Buzz
We’re all aware that lenders, loan sharks, and credit card companies thrive on your debt, making them a potential danger. Yet, many of these businesses hide their risks behind clever advertising. Be cautious: consumer debt, no matter the branding, can still be harmful.
At The Outline, writer Gaby Del Valle explores one such company, Affirm. Affirm partners with over 1,000 retailers, offering customers loans for pricey items like a $400 pair of pants. Del Valle writes:
Unlike layaway, Affirm provides instant delivery of your purchases — but this comes with the downside of interest rates that can soar to 30%. The service blends elements of credit cards and layaway, mixing the worst features of both. If there's one thing tech startups excel at, it's convincing investors to fund ideas that already exist, like taxis, food delivery, and now, subprime loans.
The key difference between this service and a typical high-interest loan seems to be in the way it's marketed. Affirm stands out by being upfront about its terms. “We’re committed to transparent, straightforward pricing. You’ll never be surprised by hidden fees,” their website proudly states.
Granted, their interest rates, ranging from 10 to 30 percent, with the average customer paying around 21 percent, aren’t as extreme as payday loan rates. They even provide fixed terms and, most notably, simple interest, which might make them potentially a better option than using a credit card to finance unnecessary purchases. But as Del Valle points out, credit cards typically have an average rate of 17 percent. And, of course, we all know buying unnecessary items with a credit card (or a personal loan!) is often a bad choice.
Nevertheless, this feels different, largely due to its branding. A common criticism of Affirm and similar fintech products is that they’re simply another way to trick consumers into making poor financial choices.
Absolutely, but the even more troubling issue is that these companies operate under the pretense of helping people. As Affirm’s founder told TechCrunch:
“We cannot judge, but we must be prescriptive. If you can’t afford a $200 dress [or presumably, a $400 pair of pants], maybe we’re not really helping those people.”
Alright, that’s fair. Perhaps they do provide options (a similar argument has been made for payday lending, which Affirm has distanced itself from). It’s a reasonable point that they shouldn’t be responsible for helping those people, but the issue is, Affirm makes it appear as though they are genuinely helping when their website claims, “...fewer people can say ‘I trust my bank to look out for me.’ It doesn’t have to be like this. Affirm’s mission is to solve this issue.” They want to “fix this issue,” and then they promote the following:
Everyone seems to be criticizing Affirm, but the issue extends beyond them. It reminds me of the recent scandal involving Navient, the student loan servicer sued by the Consumer Financial Protection Bureau (CFPB) for questionable business practices like mishandling student loan payments. In the lawsuit, Navient argued they have no duty to act in their customers' best interests. But that’s not the message conveyed by their “Financial Tips Blog.” These companies use financial literacy as a bait to trap you into making poor financial decisions.
They claim to promote transparency, sound financial choices, and flexibility (sure, you can get into debt, but at least it’s your choice!), but in reality, they profit when you’re in debt. Even worse, when someone points it out, they defend themselves by saying, “we’re just a financial product, we’re not here to help people.” That’s one thing, but it’s even worse when they use trendy branding to act like they’re not part of the debt industry.
As consumers, it feels like we’re already spending half our lives trying to avoid being scammed, but here’s yet another trap to watch out for. Don’t fall for companies that ride the wave of financial literacy as if they’re genuinely helping, when all they want to do is profit off your poor choices.
