More then 36% APR for anything more then a fraction of your weekly / monthly salary is likely to be crippling for most people and predatory. I can understand higher rates for very short term debts (i.e. a payday loan where the entire thing should be paid off in 1 month, but these lenders often try and have people turn over the principle into new loans).

IF someone's credit won't support a 20% interest rate then I don't think they should be leant money in the traditional sense. Either the purchase isn't required (in which case it shouldn't happen), or if its essential they should be supported by mechanisms to get people out of debt. Governments can make low value loans available to help here. In Australia, your entitled to a loan if your on benefits (centrelink) in which repayments are deducted from your welfare payments but charged no interest.

If the services are truly essential and basic and the government is stepping in, I think it's worth asking if we need to be bothering with repayment at all.

Depends on how many future benefits/welfare payments you can get be loaned/played early. Seems like eventually people would max out that option and then need some other source of loans.

The reason that this is different than what you might expect from a free market approach is that part of the “being in the military” is a host of new rules that have the force of law, and one of these is to not default on loans. If you do, and your CO gets a call, then you’re in for a bad time.

Well the existence of rules in itself does not justify more rules. That's just bureaucracy. But I think what you're driving at is there are rules in place for military folks designed to keep them from becoming targets of manipulation, keep them from making poor household decisions that would distract them from regulatory tasks, etc.

I don't imagine there are many protections for active duty folks that are designed purely to protect the individual. I suspect the primary motivation to get most of these types of laws passed is to protect the government.

> I don't imagine there are many protections for active duty folks that are designed purely to protect the individual.

On the contrary, for reasons political ('everyone loves the troops'), administrative (Congress in many ways writes the 'Employee Handbook' for military personnel), and logistical (the military is heavily made up of people straight out of high school), there are several protections in law designed to protect military on active duty.

We can cancel leases with landlords with nothing more than valid assignment orders, at any time. We can vote in elections using the easiest process there is, including instant registration and the ability to fax the vote over. And, yes, there are restrictions on lending to those on active duty to try to keep us out of trouble.

Even though active duty personnel do make convenient targets of political affection, it's not all done out of a sense to protect the individual. Active duty personnel have clearances, access to government facilities, and so on. Protecting them from getting into stupid situations is to the government's benefit.

But that all said, we get a lot of protections that exceed what the government deems necessary for its benefit. Just look at the differential treatment provided to military and government civilians (who also have clearances, access, etc etc) if you want to see.

No, I didn’t go into the multiple levels of chesterton's fence.

I pointed out how the risk is different than the assumed free for all that is the free market. I will not potentially get thrown in the brig for defaulting on a payment. A private could be.

I'm guessing that it's to ensure their loyalty, and the loan can't be paid off by them doing something bad for the military?

If a loan is so risky that it requires greater than 36% interest, it should not be made. Loans with gigantic interest ruin lives.

Say I live paycheck to paycheck and I need $500 to fix my car that I use to get to work until I get paid in a few weeks.

Borrowing $500 for one month and paying $15 in interest would be completely worth it and beneficial to the borrower. That's what 36% annualized interest would look like for a single month.

Do people get in trouble with debt? Yes. And that's why we have bankruptcy. But not everyone gets in trouble with debt. I don't think it's fair to make it unavailable to everyone to protect those that fall into arrears -- because, again, that's what bankruptcy is for.

If you live paycheck to paycheck, which is consistent with your total savings being less than $500, the chance that you will be able to pay back $515 on your next payday are basically zero.

My car was towed the other day and while I was paying my bill for the $700 or whatever SF makes you pay, there was this guy at the next counter with nothing who was sleeping in his van who had it towed and they wanted $100 to release it. The tow counter lady could obviously do nothing (his price is low because of low income etc. etc.) but the guy was going to have to sleep in the street otherwise. And there is a holding fee each day it's in the tow yard.

Sure, we could find each of these risky situations and try to regulate them, but you won't even know of them because most people will never get towed. It's better to improve access to credit.

The guy could get $100 the next day, but not $100+storage-fee/day. It's like $70/day. Any loan that goes between 0% per day and 70% per day simple interest would have been a net win for this guy.

Obviously, having eavesdropped on the whole thing, I paid it as I was leaving but I think perhaps those of us with easy cash liquidity should perhaps build some intuition on what kinds of situations cause people to take on onerous credit.

EDIT: Oh, I recalled a detail I'd forgotten when first relating the tale. He wanted to go get his phone from the van so he could call for help but they wouldn't let you in the yard without paying to release. I imagine he was going to have a damned hard time asking for help without the phone.

It’s expensive to be poor and people who haven’t ever been poor just can’t wrap their heads around that. They don’t understand the loss-loss choices poor folk have to make every day and the toll and psychological exhaustion it puts on them.

I will never let a chance slide to quote one of my favourite passages from my favourite author and fantasy series: the Discworld, Terry Pratchett (GNU!):

"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.

Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.

But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.

This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."

I absolutely hate that quote. It may have been true-ish for classes of goods and services 150yr ago but today it serves little purpose than letting yuppie consumers pat themselves on the back for buying premium products.

As someone who has been poor 10 years ago, trying to raise a family, that’s just false. We had to deal with the literal situation from the quote: shoes. We could only afford cheap ones for our children and the shoes “broke” before they grew out of them. If you think this only happened 150 years ago then I envy your privileged outlook on life. This quote is as relevant today, as it was then. Being poor is expensive.

I stand by my statement. You might occasionally find classes of long term consumable goods where the literal cheapest is just too short lived to work or medium term consumable goods where the fancier options last longer by a big enough margin to be worth it (sawzall blades and dish soap are the only two I can think of). The majority of long term consumables get destroyed by a mishap long before it succumbs to wear and tear. Coats and pants get torn. Tools get broken from too much being asked of them in a pinch. Anything with an electric motor will live until you do something dumb that lets the smoke out. If you want to save money your default should be to cheap out. You will win some and lose some but the losses will be so, so, so rare as to be a rounding error. More often the problem is you buy something that is cheap junk and it refuses to die so you are left suffering though it forever.

I went through my fair share of Walmart black no slip shoes before moving into tech. I hope financial hardship is in your future as well as your past. Maybe you'll figure it out the second time around.

> I went through my fair share of Walmart black no slip shoes before moving into tech. I hope financial hardship is in your future as well as your past. Maybe you'll figure it out the second time around.

Wow.. I had to check your post history to make sure I didn’t misinterpret your words. There was a clear pattern. You seem smart, maybe you can find it too.

My dear internet stranger and fellow HNer: I hope you find more love in your life and the ability to see it in, and give it to others. All the best to you!

Props on paying it forward. It’s not a systems fix, but we underestimate how impactful culture is & in a future where the wealth distribution is going to be even more lopsided, benevolence & sense might be a good stopgap.

It is $700 now? SF is ridiculous. They towed my car once and it was $400 back in 2017.

Strictly, it's $100 for the citation you pay online, then there's the city fees for ~$300 or something and the tow fees for $250 or something. They will take $50 off one of those things if it's your first-time. No one was amused by my request for a subscription plan.

Good man. Too few like you.

I'm not so sure, living paycheck to paycheck doesn't mean you have no discretionary spending at all. Maybe you have $500 a month for one off expenses and you already used up this months on a laptop for you kid at school or something.

One off expenses don't happen 12 times a year. If you haven't been able to save $100 a month for five months, you just won't be able to save five times as much, let's be realistic.

Poor people find that one off expenses happen surprisingly often. Between car breakdowns (far more likely for those who can only afford a clunker), sudden health crises, domestic maintenance, wear and tear on clothes, unexpected inflationary price rises on essentials like energy and food, and a host of other issues, the poor have no slack at all in their budgets.

Of course the real problem is many jobs don't pay enough.

In fact not getting paid enough - and therefore being unable to budget - is considered evidence of poor character, while not paying enough is considered evidence of enlightened and mature rationality.

It's quite a strange view of the world.

How one-off are they really, at that point? Either way, the other guy's point -- that paying it off is not all that likely -- still stands.

>One off expenses don't happen 12 times a year.

so you'd be in favor of payday loans if they were limited to n times per year?

>If you haven't been able to save $100 a month for five months, you just won't be able to save five times as much, let's be realistic.

what about people who have the free cash flow, but can't save for various reasons? eg. friends/family asking for money, poor self control, etc.?

For example, in Italy there's a special kind of payday loan that is limited by law to 1/5th of the net paycheck. It is taken off the paycheck by agreement between your bank and the lender's. The combination of these two rules makes them more likely to be paid successfully, and gives them a better APR than e.g. credit cards despite being essentially used for the same purpose as subprime payday loans in America. There's also a maximum legal APR of ~18% for these loans (it varies every quarter), which is better than e.g. the ~24% maximum legal APR of credit cards

Unbounded APR and "letting the market figure it out" is not the solution.

Isn't Italy topping the charts of countries in financial ruin? If it weren't for Greece being worse Italy would be in the headlines. If America is to change laws, it'd help to use a successful nation as an example

Interesting spin on the ad hominem, but I just mentioned what I know about since I live here. Anyway, we're talking about private debt; and while Italy has a huge public debt, its private debt is quite low.

BTW, right now US treasury bonds have a higher 10y yield than Italy.

and next month, another emergency. The root cause is low income, because with a higher income, such things won't be an emergency.

If you have $500 per month for one off expenses, you should have been able to build some sort of emergency fund.

But then what is the alternative. If you don't get the car fixed, then you will not be able to commute to work. If you won't work, then you won't be able to pay rent. Isn't the $500 loan then a better alternative than ending up homeless ?

Would'nt it be better to rack up a $500 loan and then try to pay $100 per month so that it can be paid off in 6-9 months - even with 36% interest ?

The sane alternative is being part of movement of millions of people that pushes for better wages, better working conditions, etc. But no, instead everybody's forced into dealing with their own individual situation(s) as if they are not actually all connected to the greater economic organization picture.

One alternative is the guy who needs a $500 emergency loan gets it at a non-usurius interest rate. The system could be revamped to support easier repayment for actual emergency loans.

> If you don't get the car fixed, then you will not be able to commute to work.

Don't most metro areas have public transit? Perhaps buses are not the most comfortable or convenient, but they do exist, and for good reason.

I would say that it's a pretty substantial portion of the population for whom this is not a serious option.

While true, vehicle dependency is a serious societal problem in North America that needs to be fixed. This is partially the reason. Nobody should need a personal vehicle in order to be able to live a baseline satisfactory life.

Don't disagree, but you won't get a paycheck standing on principle here.

The alternative is a society where nobody is homeless regardless of their income or lack thereof.

The question lawmakers ought to ask is what is more beneficial, overall, for society? Some will suffer by denying exorbitant interest rate loans. Some will benefit by restricting them. I suggest our society would be better by not having exorbitant rate loans be legal.

Why should a society be structured by majority rule / majority benefit for such things, even if one agrees with your premise that society is supposedly better off (which I disagree with, you're not counting all the required consequences that go with re-ordering the system, you're pretending we're only talking about one thing)?

Actual democracy is an extreme negative, not a positive approach to organizing society.

You can claim the majority would benefit from eating the wealth of Sergey Brin and Larry Page at this point, they no longer operate Google, they're just ~50 year olds sitting on $200 billion in Google shares, piddling around until the day they die. So why not let society benefit sooner rather than later by consuming their wealth to its (supposed) benefit, divvy up their wealth to the poorest 51%.

You can invent a huge number of scenarios for doing things like that, where society supposedly is better off if we violate the property rights of some minority group. Why shouldn't some minority of people be allowed to lend at 43% interest if there are takers at that rate? Because you say so? Why shouldn't their property rights be respected - the property right to lend their money out at the rates they can command - and why should the majority get to arbitrarily restrict their property rights? It sets up an obvious exploitation situation, which is always the case in democracy, where the majority can endlessly torture, exploit and abuse the minority.

It would very clearly be better for the top 51% (far more than that actually) - the majority of society - if the economic bottom 10% did not exist (a group that rarely holds a job, has vast health & drug addiction problems, rarely pays taxes into the system, rarely contributes much of anything; and in fact that's true in nearly all welfare states, including the US). So they should all be gotten rid of, is that right? Democracy in action. The tax paying majority is sick and tired of carrying the never-tax-paying economic segments at the bottom, time to get rid of them, for the benefit of "society" (aka the majority power herd).

> Why shouldn't some minority of people be allowed to lend at 43% interest if there are takers at that rate?

For the same reasons we have regulations and standards in construction, transportation, etc. Because we know that uninspected cars will leads to death and injury on the roads. So laws and regulations are there to reduce selling and using blatantly unsafe vehicles.

Your response delves into topics my post does not cover. I think society would be better off banning exorbitant interest rate loans. Beyond this, on this topic, I have said nothing.

The loan sharks being the ones exploited and abused is certainly an interesting take.

Is the bottom 10% that sticky ... nvm, looks like it may be. From a quick search, 43% of the individuals raised in the bottom 25% stay in the bottom quartile.

https://www.pewtrusts.org/~/media/legacy/uploadedfiles/pcs_a...

So if you're born into the bottom 25 you have slightly worse than 60-40 odds odds of getting out?

Those seem like damn good odds for something that is necessarily a zero sum.

I would expect that as you get lower down (say bottom 10) it becomes even more volatile since the wealth needed to get out gets even lower.

Why shouldn't people be allowed to buy and own slaves, if there are takers willing to sell themselves into slavery (say, to provide for their family)?

Alas, the more likely scenario is "I need $500 to fix my car. Damn piece of shit needs repair at least once or twice every year. If I had a brand-new F350, I would save so much money on repairs!"

And they happily drive off the lot with a $80k car loan at 36%. People are, pardon my french, dumb as shit when it comes to car purchases. They are very happy to lose a guaranteed $10k/year in deprecation, so they won't get hit by a $2000 surprise bill.

The valuation of assets doesn’t matter when you have cash flow issues (especially when you can't sell that asset). It really doesn’t matter in the short term how fast an asset is depreciating as long as it’s doing the job in the short term. This is why people say it’s expensive to be poor. Someone with good cash flow can make better long term financial decisions.

You're absolutely right, and it's so frustrating to see someone opting for additional $150 per month in car payments, because they couldn't afford a $500 repair, because they're already doing $350 per month in car payments.

An old car is not a 2000$ surprise bill and you are done. It’s 1000 and after a couple of months another 2000 and after that another 1000. It never stops asking randomly for money.

While I was a student over the span of 5 years I had spent to the mechanic more than what I had paid the dealer for my 10 yo used car. Without the help of my parents I am not sure how I would be able to spit enough money to pay all of these bills.

So yes paying 400 per month for 7 years with high interest is a better deal that getting a car that you can afford with cash.

I don't mean to downplay people's problems, but this very much depends on the car, your local climate, and your ability to spot problems before they become serious. Lots of Toyotas out there that you only need to budget oil and tires for, and the occasional strut/brake pads/spark plugs as needed every few years. And there is plenty of information out there on which used cars are more reliable and how to spot parts that will need maintenance, if one is resourceful enough to search for it.

I think it's pretty hard to measure people's actual intelligence here given the way they are manipulated. US carmakers spend something like $10bn/year on advertising, for example. And car salesman are a byword for making sales by any means necessary. Car makers and dealers do that shit because it works on enough people to keep the money rolling in.

Most people don't make great decisions buying cars, rich or poor, but that logic isn't entirely specious. If your car spends weeks at a time in the shop, and you need it to get around, it's a false economy to keep fixing it instead of buying one that is reliable.

But you don’t know it when you are in the process of fixing an old car. You pay $1000 and you think that you will be good for a couple of years. The reality is that after a couple of months you will probably need to fix something else. Flush and repeat.

Oh, after a couple goes at it you figure it out.

In other countries there are institutions such as municipal banks that will borrow you the money at a reasonably low interest rate. The US is fairly unique in having legal usury where loansharks are allowed to prey on poor people.

UK: hold my beer…

Can you expand?

The UK has payday loans as well. As do a few other countries.

> Say I live paycheck to paycheck

Well, that's your problem right there. Unless you have routine access to spending opportunities that yield more than 36% in yearly returns, which I'm going to assume is pretty unlikely.

‘Stop being poor’ is the usual advice given in that predicament.

Don’t lean weird

The easiest way to yield that kind of return is aborting on pre-committed spending. In fact, that's the way the poor generate this kind of income. If they have $100 for food this month and a sudden expense needs $50, then that means they just go hungry until their budget hits $50 for food this month.

What you do is you starve a day or two and sell your food bank food. Everyone is capable of generating income while depleting from stores.

You're assuming that credit is only available at that price. If he has a car and a credible case to make that he'll be able to give them the money next month, surely he could get it cheaper than that?

Which part is completely fake? Living paycheck to paycheck? A $500 cost? Or being able to come up with $15 within a month?

Are you under the impression that nobody ever uses credit facilities with high interest without spiraling into bankruptcy?

> Loans with gigantic interest ruin lives.

Playing the devil's advocate here...loans with interest rates higher than 36% are generally reserved for subprime lending - payday loans being the most prominent. As long as we live in a society (talking US here) where minimum wages don't keep up with inflation and benefits, then these products in some sense need to exist to satisfy that subprime group. Otherwise it's literally impossible to create a profit on payday loans if these rates are much lower.

Note - I don't know what the "right APR" is to make them profitable, but I certainly can fathom why there might be a 1000% interest rate on a 7 day loan of $100 so someone can get their car out of the pound so they can drive to work. The administrative overhead to lend $100 and only make pennies is simply not worth it.

Also, yes gigantic interest rates ruin lives...more importantly predatory sales practices to get people to buy them. But maybe we should focus on why so many Americans get to that in the first place (looking at your healthcare) - thats a much easier market creation.

Yes, the type of loans that usually have these high APRs are along the lines of "we'll lend you $500 today, but we expect $550 or $600 on your next payday" (yielding an APR often well into the hundreds). The rates are high both because a) there's a high level of defaults and b) they aren't really secured by anything except for a pre-scheduled ACH from the bank, so collection is hard (and it doesn't go on regular credit reports).

Some people make good use of these, as timely sources of money when there's not a lot of other options (not everyone has credit or saving or friends and family that can help). At the same time, it is extremely predatory, and the lenders are constantly trying to maximize the money they can get from people (such as rolling a new loan into the payment of the original, meaning only the interest is functionally required on the due date, and they get to skirt the laws of the loan required to be short term).

It's one of those catch-22 situations where doing away with the market entirely hurts those you're trying to protect, but it's hard to regulate effectively because the benefit is it's quick and short, meaning too many hurdles might be the same effectively as doing away with them completely.

Capitalism works extremely well for those at the top, reasonably well for those in the middle and it can utterly suck for those at the bottom who effectively prop up the two other layers.

This has nothing to do with capitalism. Capitalism is merely private ownership of stuff. When people use the word “capitalism” like this, it inevitably sounds like a naive Marxist classism throwback. Anything bad is merely attributed to capitalism, and set aside the generations of economic nuance we have developed since the gestation of that dysfunctional construct.

> Capitalism is merely private ownership of stuff.

No, it's private ownership and trade of stuff. That seems nitpicky, until you contrast it with other economic systems, in which case trade is strictly regulated, and it becomes obvious that's a large part of it.

> the generations of economic nuance we have developed

You mean the nuance that takes us further from a pure capitalistic and free market system into a hybrid system where there are regulations and communal (government) efforts to counteract the portions of capitalism and free markets that are not palatable for a modern society because they fail to lead to outcomes we want?

There are reasons why the poor of today are better off of the poor of a century ago, and many of those reasons are not much in line with capitalism and the free market, while others are. Minimum wage, regulations on predatory practices, etc account for a lot of that, while advancements in technology and medicine much of the rest.

Without regulations, which are a restriction on private trade, we'd still be dealing with the things Upton Sinclair chronicled so long ago (whether embellished or not).

I’m not sure what you’re arguing here aside from capitalism is also free trade. I think definitionally no, but semantically or practically maybe. Free trade is also a thing, sure. I’d like to examine the mechanism you’ve identified to attribute the sources of betterment, if you are not merely making it up as you go.

> Capitalism is merely private ownership of stuff.

That's a very narrow definition of capitalism. It's not just 'stuff' that is privately held, it is also the means to generate profit and a very large chunk of the available capital. The effects of that go way beyond just 'stuff', and can make it next to impossible for someone born at the bottom of the stack to work their way up. Of course, some inevitably succeed at this and they are held up with great fanfare to prove that 'the system works' but on average, if you are born at the bottom your life will likely continue to at that level of society without much chance of upward mobility because the system is stacked against you.

And payday loans at exorbitant rates are a mechanism that keeps people down.

I agree with your punchline, but all the hypothetical before it is strictly unrelated to capitalism. As if peons in the European middle ages living under non-capitalism, Cambodia, Venezuela, or various theocracies have this remarkable social mobility. This type of analysis is inferior to pointing to correlates with moon cycles or fluorinated water; it directly ignores history.

You're basically defining capitalism as "some people have lots of money"

Yes, well, “capitalism” is built around “capital” aka money, assets, real estate, etc etc.

>You're basically defining capitalism as "some people have lots of money"

Perhaps the most realistic definition.

You could also restate it as "most people don't have lots of money"

Regardless of how much you yourself actually have at the time.

I think it's good to look at "capital" as "other people's money" (OPM).

Of course if you have enough of your own you might not really need any of OPM if you don't want to get involved.

OTOH in that case you might be one lending out some of your own "underutilized" money to others who are "interested" in OPM of some sort.

The repayment includes the interest intended to compensate for the risk & delay in repayment, so it simply means more of OPM is coming back than yours that went out.

If none of this OPM was changing hands there would still be the same amount of capital.

But the capital-ism where the system is structured so financial rewards of labor are subjugated to the financial rewards of capital itself according to its magnitude would not be as much of an actual thing.

And it's this feature that can be exploited by greed in the most disadvantageous way compared to less OPM-oriented financial foundations. Regardless of the mathematically enhanced returns to the most shrewd capitalists, the greed itself subtracts from what actually could have been overall.

As the magnitude of the money that most people don't have a lot of, becomes less significant compared to the some people who have lots of money, the unlevel playing field tends to tilt toward the vertical as a function of greed.

Capitalism means rich people decide what happens. This is easily observed in e.g. USA. [0] "Democracy" would be something else.

[0] https://www.cambridge.org/core/journals/perspectives-on-poli...

Rich people decide what happens in every system of trade and governance.

"Communist" China is a lot better if you're rich. So is "socialist" Europe. So is "capitalist" America.

The -isms have never really mattered.

The golden rule truly is "whoever has the gold makes the rules".

Yes, very rich people are a problem. Not every society has the same proportions of them, however. USA before we relaxed our top tax rates didn't have so much of the political agenda determined by the same 500 people. Once billionaires have infested a society, however, they are very difficult to exterminate for the reason you cite.

I'm not convinced that payday loans should be able to produce a profit? The subprime group seems like people who should be serviced by the government, rather than pushed into a worse place to extract what little value they have.

> I'm not convinced that payday loans should be able to produce a profit?

So who in their right mind would provide such a service if there was no path to a profit? /headscratch

A huge lobbying interest is devoted to protecting this industry. Opposition to minimum wage increases is one of their priorities.

> I don't know what the "right APR" is

In the UK, the consumer finance regulator the FCA did an in depth analysis of subprime lending and concluded that "fair" maximum charges were interest rates of 0.8% per day and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.

>In the UK, the consumer finance regulator the FCA did an in depth analysis of subprime lending

source?

>and concluded that "fair" maximum charges were interest rates of 0.8% per day

"fair" in this case being what? The interest rate being enough to offset defaults? Or enough to offset defaults + overhead + profit?

>and total costs (interest, fees and penalties) no more than the amount of the loan principal borrowed.

I find this baffling. 0.8% per day compounded for a year is 18.3%, but they say that total costs can be equal to the principal? That means the effective APR can be up to 100% (if borrowing for a year), more than 5x the "fair" APR from before. Speaking of which, why isn't the length of the loan factored in? Surely a 1 week loan should have a lower "total cost" than a one year loan?

Source: https://www.fca.org.uk/news/press-releases/fca-confirms-pric...

From this post:

Martin Wheatley, the FCA's chief executive officer, said:

'I am confident that the new rules strike the right balance for firms and consumers. If the price cap was any lower, then we risk not having a viable market, any higher and there would not be adequate protection for borrowers.

'For people who struggle to repay, we believe the new rules will put an end to spiralling payday debts. For most of the borrowers who do pay back their loans on time, the cap on fees and charges represents substantial protections.'

0.8% compounded for a year is ~1830% APR

You're right. I must have forgotten to convert the result back to percentage.

~1730% (1.0 out of the 18.3 on the calculator is the principal).

How much help do you think the devil really needs here?

I was in a recent emergency situation where I could’ve needed to spend thousands of dollars on the same day.

I just don’t have that kind of liquidity.

I can turn the required savings/stock in to cash with 3-5 days of lag. But not the same day.

This is where a subprime loan would be useful as a bridge, and in that situation I don’t think it would ruin my life.

Consumers know what’s best for them. As long as the APR is accurately advertised, I don’t see why people should be jammed up because some people think interest is a sin.

Just as an FYI: if you have stock in a regular brokerage account, you can take out a margin loan in cash immediately. It depends on the broker, but IME it's fairly common (e.g. Fidelity does it).

Margin has a bad name as a "high risk" activity, but that's mostly when you have a concentrated position and are taking out a margin loan to double down on that concentrated position. Using margin as a bridge cash loan for a few days is a fairly low-risk proposition.

Consumer credit cards aren't subprime lending; you're given an entire month of float before interest, and usually have sub-20% APRs. This is entirely different from a payday loan. Even a personal finance line of credit is much lower interest.

If you have the collateral you don't need a subprime loan.

>Consumers know what’s best for them.

Yeah that didn't work out the last time

> Consumers know what’s best for them.

The rest of the world would prefer you not to crash the world economy like it happened in 2008, for the sake of a clueless aphorism.

Except in 2008 many people did not understand what their actual monthly bill would be with an ARM in a worst case scenario, and banks were more than happy to handwave away any concerns.

Assuming that everyone is acting in their own best interest, then a 36%+ interest rate would only be used by someone who is in a situation where it is better than their alternatives. If the option was not available, then they wouldn't have the alternative that is best for them.

If someone is NOT acting in their own best interest, then there are an infinite number of things that need to be removed from their options.

Standard humans routinely fail to correctly asses options. They can’t even if they’re aware they can’t. Economists are still coming to terms with how badly the rational choice theory predicts human behavior.

As other have said, that's why bankruptcy exists. Also, loans like this aren't a 1-year repayment, it's a much shorter window, so you are not paying 36% more, you will pay likely in a shorter time window. While 36% looks bad, these kinds of loans can be helpful to people.

Just because it looks scary to you, people go to these kinds of tools because they need them. When those tools are taken away, they will go down riskier paths, or fail to pay bills (which can lead to worse outcomes). Don't treat everyone like they can't think for themselves and understand what they are getting into. Sometimes solutions like these are needed.

Ehhh I agree in general but if you want to say that universally, then you’re painting with too broad a brush. Like, wasn’t Google started with servers bought by maxing out a credit card at similar interest rates?

> wasn’t Google started with servers bought by maxing out a credit card at similar interest rates?

This is some sort of fallacy, but I don't know the name of it.

Anyway, as a counter point, I'm here from an alternative reality where we instead instituted this law limiting APR a year before google started. Google still managed to buy servers despite the law (I think that story's apocryphal, but even if it's true, they just got them at lower interest rates or got like 2 fewer servers and google was slower for a few months).

However, in this alternate future, there's also another company that did a lot of really good things founded by someone who in this reality ended up the victim of a payday loan, penniless, and is still struggling with the after effects of declaring personal bankruptcy. His even-better-company didn't happen.

Do you sorta see what I'm trying to say here?

Maybe the fallacy is just a bias towards some specific vaguely related anecdotes over data? The sorta "I agree in general drunk driving is bad, but doesn't Steve Ballmer actually drives better while drunk so maybe it's too broad of a brush to outlaw it?"

It would be more like, “Drunk driving is absolutely never acceptable” including taking your critical-condition friend one mile to a hospital on empty roads while you’re .08.

Edit: also it seems like the fallacy would be in the other direction. Up through the Middle Ages, charging any interest at all was “usury”, because no one saw the difference between “non-exploitive business loans” vs preying on the desperate; the former was the bizarre special case, until the exception became the rule.

> If a loan is so risky that it requires greater than 36% interest, it should not be made.

Playing devil's advocate: it depends. When I was younger, there were times when, if you lent money at only 36% per month interest, you'd be losing money. You'd have to lend at rates higher than that, just to break even, no matter how low the risk was.

You mean because your country had high inflation?

My parents had nearly 20% interest rates on their homeloan at one point. This isn't Valenzuela or Zimbabwe either, it's in Australia.

This is an easy statement to make, but I think, empirically speaking, it just doesn't line up with reality. For payday loans, where the terms have historically been in excess of 36%, the vast majority of borrowers:

1. Pay the loan on-time (more than 90%; Community Financial Services Association of America, "About the Payday Industry: Myth vs. Reality.")

2. Do not roll over the loan (same source)

3. Are able, in advance, to accurately predict when they will be able to pay off the loan ( https://scholarship.law.columbia.edu/faculty_scholarship/594... )

4. Report having been satisfied with the experience as a whole ( http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.554... )

Furthermore, evidence shows that, on the whole, loans of this nature prevent bankruptcy, foreclosure, bounced checks, and other outcomes ranging from extremely devastating to merely disruptive ( https://www.researchgate.net/publication/5051409_Payday_Holi... ; https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1344397 ; https://digitalcommons.chapman.edu/economics_articles/104/ ).

I think fortunately/unfortunately, most HN readers won't be familiar with the benefits quick, easy access to capital can have for a person, especially those living on the margins of poverty, where missing one e.g. auto or phone payment can have cascading, long-lasting effects, such as losing a job. The nice thing about our distributed, relatively free-market economy though is that every person can act as an independent agent, analyze their own risk tolerance and ability to make responsible use of the financial products available to them, and make choices leveraging personal information that no centralized authority (or blanket rule, such as "loans with interest above 36% should not be permissible in any circumstance") could possibly have access to.

Buying my friend a beer because he lent me $20 three days ago works out to an astronomical APR. It doesn't mean doing so should be illegal.

There's a time and place for everything and that probably includes high interest loans as well.

I don't think anyone is suggesting that gratitude for good friendship should be regulated.

The social negatives of difficult-to-discharge debt and Ponzi-rate lending (wherein debt service cannot be met by an underlying economic growth behavior) are horrific and easily preventable. Letting even one person fall into the pit is a social travesty.

It is not true that any business model you can think of should be allowed.

I wouldn't be surprised if paying interest on loans in the form of alcoholic beverages is actually illegal if you don't have a liquor license.

Federal government has limited purview of its citizens, but can more easily regulate the people in the military and interactions with them.

As it derives its power from the delegates of the states, it has to appease them even if it has the power to regulate all facets of life. So there isn't a law for all people as not enough delegates can stomach that, but for the military its easy.

> Federal government has limited purview of its citizens, but can more easily regulate the people in the military and interactions with them.

Congress passes these protections, the military just lobbies for them internally because they cause problems with the operations of the military. Some things I saw a lot:

- A Private, PFC, or Lance Corporal who lives in the barracks (therefore has the most straight-forward pay with little extra incentives) [1] gets approved for a car loan on a used car at 20%+ APR or credit cards which revolve into 20%+ APR with caps well above their means. When they can't pay they will attempt to contact the chain of command and pressure the military into intervening. Eventually they'll settle, the car or items get returned, the Marine gets busted down, and then they go on to do the same thing all over again with the same car.

- Lending services know that military are fixed income and that they are also low income, and will therefore shop predatory rates to them as a means of "refinancing". Really, it's debt consolidation because military members also have a high rate of divorce and debt.

- Banks will attempt to repossess homes while military members are on deployment and cannot access internet or financial services. Also happens to reservists who are without their primary income and are deployed. (ServiceMembers Civil Relief Act) [2]

Military just face some very unique situations, but a lot of it derives from the fact that we pay enlisted personnel (the greatest in number) dirt for their trade.

[1]: Note, these are pre-tax: https://militarybenefits.info/2021-military-pay-charts/

[2]: https://www.texasbar.com/flashdrive/materials/military_law/M...

> When they can't pay they will attempt to contact the chain of command and pressure the military into intervening

What logic does this follow? Like, why would I ask my employer to intervene if I have taken some loan with bad conditions?

I worded that poorly, sorry. Businesses will contact the troops chain of command.

The military exercises a lot influence over troops, they can bust you down or remove your security clearance. They can also push you into payment plans and reflect these situations in your performance reviews. The military, for all intents and purposes, acts as much more than just a simple employer and lending services (among other businesses and people) exploit that.

The military provides your clothes, your housing, your food, your laundry, your transport, your healthcare, and your chaplain. They can control your schedule 24 hours a day, decide who you're allowed to call or write to and what you're allowed to say, and decide what electric appliances you're allowed in your quarters. They can change your place of work to a foreign country, prevent you from resigning, and even literally have you imprisoned or executed.

While in some regards the military is like an employer, in other regards it's very different.

> but can more easily regulate the people in the military and interactions with them

I always found it amusing how the "patriots" worshipping the military are pretty much the same people who hate any kind of government intervention in their lives.

I find it more amusing that the same people also worship the police ("thin blue line" etc), despite the fact that cops are literally the very people who implement day-to-day government intervention in their lives.

It gets even weirder when the same person also rants about the federal (FBI, BATFE, DEA etc) "jack-booted thugs". This is incredibly common in the right-wing gun owner community.

I’m reminded of the common quip that the US military is the largest socialist organization in the United States.

This is actually one of the things I like to highlight to folks that talk a little-too-gleefully about socialism. The military implements socialism for convenience and cost effectiveness. The result is atrocious. This was in Camp Lejeune, NC.

I almost never got adequate medical care. The medical system was strange and winding. There were all kinds of approvals needed for very simple things.

The food standards were absolutely terrible. I don't know if it was an actual thing, but I was told there was a threshold for the number of roaches that could be present on food dispensing equipment before they'd throw the food out.

The housing was disgusting. I lived in a barracks built in 1945 with inadequate parking, sewage that once popped a goldfish into a toilet bowl, water that occasionally would turn totally brown or yellow and is now known to have made people sick. There was a door to the interior of the building where ducts, pipes, and internet were run that all contained asbestos and asbestos warnings.

The worst part, you had no option to say, "Give me the dollar amount you spend on this so I can find my own options" but they'll gladly tell you what they spent at an inflated rate.

These are just the ones off the top of my head.

I have heard similar stories from all members of my family that served in the military. Their experiences with healthcare in the military have essentially guaranteed they will never get behind a single-payer health-care system.

I think it's possible. I existed in that system and am at times still bound to it when dealing with the VA. I think my attitude is more, "go fix the system you already have to experiment with."

On the flip side, the military also has Bethesda Naval Hospital and Walter Reed Medical Center (both who regularly treat the President, such as when Trump had covid), life insurance, TSGLI, G.I. Bill (free plus monthly stipend), lifetime disability, Tricare, VA home loans, among others. I know people who lived in brand new barracks with keycards. People who lived in air conditioned pods in the middle of the desert with four square meals a day.

Sounds like you had a bad experience and things could certainly improve. The military won't always offer a stellar experience, and Marines are often rough with their surroundings. Just ask people deployed to Iraq and Afghanistan.

> I almost never got adequate medical care. The medical system was strange and winding. There were all kinds of approvals needed for very simple things.

The military implements socialism _poorly_.

By contrast, when I had a horrific gout flareup in Australia, there was no approvals needed to admit me for a nine day inpatient stay with rheumatologist, PT, etc.

I am getting surgery on a heavily deviated septum, in the US. It shows up on imaging so notably that even when I had a head CT for something completely else, the radiologist flagged it as being of note. When I went to an ENT, he confirmed a "90%+" occlusion that would need septoplasty and a bilateral turbinate reduction to relieve. He talked me through the pros and cons of surgery for informed consent purposes.

"I'm fine with all of that, let's schedule."

"So, no. Not yet. First I'm going to give you these two nasal sprays for six weeks, that you'll take and come back and tell me didn't resolve your issue, and _then_ we can schedule. That way your insurance won't reject it."

I had to spend $180 on two nasal sprays that, according to my insurer, may have resolved a cartilage issue in my nose.

i.e. 1) the non-socialist system in the US also requires all kinds of approvals (I'm also a paramedic - UHC years ago got fined for denying Heli EMS coverage for people involved in among other things, car accidents, for "lack of preapproval"), and 2) "socialist" systems in other countries don't require all kinds of approvals - that isn't an inherent aspect of the socialism.

Your experiences are meaningful to you, but they don't indicate anything significant about socialism. Socialism is not the goal of USA military. The point of the exercise is to transfer resources from citizens to armaments manufacturers. Who lives or dies, how they're treated in the meantime, the stories we tell about the whole mess, all this is random noise about which the generals DGAF. If we want to know about socialism, we'll observe Scandinavia or anywhere else where it actually happens. We don't need the tortured analogies of frustrated NCOs.

I'm not a socialist, BTW.

I don't think it's entirely accurate to say "ignore this evidence of a failed system". My point in highlighting it is there's an opportunity to fix it and experiment on a small scale. Imagine if you made that system work, how much you'd learn, and how much support you'd garner.

You only consider USA military to be a "failed system" because you don't realize its actual purpose. One might imagine that it's about security... which, sure, total failure on that front. The actual purpose, as indicated above, is to transfer resources from USA citizens to armaments manufacturers, a purpose that is accomplished to greater degrees every year. Taking good care of the troops would detract from the goal, which is why that doesn't happen.

Eh, what?

You were at Camp Lejeune so you might have heard about "baby heaven". [0] That shit is just evil. No socialist system has deliberately poisoned military families just so the generals could get sweet jobs from private companies after they retired, so your experiences were of capitalism, not socialism. Calling it socialism just makes you look sort of clueless.

This awful poisoning shit is still happening right now. [1] The officers who run particular installations DGAF about the health of people living there. They just want to "accomplish their objectives" which is invariably some wargames bullshit or fake statistical readiness scam. They get their ribbons or promotions or whatever and GTFO. Their grandkids won't have to drink tetrachloroethylene when they're living in some swanky NoVA suburb.

[0] https://www.washingtonpost.com/opinions/a-trust-betrayed-the...

[1] https://www.hawaiinewsnow.com/2021/12/22/two-red-hill-spills...

The results you describe sound very much like pre-1989 Czechoslovakia to me. I guess they actually did achieve socialism! :)

They do achieve socialism, without a doubt.

Not really socialist. It's just a giant imperial jobs program that also provides cover for channeling tax dollars into the coffers of the donor class.

A socialist meritocracy.

It is because that is the violation they can hit them with from a federal level. Usury laws are the domain of states.

> Why aren't these extended to credit consumers in general

Take your pick:

- Finance companies have effective lobbyists.

- Americans demand All The Freedoms. (Except for those freedoms.)

Of course we do! Even the military covered bit is nonsense.

Americans do not take kindly to voluntary transaction meddling by the government because who is the government to say what two private parties agree on so long as it does not infringe on the rights of others?

Believe it or not, the social part of our society finds there to be something coercive about Hobson's choices. Something about people not existing purely to be grist for your ideological mill? Shocking, I know, but, well, it is what it is.

That social part of our society has cottoned onto the idea that for the poor among us the game is rigged--and that it is not merely rigged but it is being played such that the information necessary to know about the choices to get out of it show up far too late to be of use, or not at all.

And while that is speaking of a just government, and ours is frequently unjust--sometimes it gets something right.

If this service existed in an extortionary way, why isn't there competition that undercuts the 36% rate? Perhaps it's because such high rates are necessary to make the business profitable at all.

While the government thinks they just saved people from an evil corporation, all they've done is completely prohibit such customers from acquiring loans.

If there is opportunity for arbitrage, you or I or anyone could step in and create a seemingly profitable business while also providing a social benefit.

The moral hazard introduced by the government is the issue.

> Perhaps it's because such high rates are necessary to make the business profitable at all.

It could also be that undercutting that 36% rate does not make you competitive (instead of profitable) against less scrupulous actors (they can advertise more and lobby more; convincing society that they are necessary). Also, it is a kind of business that has a very very high barriers to entry (enormous amounts of capital, regulatory, etc.).

Competition alone can not solve profitable abuse (particularly on those with no options). The less scrupulous you are the more you can abuse, the more you can profit, and the more you drive your competition to implement your practices. The only limit is that fine-tuned equilibrium of casinos: only constrained to the point that allows the larger proportions of your customers just get by earning & spending (as long as minimizing the ones that get under the bus does not reduce the income generated by the majority kept at equilibrium).

> It could also be that undercutting that 36% rate does not make you competitive (instead of profitable) against less scrupulous actors (they can advertise more and lobby more; convincing society that they are necessary).

This is still consistent with profitability. If you're not competitive, you can't earn customers. Businesses are thought to set prices at the level where the margin cost of acquiring a new customer is 0.

However, if you could find a more efficient way to deliver value, reduce costs, etc. you could do so and flourish at a price lower than your competition.

> Also, it is a kind of business that has a very very high barriers to entry (enormous amounts of capital, regulatory, etc.).

Part of the barriers to entry are exactly the regulatory hurdles in place, which are totally unnecessary in my opinion.

Two parties could draft a contract and sign it voluntarily, without government oversight, and petition the courts if any grievances occurr. Keeps government out and lowers costs, likely lowering the necessary apr charged.

> Competition alone can not solve profitable abuse (particularly on those with no options).

This completely violates the idea of a market economy. There are laws against collusion to fix prices. Such laws exist precisely because competition is the mechanism to prevent abuse.

> The only limit is that fine-tuned equilibrium of casinos: only constrained to the point that allows the larger proportions of your customers just get by earning & spending.

While true, this is still not a problem. People are voluntarily transacting at the casino. It's not for a 3rd party to determine if they can or cannot give it a shot to get under the bus.

I understand the foundation of your reasoning; boiling down liberty to the freedom of self harm. Mill was a lot more nuanced.

I've never gotten a loan that wasn't from a "person" that only exists as a government-sanctioned construct. I'm all for natural rights for natural people, but corporate entities are creatures of law, not nature.

It's still a voluntary transaction.

Would you be opposed to a sole proprietor offering loans at 200% apr?

Backed by guns, no doubt.

Those loans wouldn't really exist because of the free market.

The people who are going to take those loans because they can't get one at 150|100|50|whatever% are going to have a huge challenge, if they are even (blood from a stone) able to.

And while you as the lender may "enforce" repayment with guns and violence, you can only hurt someone so much, and the dead don't repay loans. You can't visit that violence on family and friends, because that is a crime, even if in the most wild west environment you're being allowed to enforce repayment from the lendee with violence. And in the end, while beating the shit out of someone delinquent may be psychologically satisfying to your psycopathic or sadistic ways, you're still out your principal.

The wise lenders will rapidly find the sweet spot between repayment and default.

Even if you fully remove the law, the single-lenders ability for extortion is limited by the fact that they are a known person who can likewise have violence directed back at them.

What about meddling in USD transactions across the globe? Did they get that part right?

Yes I like that autocratic regimes, terrorist groups, and rogue states have a very hard time financing their operations. The meddling is certainly not perfect and not without collateral damage, but yeah I think most Americans are probably pretty okay with that.

Awfully suspect that people start coming out of the woodwork with arguments from “principle” coincidentally with them having a vested economic interest in a weak dollar/weak state generally (or at least thinking they have interests in those things).

Why do you believe any of that marketing? Rogue states? Terrorist groups? It's about power. If the US government cared about its people, then there would be real regulation to protect them. There isn't any because it's profitable to exploit them, not because of any libertarian ideal.

Meddling in the affairs of any corporation that handles just a single US dollar transaction is the opposite of interpersonal freedom. I am not sure how you can get this far into thinking about the subject while holding such a bizarrely cognitively dissonant belief.

These sanctions are frequently a point of negotiation against our adversaries. That’s my evidence that they matter. Unless you think they’re just wasting their asks on things that they don’t care about?

What evidence do you have for it being profitable (to whom?) to exploit (how?) the American people (by whom?)?

> This might be too low for some high risk customers to be able to get credit at all.

We're living in near-zero interest rate land. 36% is usury, even 20% is that.

Maybe the US should not only put a hard cap for any kind of loan at FED interest rate + 10%, but also force through an actual livable minimum wage so even the poorest classes don't have to choose between ridiculously expensive credit card debt or starving/dying because they can't afford healthcare.

The issue with low APRs on high risk short term debt for consumers that need it is that it generally makes it expensive to issue the debt almost regardless of the risk of the person.

Hypothetically if you need a $700 payday advance today, paid back in 2 weeks when you are paid, a credit card level (25% apr) would be an extremely small amount of money paid to the servicer (like 7 dollars total).