Fortress Backs Hundred Million Dollar Subprime, Payday Lender Scheme: “He Has Peacock Feathers Tattooed Down His Left Arm”

Tyler Durden's picture

“I don’t hide tattoos, I don’t take earrings out. I just don’t do that, because ultimately if you don’t like who I am, you’re not going to like what I do.”

Who knows what that is supposed to mean, but it’s a quote from Douglas Merrill who, as Bloomberg notes, “has peacock feathers tattooed down his left arm, black fingernail polish, [and] chin-length hair.”

Two other things Douglas has are a Ph.D. in cognitive science from Princeton and the online version of a payday lender called ZestFinance.

Now make no mistake, payday lenders are bad because what they do is trap low-income households in a perpetual debt cycle and they do it in the name of providing credit to those who wouldn’t normally have access to it.

In other words: the pitch is that before you think about criticizing a payday lender for charging an APR that amounts to 30%, you should actually think about whether you should be praising them for helping America’s downtrodden debt serfs get into still more debt.

Of course we’re employing quite a bit of trademark sarcasm here. Payday lenders have been proven time and again to be largely predatory in nature, capitalizing off of the desperation of poor people albeit with a business model that comes with substantial risk because.. well… because the business model depends on collecting interest payments from those same poor people who have just been made poorer-er-er by the fact that they took out yet another loan they most certainly can’t afford to service.

Anyway, Fortress is ready to jump in on this to the tune of hundreds of millions:

“I don’t lie about who I am,” [Merrill] said in an interview from the startup’s headquarters among the pawn shops and souvenir stores on Hollywood Boulevard in Los Angeles. “I don’t hide tattoos, I don’t take earrings out. I just don’t do that, because ultimately if you don’t like who I am, you’re not going to like what I do.”

 

The funding from Fortress, which manages about $72 billion, will help ZestFinance make more of its Basix installment loans, which are capped at $5,000, last as long as three years and carry annual rates of up to 36 percent. Borrowers often use the money to consolidate credit-card debt or pay for medical expenses, Merrill said.

 

His unusual appearance in the financial world is a luxury he can afford. ZestFinance is among a crop of startups leading a technology-driven push to make lending easier and cheaper. Wall Street firms and other large institutional money managers have taken note, writing big checks to participate in the fast-growing businesses.

 

Avant Inc., one of ZestFinance’s competitors, said last week that it had raised $325 million from investors including private-equity firm General Atlantic and JPMorgan Chase & Co. Social Finance Inc., which helps borrowers from elite colleges consolidate student debt, said a day later that it raised $1 billion from investors including Japan’s SoftBank Group Corp. and affiliates of Dan Loeb’s hedge-fund firm Third Point LLC.

 

ZestFinance gained notoriety in recent years for its approach to underwriting some of the most challenging borrowers. By sifting through oceans of data, Merrill and his colleagues created models that are being used to provide an online alternative to payday loans. Still, they’re not cheap: Some carry annual percentage rates of as high as 390 percent.

Right.

What could possibly go wrong here?

Here’s a guy with a PhD lending money provided by a firm whose cost of capital is basically zero to borrowers whose credit is terrible and these loans carry APRs that approach 400%.

Let’s call this what it is: this is just nonsense and what will end up happening is that these loans will end up in the collateral pool of a CDO at some point and the very same hedge funds and PE houses that are providing the financing will end up betting against the loans they effectively made in a hilarious Abacus CDO redux that mainstreet with neither care about, remember, nor understand, which will be great news for Merrill and Wall Street because that means they can continue to perpetuate the business model.

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hardscrabble farmer

I’m always amazed at the ability of people to remove agency and free will from the equation. Do the people who search out and apply, then take the funds to spend have any responsibility at all? Are they incapable of deciding for themselves whether they ought to do the right thing for themselves and put off purchases until such time that they can afford them or is the implication that they are child-like (when I hear the word predator it is usually associated with people who abuse children)?

Someday- maybe- we will rediscover what personal responsibility is about and people may once more begin to exercise it, but as long as the system benefits by intervening to “protect” full grown adults from their own behavior, we still haven’t hit bottom.

Backtable
Backtable

“Let’s call this what it is: this is just nonsense and what will end up happening is that these loans will end up in the collateral pool of a CDO at some point and the very same hedge funds and PE houses that are providing the financing will end up betting against the loans they effectively made in a hilarious Abacus CDO redux that mainstreet will neither care about, remember, nor understand, which will be great news for Merrill and Wall Street because that means they can continue to perpetuate the business model.”

That last sentence, “they can perpetuate the business model” is all anyone need understand in order to recognize what’s inherently broken in this country: The perpetuation of predatory schemes, from insurance, to healthcare, to investing, to-you-name-it. If it has a lobby in DC you can rest assured its fucking people over everywhere.

At the head of these schemes is Wall St., pumping in the resources required to keep the the entire carnival-barking enterprise afloat…and most importantly, leverage same.

The only way to fix it is to ban the lobbying industry and severely restrict leverage, i.e., make it available only to those who can prove they’ve segregated the potential for losses from the larger system (banks under FDIC cannot invest, etc.) and make clear to all that the likes of SIPC et al do not cover as an investment.

Otherwise,”Brace for impact,” and prepare to see the economy run aground.

Again.

Anonymous
Anonymous

hardscrabble,

Personal responsibility is not a popular topic in America today.

I think it’s slowly migrating into the category of hate speech.

derp
derp

Personal responsibility?
Not my problem…

Montefrio

HSF: ” Are they incapable of deciding for themselves whether they ought to do the right thing for themselves and put off purchases until such time that they can afford them..?”

Rhetorical question, I’m afraid. Yes, they are incapable because they have no impulse control, no understanding of what compound interest is all about and the likelihood of their having been taught it by parents or at school is less than their awakening to this sad fact on their own.

I’m far from being a socialist, but the finance capitalism model is not to my liking either. Like it or not, the only way this will change is through what amounts to a revolution. How likely is that? I wish I could believe otherwise, but imho about as likely as the Clintons becoming third order Franciscans.

hardscrabble farmer

“Yes, they are incapable because they have no impulse control, no understanding of what compound interest is all about and the likelihood of their having been taught it by parents or at school is less than their awakening to this sad fact on their own.”

If that’s the case- and I won’t argue that it isn’t- then all this clutching at pearls is simply theater. Legal, illegal, regulated, unregulated, it doesn’t make a difference because people are going to do whatever they want anyway.

A person who takes advantage of the climate of the times isn’t predatory- an opportunist perhaps- but nothing more nor less than the person taking advantage of “free money” today because tomorrow may never come- or they won’t pay it back anyway. What are you gonna do, ruin their credit? Who do you think is taking out these loans? The Joad family? It’s just another opportunist further down the food chain.

When you live in times of universal deceit and all that…

I’ve got to move some pigs to new quarters. Lots of apples on the ground this time of year, hopefully they won’t go to waste when the hogs have finished gleaning.

Credit
Credit

at 400% interest i can survive 100% loss on 300% of my loans per annum!

Montefrio

HSF: “A person who takes advantage of the climate of the times isn’t predatory- an opportunist perhaps…”

Certainly an opportunist, but I think I’ll stick with predatory, thanks. Take a good look into the eyes of those “advantage takers” for the “free money”: you have sheep, no? Cattle? Those would-be sharpies have never had a chance and no matter what they get by their “viveza criolla” provided to them by their far more clever masters, they’ll never have one nohow; they’re in the chute any which way you look at it and need to be protected from themselves, an idea which on its face is repellent but sadly true.

Pigs get fat, hogs get slaughtered.

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