You’d think we’d have discovered all the ways that the unsophisticated can borrow too much money. But no, it turns out that…
by John Rubino of Dollar Collapse
This week, US household debt jumped by the most in 14 years to a new all-time record. The last time it did something like this was in 2007, just as the housing mania was cresting and the Great Recession was looming.
The biggest part of the recent gain was from mortgages (it’s official, we’re in housing bubble 2.0). But credit cards and auto loans are rocking too.
So you’d think we’d have discovered all the ways that the unsophisticated can borrow too much money. But no, it turns out that the world is so in need of new credit sources that it’s resurrecting the layaway plan, which pre-financialization Americans used to buy things they couldn’t immediately afford. Amazingly, this old-as-the-hills “buy now pay later” concept is being hailed as an innovation, and the companies “pioneering” it are attracting Silicon Valley-level capital. Consider:
Square plans to buy Australian fintech company Afterpay as it looks to expand further into the booming installment loan market.
*****
Afterpay lets customers pay in four interest-free installments and pay a fee if they miss an automated payment. Its 16 million customers will eventually be able to manage installment payments directly through Cash App. The deal is expected to close in the first quarter of 2022.
So-called installment loans have been around for decades, and were historically used for big-ticket purchases such as furniture. Online payment players and fintechs have been competing to launch their own version of “pay later” products for online items in the low hundreds of dollars.
Hmmm… Wonder how these financial innovators make their money. Could it be from those fees charged when customers miss an automated payment? Sort of like how the credit card companies make most of their profits from late fees.
And who accounts for most late fees? Why, the young, the poor, and the unsophisticated, of course. The serfs, in other words, who are desperate for the things they see on TV and easily conned into taking on debts they can’t afford, then milked ever after by their friends at Visa and Mastercard – and now, apparently, their new friends at Square, PayPal, and Apple.
The only consolation here is the prospect of a wave of buy-now-pay-later defaults crushing the consumer finance industry.