyone explain why we should look up to him? I understand that there might
be a need for "payday loans" but it still looks like exploitation.

~~~
BobbyH
Payday loans may have a high interest rate, but if the cost of a payday loan
is less than the alternatives, then it seems ethical to me. For instance, say
a payday loan for $200 costs $30. That's translates into a high interest rate,
but it's worth it to you if it helps you avoid a $50 late fee on another bill
that's due before your next payday. The trick to running a payday business
ethically seems to be fee transparency and not charging excessive fees such
that borrowers must borrow an ever-increasing amount. This article about a
payday company in LA talks about these issues:
<http://www.nytimes.com/2008/11/09/magazine/09nix-t.html>

~~~
nostrademons
There's a big negative externality with payday loans - or really, any sort of
consumer credit - that I wish more people were aware of...

As more people use credit for everyday purchases, fiscally responsible people
get priced out of the market. The additional cash on hand drives prices up,
because there's always some idiot who's willing to pay more _now_ with a
credit card or payday loan than he can afford to pay back later. He crowds out
prudent buyers who only purchase goods if they have cash on hand. Eventually,
it becomes rational for _everyone_ to pay with money they don't have, because
otherwise they're simply priced out of the market and have to do without.

An example might make this more concrete. Say that there is a limited supply
of some highly-demanded good - say, cupcakes. In economic equilibrium, the
price of a cupcake may be $2, and there is enough supply for 25% of the
population to have one. This being a functioning market, the cupcakes go to
the people who most deserve to have them, "deserve" being a function both of
means (how much money they have to spend, a proxy for how much they've
contributed back to the economy) and of desires (what fraction they're willing
to part with to get that cupcake).

Now say that one person discovers a payday loan shop. He suddenly has much
more cash on hand, because he can get a full advance halfway through the pay
period. So he gets a cupcake even though he couldn't normally have afforded
one, and then has to pay back more in the future. This is still legit though:
maybe he just _really_ wanted that cupcake, and is willing to take the future
hit to income to have it now.

Imagine now that 25% of the population has discovered the magic of pre-
approved credit offers, and suddenly have _lots_ of cash on hand. They bid up
the price of cupcakes to $10, and suddenly these profligate folks get _all_
the cupcakes. The fiscally responsible folks who make a decent income but
refuse to go into debt have been completely priced out of the market, so their
only choices are to join the debtors, or do without. So the number of debtors
grows even more, people start needing to take on debt just to survive, and
folks have no intention nor ability of ever paying this back.

This is happening in several areas of our economy _right now_.

There are a limited number of houses. They go to the highest bidder.
Therefore, if some idiot pays 0% down on an interest-only options-ARM, he can
get more cash on a given income/savings level, and outbid the prudent folks
who insist on paying 20% down. This is why it has been essentially impossible
to buy a house lately (well, up to 2008) if you have any intention of not
being foreclosed upon.

There are a limited number of spots in colleges. There is also massive
financial aid available. When families take out loans to send their students
to college, they can pay higher prices. Colleges raise their tuition to
compensate. It then becomes impossible for people to attend college without
taking out loans. (Except for certain elite schools that give outright grants
for everyone on financial aid.)

There is a limited amount of food. When large numbers of lower-income people
have more immediate cash, thanks to payday loans, grocers can raise their
prices accordingly. Other people in the neighborhood are faced with the choice
of either taking out loans themselves or going hungry.

I've read a few economic histories that suggest that these debt-inflation
cycles hit countries every 80-200 years, and that the end result is
necessarily that the money supply spirals out of control. People need to
borrow to live, and yet the borrowing fuels further increases in the cost of
living. They almost always end in war, which serves as a giant reset button by
bankrupting everybody equally. ;-) WW2 was fueled by the debt spiral of Weimar
Germany, where they physically couldn't repay their WW1 reparations. The
American Revolution was fueled by the Stamp Act ("No taxation without
representation"), which was to cover rising indebtness of British war debts.
The French revolution was caused the bankruptcy of the French royals.

~~~
iigs
_This is why it has been essentially impossible to buy a house lately (well,
up to 2008) if you have any intention of not being foreclosed upon._

It would seem that the market has a way of righting itself over time. The
people who would take out loans and drive the prices up eventually run out of
credit (it's a financial capacitor, not a perpetual money source), and then
they not only have to compete on the higher priced market they created -- they
have the burden of the additional interest, as well. They then can not even
buy as much as before and are relatively disadvantaged in the market --
pushing prices back down, perhaps even below the origin. This is more or less
playing out in the housing market right now -- home prices : income ratios are
returning to their post-WW2 origin.

As far as the other points, I feel there are too many counfounding issues
(particularly with the warring nations example) to really comment on.

~~~
msie
_It would seem that the market has a way of righting itself over time._

Yes, but it seems that many people are not going to wait that long.

~~~
lakeeffect
With perfect information, which it lacks.

~~~
msie
Yes, there is the possibility that it will not even correct itself. The
invisible hand may not be there at all!

------
ReTelTech
He was an angel investor for a start-up founded by two friends of mine. A very
decent guy, with high moral and ethical standards. There can always be an
exception to the rule - even in the cash loan business.

~~~
cia_plant
I'm puzzled how you can claim that he has high ethical standards when he ran a
business whose entire model is to rip off poor people.

~~~
pchristensen
These "poor people" can't get regular bank accounts, so they have no way to
cash paychecks. They have no access to traditional credit. The payday loan
industry is competitive, so if it could be done cheaper, someone will do it.
If it can't be done cheaper, those entrants will fail (too much risk). If poor
people with no or bad credit history find another way to get credit, the
payday loan industry will dry up. It's business. Live with it.

~~~
omnipath
Here is what bothers me about this. How can you not get a regular bank
account? Doesn't Bank of America just require an address, plus a deposit? What
else is needed? I think it's more fair to say that they don't trust banks,
rather than can't get regular bank accounts.

~~~
pchristensen
_Doesn't Bank of America just require an address, plus a deposit?_

You can get a bad checking account with high monthly fees, check writing fees,
ATM fees, etc. I'm pretty sure you have to submit to a credit check or have
additional deposits to get a free account.

While these bad checking accounts are probably less expensive overall, it's
more difficult to judge the costs, especially for financially unsophisticated
customers. One big fat fee from the payday lenders probably seems smaller than
N smaller fees where N is unpredictable.

~~~
Retric
Most of those fees can be avoided if they treat the bank like those pay day
loan processing places.

~~~
jhancock
really? Your sure about that? You try it. Put yourself in a life where you
have no bank account, no or bad credit, and try to take the check you just
received from "low income job x" and try to find a retail branch of the bank
it was written against. If you're real lucky, there is a retail branch near
you. When you go in, you will be presented with process barriers the bank uses
to keep you from cashing the check. Are these barriers legal? Doesn't matter.
You still will be sent out the door without your money...and then you go back
to the loan sharks.

~~~
randallsquared
"Are these barriers legal? Doesn't matter. You still will be sent out the door
without your money...and then you go back to the loan sharks."

Wait, you're now arguing that the "loan sharks" are useful and helpful, after
denigrating them elsethread?

In any case, I agree that you can cash a check at the bank it is drawn on,
_and_ that it can be difficult. Because my newly opened account had an _eight
day_ clearing time, I needed to cash my checks and trot over to my bank to
deposit cash quite a bit last year (small employer had no direct deposit). It
was comical what lengths they went to to try to avoid giving me cash.

"Are you a customer with us? [No.] Oh, I'm sorry." (But I didn't go away).

"Oh, you'll need two IDs." (Okay, here you go).

"Oh, we don't have that much money on hand." (It wasn't very much, especially
for a _bank_ ).

"Oh, I'll have to get my manager." (in a vaguely threatening-maybe-you-should-
just-leave manner).

"If you open an account with us, we can cash this." (But of course they could
even if I didn't).

"We can't give out that much cash. Can you come back tomorrow?" (No).

"I guess we could do a cashier's check for half of that [said doubtfully].
Would you like to open an account with the remainder?"

Etc. The first few times, I was polite and firm, and eventually they
recognized me when I came in and I didn't get any hassle. But lots of people
wouldn't know that "We can't" doesn't mean they can't.

~~~
jhancock
"Wait, you're now arguing that the "loan sharks" are useful and helpful, after
denigrating them elsethread?"

They are only useful and helpful in the absence of forcing banks to act like
decent members of society. Fix that problem (which is very easy if you focus
on corruption between corporations and elected officials) and you remove the
need for the loan sharks.

------
PostOnce
I'm watching The Merchant of Venice right now, then I pop over here and read
an article about a 28 year old Jew from Chicago who made millions of dollars
lending people money at an extortionate rate. I'm not saying there's anything
wrong with that; I'd do it myself had I but the wherewithal. I just found it
funny. Like, you know his friends have to mention it to him occasionally, rib-
jab style. Heh.

~~~
tjic
> read an article about a 28 year old Jew

The most salient adjective that you can think of is "Jew" ?

WT* ?

I'm not someone who sees racism and anti-Semitism under every rock and leaf...
but, seriously, WT* ?

I, for one, enjoy Hacker News more when commenters use phrases like "28 year
old entrepreneur" and "40 year old physicist" and enjoy it less when the
phrases are "28 year old Jew" and "40 year old Black".

~~~
elidourado
One of the main characters in _The Merchant of Venice_ is Shylock, the Jewish
moneylender. That's where Goldstein's Jewishness comes in. PostOnce was just
noting the coincidence of having read this article after some Shakespeare.
It's not remotely anti-Semitic; calm down.

~~~
rsheridan6
Yet PostOnce found it best to be cautious - it looks like that account was
created just to write this post.

~~~
PostOnce
Well, it seems everyone else sees racism in all things, so I figured I'd
better not throw myself under a truck in case I am misinterpreted.

~~~
rsheridan6
That's probably wise.

------
jakehow
Seeing Woods's law play out is always amusing.

"Whenever the private sector introduces an innovation that makes the poor
better off than they would have been without it, or that offers benefits or
terms that no one else is prepared to offer them, someone—in the name of
helping the poor—will call for curbing or abolishing it."

<http://en.wikipedia.org/wiki/Thomas_Woods#Woods.27s_Law>

~~~
ahoyhere
Where's your proof that it makes the poor better off?

There's _lots_ of research, on the other hand, that because the interest rates
are so high, people fall very easily into an endless cycle of debt, using Pay
Day Loan B to pay off Pay Day Loan A.

------
supahfly_remix
Let's do a little research. The trader in the article, David Shorr, lists
himself as a CashNetUSA founder on linkedin.

[http://www.linkedin.com/ppl/webprofile?action=vmi&id=659...](http://www.linkedin.com/ppl/webprofile?action=vmi&id=6599295&pvs=pp&authToken=AWoO&authType=name&trk=ppro_viewmore&lnk=vw_pprofile)

He also appears as a manager in some of the SEC documentation.

[http://searchwww.sec.gov/EDGARFSClient/jsp/EDGAR_Query_Resul...](http://searchwww.sec.gov/EDGARFSClient/jsp/EDGAR_Query_Result.jsp?queryString=%22david%20shorr%22&queryForm=1&isAdv=1&numResults=10#topAnchor)

David Shorr is 45 according to pipl.com

While Mr. Goldstein was a founder, he wasn't the only founder, and he had some
more senior, connected talent to help him.

~~~
neilc
If you read the whole article, this would be clear:

 _Mr. Goldstein had spent a summer during college at the Chicago Board of
Trade interning with David Shorr, one of his mother's patients. Mr. Shorr left
the trading floor in 2003 because of an injury and was looking for a new
venture. He hit on the payday loan business — "You borrow money at one rate
and you lend it out at a higher rate," Mr. Shorr says — and e-mailed Mr.
Goldstein to get his thoughts. "Al sent me an e-mail back with bullet points,
action items, and I realized my first action item had to be to get him," Mr.
Shorr says. He offered Mr. Goldstein a 75% pay cut but also the chance to
build a business from scratch. Mr. Goldstein jumped._

~~~
supahfly_remix
Reread my comment. I didn't say he wasn't a founder, but Mr. Shorr's
contribution is underrated in the article. He's only mentioned in that
paragraph.

I constantly see mentions of boy geniuses in the popular press. He's
undoubtedly bright, but it's his access to connections and money, and in
particular Mr. Shorr, that made the difference between a mom and pop payday
check cashing operation and growing to sell a business after two years.
Readers of HN should recognize that it's not through his brilliance alone.

------
jsteele
Fail. We don't need another subprime lender. This country has seen enough
shenanigans from IndyMac, Countrywide, and the other clowns on Wall St.
Entrepreneurs, find something else to create because this is a lousy way to
make money and taxpayers are done with bailouts.

If you still want to do finance, see this link from HBS for ideas on how to
build a nontoxic, sustainable form of it:

[http://blogs.harvardbusiness.org/haque/2009/04/manifesto.htm...](http://blogs.harvardbusiness.org/haque/2009/04/manifesto.html)

------
spkthed
This guy might be the best guy in the world but payday loans are predatory
lending and regardless of the situation, puts people in a worse spot than they
were before.

Depending on the situation, they can charge over 1,000% interest. If payday
loans were to charge 30% interest they'd still be able to cover the people
that wouldn't pay.

It's a dumb saying but "don't be evil" springs to mind. Taking money off of
the backs of the people that can least afford it isn't capitalism, it's greed.

------
madair
Rob the poor when they need loans, then snap up all the properties in distress
and rent them out with high technical proficiency. Hmmm, if you don't see the
_serious_ problems here you should be asking yourself some really tough
questions about where the state of your personal ethics is.

~~~
HeyLaughingBoy
OK, I'll bite. Tell me what's wrong with what he did.

A person needs money to feed their children and will be broke 3 days before
payday. That person can either (a) not get any money at all, or (b) borrow it
at a high rate of interest. What, _exactly_ is wrong with option (b)? Don't
add extra details like hidden gotchas, loopholes, what happened to a friend of
your sister's etc. What is wrong with the situation exactly as I proposed it
and why do you find it unethical?

Likewise, if I decide to snap up a property in distress and rent it out, why
is there a (as you put it) " _serious_ problem here?" Why is it better to just
let the property rot? Again, answer to the facts instead of letting your bias
add conditions I haven't specified.

I'm serious: I'm approaching this with an open mind. Tell me why I'm wrong.

~~~
wwalker3
It's immoral to tempt someone into harming themselves, especially when it also
benefits you.

Payday loans tempt the weak with options that help in the (very) short run,
but harm in the long run.

The very existence of payday loans encourages self-destructive habits among
the poor. Why budget carefully when you can just get a payday loan and kick
the can down the road to next month?

And since many payday loan customers get these loans every month, the loans
are really just an additional monthly bill for poor people.

~~~
HeyLaughingBoy
I used to have a girlfriend who was a recovering alcoholic. I remember her
telling me, "I couldn't pay my tuition; I had to struggle to get enough money
to put gas in my car; I could barely pay my share of the rent. But I _never_
had trouble finding money for booze!" Luckily for her she eventually figured
out she needed to fix her life and did so.

There's a segment of the population who habitually make bad decisions. I've
known enough of them to understand that they usually know they're making bad
decisions, but they either don't care or don't have an alternative. Here's the
important part:

 _You can't fix people_

Some people will use payday loans to get themselves deeper in debt; most of
them will use them as a temporary crutch to get out of a hole. Don't screw the
latter over in your fervor to "help" (and I use that term loosely!) the
former.

------
nuggien
is it just me or does every rich guy always have some super smug look?

~~~
pg
The photographer for an article like this might take 50 shots. The editors
then pick one that looks the way they feel the subject ought to look.

If you look at pictures of US presidents in Japanese newspapers, they look
slightly Japanese. The photos haven't been edited; the editors just select
pictures that look right to them.

~~~
slance
Really? Have you got a link?

~~~
DougBTX
To evidence that photographers often take more than one photo in a photo
shoot?

~~~
tjic
Don't be fatuous, Jeffery.

The commenter was clearly referring to this:

> If you look at pictures of US presidents in Japanese newspapers, they look
> slightly Japanese

~~~
staunch
[http://www.truthwinsout.org/wp-
content/uploads/2007/10/obama...](http://www.truthwinsout.org/wp-
content/uploads/2007/10/obama.jpg)

~~~
unalone
Was that from a Japanese paper?

(I think this thread's the first time I've seen Lebowski quotes infiltrate
Hacker News, and I don't know if that's a bad thing or an awesome thing.)

~~~
kirubakaran
Found one more for you:

<http://news.ycombinator.com/item?id=186563>

------
weegee
all hail the new slumlord! good god that's what this world needs...

