We all know that lenders, loan sharks, and credit cards profit when you get into debt and as a result they can be dangerous. But many of these companies hide their danger with smart marketing. Warning: consumer debt by any other brand can be just as dangerous.
On the outline, writer Gaby Del Valle talks about one of these companies, Affirm. Affirm works with over 1,000 partner retailers to enable customers to take out loans for big-ticket items: $ 400 pants, for example. Del Valle writes:
“Unlike layaway, Affirm delivers your purchases instantly, but the cost of instant gratification is interest rates of up to 30%. The service is essentially a cross between credit cards and layaway, combining the worst aspects of both. And if there’s one thing tech startups have mastered, it’s getting investors to give them millions of dollars to recreate things that already exist, like taxis, ordering food in restaurants and now , subprime loans.
The difference between this service and a typical high interest loan seems to lie mainly in the marketing. Unlike other loans, Affirm is upfront on the terms you get started. “We are committed to establishing clear and up-front prices. You never have to worry about the extra costs buried in the fine print, ”their website reads.
Granted, their interest rates, which range from 10-30% with the average customer taking 21%, are not as bad as payday loan rates. They even offer fixed terms and, most importantly, simple interest, which makes them perhaps better than funding some shit you don’t need on a credit card. But as Del Valle points out, credit cards have an average rate of 17 percent. And anyway everyone knows buy shit you don’t need with a credit card (or a personal loan!) is usually a really bad idea.
In a way, however, it looks different, and it has a lot to do with branding. Most reviews of Affirm et al. fintech products, is that they are just another way of fool consumers into bad financial decisions.
Absolutely, but I think the even more shameful problem is that these companies are doing this under the pretext of helping people. Like The founder of Affirm told TechCrunch:
“We cannot be judgmental, but we must be proscriptive. If you can’t afford a $ 200 dress [or presumably, a $400 pair of pants], maybe we don’t help these people.
Alright, fair. And maybe they give people options (the same argument has been made about payday loans, which Affirm has worked from for himself). It’s a fair argument that they can’t be tasked with helping these people, but the point is that Affirm does. appear as if they were helping these people when their website bragged, “… a decreasing number of people may say ‘I trust my bank to look after me.’ It doesn’t have to be that way. Affirm’s mission is to solve this problem. They want to “solve this problem”, then they announce the Next:
Everyone takes it to Affirm here, but the problem is not unique to them. It reminds me of the recent fiasco with Navient, the student loan manager who was for follow-up by the Consumer Financial Protection Bureau (CFPB) on shady business practices like the misapplication of student loan payments. In the lawsuit, Navient said they have no obligation to act in the best interests of their clients. But that’s not exactly the message on their “Financial Advice Blog”. These companies use financial literacy to trick you into making bad financial moves.
They promote transparency and good financial decisions and flexibility (you can get into debt, but hey, that’s for sure. your terms!) but at the end of the day, they make money when you’re in debt. Worse, when someone calls out to them, they say “we are a financial product, we are not here to help people”. It’s good, but it’s additional irresponsible to use hip branding to pretend you are not in the debt business.
As consumers, it seems like we already spend half of our lives making sure we don’t get ripped off, but here’s yet another trap to watch out for. Don’t fall for companies that rely on financial literacy as if they are helping you when all they want to do is make money from your bad decisions.