Wednesday, January 4, 2017

59.9%

Lenders offering installment loans keep popping up. Most of them charge sky-high interest rates mainly suitable for people who don’t really understand interest. I recently saw a Money Mart ad for loans of 1-5 years with text “The APR for the loans is 59.90%” buried in the fine print. They aren’t the only ones charging this rate.

Anything above 60% per year is considered “interest at a criminal rate” in the criminal code. So, these lenders are staying well clear by maintaining a buffer of 0.1%.

This is how I imagine the discussion going when these lenders chose their interest rate.

“Is 60% criminal, or is it only over 60% that’s a problem?”

“Not sure. Maybe we should back off to 59% just to be safe.”

“Are you crazy? We can’t leave that much money on the table. Let’s go with 59.99%.”

“Is that getting too close? Maybe just 59.9%.”

It could be that this big decision over how much interest to squeeze from their customers was more sophisticated than this. Maybe just having a decimal point in the percentage makes people more likely to gloss over “mathy” stuff. I can believe that “59.9%” is more likely to be ignored than “59%”.

This is a part of the financial world I don’t wish on anyone.

6 comments:

  1. What comes to my mind is another conversation I'd like to have in a Money Mart store:

    Me: "59.9%?! That's criminal."
    Them: "No, it's ALMOST criminal."

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    1. @Gene: Thanks for the morning chuckle.

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  2. Aimed at the poor, profitable and most baffling of all LEGAL!?

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    1. @Luciano: I'm not sure what the fix is for this, but the current situation isn't good.

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  3. "I can believe that “59.9%” is more likely to be ignored than “59%”."

    100% a psychological trick. Studied and applied countless times to prove that '59.9%' is more attractive to our brains than '59%' -- even though it means paying more money.

    Concerning the legality of it...as of this writing the rates and business conduct are legal. Deal with it. How is it any different than traveling at 79.9km/hr in an 80km/hr zone? It's either legal or illegal (and I'll bet my entire nest egg that most people drive illegally). Concerning the perceived outrage of said legality...most of us can't be THAT concerned if the most we do is complain -- IN ALL CAPS -- on some PF blog. If you truly despise this particular business practice then get off your duff and lobby to have the laws altered. Until then...meh.

    As for being "aimed at the poor"...yup. Just like how McDonalds and WalMart grew to be empires, with the knowledge that there are far more poor people willing to spend $1 than there are rich people willing to spend $1,000. Stats claim that ~20% of Canadians and ~40% of Americans regularly utilize pay day loans, leaving us with the reality that it's expensive to be poor (and giving a snap shot of economic reality).

    Besides that, if YOU in any way, shape, or form use a credit card, YOU are directly forcing financial harm upon "the poor" without them ever having a choice about the matter. So please, don't complain about the plight of the poor if you do nothing except contribute to said plight.

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    1. @SST: I don't think anyone doubts the legality of charging 59.9%. They are questioning whether it should be legal. I don't think you can tell what other actions people are taking if they choose to express dissatisfaction on a blog.

      Just because there are other examples of businesses that exploit the poor doesn't excuse this case.

      I think your criticism of the commenters here is misguided. It's quite reasonable to highlight businesses practices we don't like. The hope is that if enough people with little power speak up, those with greater power may take notice. If nothing else, some readers of this blog may use this information to help people in their lives avoid high-interest traps.

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