Financial technology companies, or fintechs, have brought about some important systemic changes to the financial services sector. Robinhood helped pave the way for zero-commission trading. Paypal (and its acquired Venmo) changed the payments landscape forever. And regulators, tasked with ensuring consumer protection, have to keep pace with wave after wave of innovation from fintechs.
One area that regulators have recently flagged for further investigation is the buy now, pay later space. While this is by no means an innovative product, fintechs have been able to increase the ease of access and scale of integration with retail websites, which is cause for concern for regulators. This makes sense — we wouldn’t want anyone being aggressively marketed credit they can’t afford for discretionary spending.
But one area of fintech that has flown under the radar of regulators is that of high-cost, short-term consumer credit —traditionally referred to as the payday loan. Off the bat, we’ll note that not all payday loans are predatory. Federal usury law calls anything over 36% APR predatory, while state law varies widely. What’s important to know is that predatory payday loans exist in all 50 states today, and the industry is thriving post-COVID. Predatory lenders target systemically discriminated communities, like neighborhoods that were redlined in the 20th century and those classified as banking deserts, which mainstream banks have deemed too risky or too expensive to service.
Fintechs, as we saw above, have brought a lot of good innovation to the financial sector. Unfortunately, some fintechs have also increased the speed, scale, and efficiency of these predatory lenders.
Lendly is one such predatory fintech. Let’s take a look at the fine print on their home page:
“The Lendly loan is an installment loan offering amounts up to $2,000. For the typical loans that are repaid via a payroll direct deposit, the annual percentage rate (APR) is approximately 175%. For the typical loan not payable via payroll direct deposit, the APR is approximately 225%.”
175–225% APR. When the federal usury rate cap is 36%. And this company is partnered with Walmart to provide their employees access to “affordable credit.”
At Buoy, we are on a mission to get every American employee access to ethical and affordable credit. In the process, we hope to expose this type of blatant predatory lending that is happening in our communities.
