Pluralistic: When you hear "fintech," think "unlicensed bank" (01 May 2023)

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A stately, columnated bank building, bedecked in garish payday lender signs.

When you hear "fintech," think "unlicensed bank" (permalink)

In theory, patents are for novel, useful inventions that aren't obvious "to a skilled practitioner of the art." But as computers ate our society, grifters began to receive patents for "doing something we've done for centuries…with a computer." "With a computer": those three words had the power to cloud patent examiners' minds.

Patent trolls – who secure "with a computer" patents and then extract ransoms from people doing normal things on threat of a lawsuit – are an underappreciated form of "tech exceptionalism." Normally, "tech exceptionalism" refers to bros who wave away things like privacy invasions by arguing that "with a computer" makes it all different.

These tech exceptionalists are the legit face of tech exceptionalism, the Forbes 30 Under 30 set. They're grifters, but they're celebrated grifters. There's a whole bottom-feeding sludge of tech exceptionalists that don't get the same kind of attention, like patent trolls.

Oh, and the fintech industry.

As Riley Quinn says, "when you hear 'fintech,' think: 'unlicensed bank.'" The majority of fintech "innovation" consists of adding "with a computer" to highly regulated activities and declaring them to be unregulated (and, in the case of crypto, unregulatable).

There are a lot of heavily regulated financial activities, like dealing in securities (something the crypto industry is definitely doing and claims it isn't). Most people don't buy or sell securities regularly – indeed, most Americans own little or no stocks.

But you know what regulated financial activity a lot of Americans participate in?

Going into debt.

As wages stagnate and the price of housing, medical care, childcare, transportation and education soar, Americans fund their consumption with debt. Trillions of dollars' worth of debt. Many of us are privileged to borrow money by walking into a bank and asking for a loan, but millions of Americans are denied that genteel experience.

Instead, working Americans increasingly rely on payday lenders and other usurers who charge sky-high interest rates, on top of penalties and fees, trapping borrowers in an endless cycle of indebtedness. This is an historical sign of a civilization in decline: productive workers require loans to engage in useful activities. Normally, the activity pans out – the crop comes in, say – and the debt is repaid.

But eventually, you'll get a bad beat. The crop fails, the workshop burns down, a pandemic shuts down production. Instead of paying off your debt, you have to roll it over. Now, you're in an even worse situation, and the next time you catch a bad break, you go further into debt. Over time, all production comes under the control of creditors.

The historical answer to this is jubilee: a regular wiping-away of all debt. While this was often dressed up in moral language, there was an absolutely practical rationale for it. Without jubilee, eventually, all the farmers stop growing food so that they can grow ornamental flowers for their creditors' tables. Then, as starvation sets in, civilization collapses:

As the debt historian Michael Hudson says, "Debts that can't be paid, won't be paid." Without jubilee, indebtedness becomes a chronic and inescapable condition. As more and more creditors attach their claims to debtors' assets, they have to compete with one another to terrorize the debtor into paying them off, first. One creditor might threaten to garnish your paycheck. Another, to repossess your car. Another, to evict you from your home. Another, to break your arm. Debts that can't be paid, won't be paid – but when you have a choice between a broken arm and stealing from your kid's college fund or the cash-register, maybe the debt can be paid…a little. Of course, digital tools offer all kinds of exciting new tools for arm-breakers – immobilizing your car, say, or deleting the apps on your phone, starting with the ones you use most often:

Under Trump, payday lenders romped through America. A lobbyist for the payday lenders became a top Trump lawyer:

This lobbyist then oversaw Trump's appointment of a Consumer Finance Protection Bureau boss who deregulated payday lenders, opening the door to triple digit interest rates:

To justify this, the payday loan industry found corruptible academics and paid them to write papers defending payday loans as "inclusive." These papers were secretly co-authored by payday loan industry lobbyists:

Of course, Trump doesn't read academic papers, so the payday lenders also moved their annual conference to a Trump resort, writing the President a check for $1m:

Biden plugged many of the cracks that Trump created in the firewalls that guard against predatory lenders. Most significantly, he moved Rohit Chopra from the FTC to the CFPB, where, as director, he has overseen a determined effort to rein in the sector. As the CFPB re-establishes regulation, the fintech industry has moved in to add "with a computer" to many regulated activities and so declare them beyond regulation.

One fintech "innovation" is the creation of a "direct to consumer Earned Wage Access" product. Earned Wage Access is just a fancy term for a program some employers offer whereby workers can get paid ahead of payday for the hours they've already worked. The direct-to-consumer EWA offers loans without verifying that the borrower has money coming in. Companies like Earnin claim that their faux EWA services are free, but in practice, everyone who uses the service pays for the "Lightning Speed" upsell.

Of course they do. Earnin charges sky-high interest rates and twists borrowers' arms into leaving a "tip" for the service (yes, they expect you to tip your loan-shark!). Anyone desperate enough to pay triple-digit interest rates and tip the service for originating their loan is desperate and needs the money now:

EWA annual interest rates sit around 300%. The average EWA borrower uses the service two or three times every month. EWA CEOs and lobbyists claim that they're banking the unbanked – but the reality is that they're acting as sticky-fingered brokers between banks and young, poor workers, marking up traditional bank services.

This fact is rarely mentioned when EWA companies lobby state legislatures seeking to be exempted from usury rules that are supposed to curb predatory lenders. In Vermont, Earnin wants an exemption from the state's 18% interest rate cap – remember, the true APR for EWA loans is about 300%.

In Texas, payday lenders are classed as loan brokers, not loan originators and are thus able to avoid the state's usury caps. EWAs are lobbying the Texas legislature for further exemptions from state money-transmitter and usury limit laws, principally on the strength of the "it's different: we do it with a computer" logic.

But as Jarod Facundo writes for The American Prospect, quoting Monica Burks from the Center for Responsible Lending, a loan is a loan even if it's with a computer: "The industry is trying to create a new definition for what a loan is in order to exempt themselves from existing consumer protection laws… When you offer someone a portion of money on the promise that they will repay it, and often that repayment will be accompanied with fees or charges or interest, that's what a loan is."

(Image: Andre Carrotflower, CC BY-SA 4.0, modified)

Hey look at this (permalink)

A Wayback Machine banner.

This day in history (permalink)

#20yrsago Corporate lobbyists get US into treaties that ban DMCA reform

#15yrsago Musicians tricked into appearing in anti-piracy propaganda movie

#15yrsago HOWTO keep your laptop from being searched at the border (it’s hard)

#15yrsago EFF and security experts to Congress: We need hearings on Customs laptop seizures and snooping

#10yrsago Mozilla to FinSpy: stop disguising your “lawful interception” spyware as Firefox

#10yrsago EFF challenges bogus 3D printing patents

#10yrsago How Congress flies

#10yrsago Necessary Evil – a triumphant end to the Milkweed Triptych where Nazi X-Men fight English warlocks

#10yrsago What’s big, corrupt, terrifying and worse than ACTA? TPP. Here we go again!

#10yrsago Teaching TCP/IP headers with legos

#10yrsago Future Tense: Neal Stephenson and Tim Wu talk future, sf and tech

#10yrsago SOPA’s daddy is now in charge of government science funding, and he hates peer-review

#5yrsago Hope Larson’s “All Summer Long,” lively YA graphic novel about tween friendships, rock and roll, and being yourself

#5yrsago Speaking in my professional capacity as a dystopian science fiction writer…

#5yrsago It’s back! British Conservative politicians’ habitual “go ahead, kick me in the balls, I can take it” pose

#5yrsago McDonald’s workers across the UK are striking

#5yrsago George Mason economics department admits it sold hiring control to anonymous, super-rich donors

#5yrsago Thousands of prominent AI researchers tell Nature they won’t have anything to do with its new paywalled journal

#5yrsago Parliament to Zuck: show up or else

#5yrsago Right wing snowflakes moaning about Michelle Wolf’s hilarious White House Press Corps monologue show us real “PC”`

#5yrsago The UK is finally cracking down on its Russian money-laundry, but hasn’t hired people to do the job

#5yrsago The UK’s surveillance regulator changed names and dropped its domain, which is now squatted by a premature ejaculation scammer

#5yrsago In just 7 months, the US public domain will get its first infusion since 1998

#5yrsago Debullshitifying Microsoft’s smear campaign against the recycler it helped send to prison

#5yrsago A LaTeX mod to draw coffee cup rings on your technical papers

#5yrsago For $4k/year, Moscow cyber-arms-dealer Gleg will sell you 25 0-day bugs for attacking hospitals

#1yrago Disney's writer wage theft, a year on

Colophon (permalink)

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