Startup Disrupts the Loan Sharking Industry

Why this story is significant: Thanks to skyrocketing housing cost, stagnant wages, and decreasing access to affordable credit, more and more Americans are struggling to afford rental costs and large deposits. As many localities and states refuse to enact rent control and zoning reforms, predatory capitalists step into the void with easy loans with exorbitant interests rates. This is yet another example of why the Democratic Party needs to support comprehensive housing reform, and why tenants should organize to carry out direct action against predatory rental and lending practices.

“Cheers to usury, brah!”

When I want to feel like shit, I read stories in the San Jose Mercury News about new tech firms like this one:

As soaring prices leave many Bay Area residents struggling to pay rent, one startup is offering an innovative but controversial option for tenants in a bind — finance your rent with a high-interest loan.

Santa Monica-based Domuso allows some local renters to take out six or 12-month loans at an average annual interest rate of 27 percent to avoid paying late fees to their landlords or risk losing their homes. The service is for tenants unable to cover hefty one-time move-in expenses like security deposits and first and last month’s rent, or who fall behind on a monthly rent payment because of an unexpected sickness, layoff, or other financial emergency.

If you think this sounds predatory, you’re being a bad sport. Domuso clearly has their marks’ customers’ best interests at heart:

“There’s a very high percentage of people … that are paycheck-to-paycheck,” said Domuso co-founder and COO Michael Lightfoot, “and there’s very little room when it comes to bumps in that financial road….”

Lightfoot maintains his loans help renters, as opposed to taking advantage.

“We have no intent of going down a path of payday lending, or anything in that regard,” he said.

See! Who can criticize innovation with a heart?

Domuso’s loan model is making some experts uncomfortable. Financing rental payments like a car or a house, especially with a 27 percent interest rate — higher than the national credit card average of 17.5 percent — could end up plunging a tenant into a deep hole of debt.

“It seems like another predatory scam, and a distraction from the real problem of obscene rents,” Kristi Laughlin, senior campaign director for the East Bay Alliance for a Sustainable Economy, wrote in an email. . . .

Domuso partners with companies that manage large, multi-family buildings in California, Arizona, Utah and Colorado. Once a deal is reached, tenants of those buildings must use the Domuso platform to pay their rent — they can use the mobile app to pay directly from their bank account, use a credit card, deposit cash via MoneyGram or set up a loan. Most options come with a “convenience fee,” which varies depending on the property and type of transaction. Users who pay via their bank account, for example, are charged fees of up to $1.99.

So let me get this straight . . . so the landlords who charge tenants astronomical sums in late fees and a company that offers loans to people at 27% interest rate (plus fees) have joined forces to help renters overcome financial hardships? I guess we’re supposed to take Domuso at its word that it won’t turn into a cleaned-up loan sharking enterprise.

Domuso currently accepts about 30 percent of tenants who apply for a loan, rejecting those who don’t pass the company’s credit check. Lightfoot hopes eventually to extend the company’s services to renters with poorer credit, without adding huge increases to the company’s interest rates.

“Look, everything’s above table right now—we only give bad loans to people who can afford them. Give us a few years before we start offering our services to people who can’t afford them! I know it looks like we’re not being stand-up dudes, but this Stanford professor can vouch for our legitimacy . . .”

Stanford finance professor Jonathan Berk said the Domuso platform seems like a good thing. The reason is simple: “If you have the loan, you can stay in your house,” he said.

Berk compared the Domuso loans to payday advances — which typically charge high interest rates and often get criticized as being predatory — though Lightfoot is quick to draw a line between his company and payday lenders.

In sum, the state of housing in California blows donkey balls. Housing advocate Mathew Reed of SV@Home probably said it best:

“I think we should all be concerned . . . that the best options we can offer people are super high-interest loans.”

Who needs effective and common-sense housing reform when there’s plenty of blood left to bleed out the plebes in the name of local control and entrepreneurship?

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