We’ve warned readers before about new, slick credit companies like Affirm, which want to replace credit cards with on-the-spot loans integrated right into online purchase pages. For all their talk of helping consumers, these companies aren’t much more than friendly loan sharks, re-branded to offer a “premium experience,” but still dangerous and even predatory. Now on Racked, reporter Susie Cagle does a deep dive into Affirm, weighing pros and cons and evaluating the claims of its executives and spokespeople.
On the plus side, Cagle finds, Affirm prices its loans transparently, doesn’t compound its interest, and doesn’t charge hidden fees. CEO Max Levchin says he opposes the traditional credit model, which he says “relies on customer failure.”
But as Cagle points out, Affirm’s median interest rate of 19 percent is above the median credit card rate, and retailers use the company to build, and then aggressively advertise, the model of buying expensive products on credit. For all of Affirm’s talk of responsibility and helping consumers make better choices, their third most-popular buying category is fashion. “Apparel is really the only criticism we get. Like, oh my God, you’re financing a pair of shoes,” chief of staff Ryan Metcalf tells Cagle. “We’ve had this debate internally,” he says.
It seems clear which side won that debate. What’s responsible about pushing loans for $300 sneakers? “I just find it disingenuous that they try to code it like they’re trying to serve the underserved,” Lauren Leimbach, executive director of the nonprofit Community Financial Resources, tells Cagle. Cagle’s investigation follows a Twitter thread this summer based on an Instagram ad by Affirm:
Tweet may have been deleted
Affirm seems to be making the problem worse. As Cagle puts it: “Affirm is not just meeting a demand, but creating one, encouraging shoppers to buy and spend more. Affirm claims an average 75 percent boost in order values across all its merchant partners.”
One client, online clothing retailer Betabrand, found that its Affirm customers had just as much money and good credit. But even at its best, the service is just making it easier to tack on an interest fee to a purchase. And by pushing itself as a solution for customers with bad credit, Affirm seems to be trying hard to reach those poorer customers and become a smiling, transparent predatory lender.
Metcalf tells Cagle that the “point of credit” is to “give you access to things you couldn’t afford on a cash basis. It doesn’t mean you can’t really afford it.”
I spent my 20s maxing out credit cards, taking payday loans, and racking up over a thousand dollars in overdraft fees. And I have to disagree with Metcalf: If you can’t afford consumer goods up front, you certainly can’t afford them on credit.
I don’t see how a product like Affirm would have possibly helped me recover from bad credit, and not just dragged me further into debt. Making loans more transparent doesn’t fix the whole problem. I didn’t go into debt just because the fees were hidden; I went into debt because I was given the option.