Lenny LOC is a ripoff?

[Subexistence]

I was reading the about Lenny LOC on here.

http://www.badcredit.org/lenny-building-credit-among-young-borrowers/

From my understanding an LOC is scored as revolving credit just like a CC, so I'm not aware of any significant benefit of having Lenny over a CC. However Lenny loans begin accumulating interest immediately unlike with a CC and there is no rewards to be earned. It sounds like the app is made for people who have bad histories and can't get CC or aren't wise enough to get a free CC.

One of the better sides to Lenny is that it uses GPA and major as well as other academic profile information to determine your rates. It also brings up an important point that people who are responsible tend to be responsible in many areas whether that be academics or credit.

http://ficoforums.myfico.com/t5/General-Credit-Topics/Why-isn-t-academic-performance-weighted-more-h...

That being said, it seems to be just like first premier Bank and Credit One in that it targets people who have no idea what they are doing. I'm happy that those people are funding my free Eq08 scores and I hope they don't get wise about it for that reason. Although I just want to ask if you guys also think the whole idea is a ripoff?

[Anonymous]

It'll be interesting what other folks have to say.  Always enjoy reading your stuff, pal.

My only thought is this.  Pretty much every credit product is a rip-off, if by that we mean there are a lot of users of it that end up paying lots of money to the creditor, and they make it possible for another much smaller group of users to use the product at no cost and at the same time to get some really sweet benefits.

These are essentially the Wise and the Foolish, alluded to be you, and discussed in a running commentary by various thinkers stretching back thousands of years, even to the authors of the New Testament (the Wise and Foolish builders, etc.) and beyond to Greece, China, India, Israel, and nearly every land and clime.

In that sense a sweet no-annual-fee rewards credit card (e.g. your Discover card) is designed to rip somebody off... and does.  The people who benefit always pay in full and gain all kinds of nice benefits.  The other folks make it possible for us to do that.

[Anonymous]

Isn't this LOC used as cash? I don't think it's a ripoff considering that.

[Subexistence]

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@Anonymous wrote:

It'll be interesting what other folks have to say.  Always enjoy reading your stuff, pal.

My only thought is this.  Pretty much every credit product is a rip-off, if by that we mean there are a lot of users of it that end up paying lots of money to the creditor, and they make it possible for another much smaller group of users to use the product at no cost and at the same time to get some really sweet benefits.

These are essentially the Wise and the Foolish, alluded to be you, and discussed in a running commentary by various thinkers stretching back thousands of years, even to the authors of the New Testament (the Wise and Foolish builders, etc.) and beyond to Greece, China, India, Israel, and nearly every land and clime.

In that sense a sweet no-annual-fee rewards credit card (e.g. your Discover card) is designed to rip somebody off... and does.  The people who benefit always pay in full and gain all kinds of nice benefits.  The other folks make it possible for us to do that.

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You are very helpful. An offtopic thing I was thinking about. Do you think swipe fees cause us all to get paid a little less? Like if the company we work for get paids less because of swipe fees then we get paid less. I guess we still overall benefit from cc due to those irresponsible  people but swipe fees, I believe do come and bite us in that way.

[Anonymous]

Can you help me understand better what you mean?

Swipe fees are paid by the merchant (e.g. the store where you are buying merchandise: Target, Best Buy, Kroger, etc.) to the CC issuer (Chase, Citibank, Wells Fargo, etc.).  If it is a VISA or MC, those two companies (Visa or Mastercard) may also get some of that fee too (other folks here may be much more knowledgeable about it).  Swipe fees, along with interest paid to the issuer, are the two primary ways an issuer can afford to provide no annual fee cards, to say nothing of no AF cards that give rewards and signup bonuses.

[Subexistence]

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@Anonymous wrote:

Can you help me understand better what you mean?

Swipe fees are paid by the merchant (e.g. the store where you are buying merchandise: Target, Best Buy, Kroger, etc.) to the CC issuer (Chase, Citibank, Wells Fargo, etc.).  If it is a VISA or MC, those two companies (Visa or Mastercard) may also get some of that fee too (other folks here may be much more knowledgeable about it).  Swipe fees, along with interest paid to the issuer, are the two primary ways an issuer can afford to provide no annual fee cards, to say nothing of no AF cards that give rewards and signup bonuses.

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Merchants have to hire people. When those merchants pay those fees, they can afford to pay their employees less or less fewer employees. If you say worked for LexisNexis and a credit card was used to buy a credit report from there. It would mean your boss could afford to give you less money because the boss paid a lot in swipe fees.

[Anonymous]

Yeah, that's why I asked you to explain more what you meant.  Now I have a better idea.

It may be a mistake to think focus on one narrow thing (the swipe fee) as a thing by itself, as if it only hurt the merchant or his business.  Merchants typically are delighted to pay swipe fees if it means they will have a lot more business.  Target or Kroger or MacDonalds or thousands of other places I could name could certainly choose to not accept credit cards.  Indeed a few businesses do that -- they accept only cash, say.  (McDonalds for example did not accept plastic universally until 12 years ago I think.) 

But overwhelmingly most businesses do accept plastic.  It generates a lot more business for them.  But also cash transactions for most merchants have a cost of their own.  If Target only accepted cash, they would also be able to hire fewer people -- because they'd have to spend a bunch of money managing cash, losing cash in theft, etc.

A cashless economy has to be paid for some way or another.  Swipe fees are the way most first-world countries manage it.  If you are curious to read more about the costs of cash, you may want to look at this piece from the Harvard Business Review ("The Hidden Costs of Cash").

https://hbr.org/2014/06/the-hidden-costs-of-cash

[Adidas]

This is something I've thought about before too. My conclusion was that most merchants know they will have to pay a (roughly) 2.5% swipe fee so they probably increase their prices accordingly. So that Big Mac is probably marked up an extra 2.5% to compensate for the fee. In that case you could argue the consumer is the one losing money to swipe fees.

That's why I view my 2% cash back from Citi DC not as a reward but really just me losing less money. I therefore feel bad for people paying cash who are still paying a marked up price but not getting any cash back.

I hadn't thought about the cost of cash before though so that may refute my ideas. Also the fact that using credit tends to get people to spend more money may make up for the fee by selling a higher volume.

[Anonymous]

Right.  The costs of swipe fees are absorbed into the prices that companies charge customers for their services.

As with so many things, the burden of cost is not shared equally.  People who use cash or debit cards shoulder a greater burden of the cost (since they get no cash back or other rewards) but so do people who use credit cards but who are also induced by the lure of plastic to buy more stuff than they otherwise would (a well documented behavior).  The people who benefit most are those who use plastic to earn rewards and sign up bonuses, tend to pay no annual fees and no interest, and who aggressively monitor their own spending so that they are buying no more with plastic than they would if they paid cash.  (This last group has few people in it.)

[Anonymous]

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@Subexistence wrote:

I was reading the about Lenny LOC on here.

http://www.badcredit.org/lenny-building-credit-among-young-borrowers/

From my understanding an LOC is scored as revolving credit just like a CC, so I'm not aware of any significant benefit of having Lenny over a CC. However Lenny loans begin accumulating interest immediately unlike with a CC and there is no rewards to be earned. It sounds like the app is made for people who have bad histories and can't get CC or aren't wise enough to get a free CC.

One of the better sides to Lenny is that it uses GPA and major as well as other academic profile information to determine your rates. It also brings up an important point that people who are responsible tend to be responsible in many areas whether that be academics or credit.

http://ficoforums.myfico.com/t5/General-Credit-Topics/Why-isn-t-academic-performance-weighted-more-h...

That being said, it seems to be just like first premier Bank and Credit One in that it targets people who have no idea what they are doing. I'm happy that those people are funding my free Eq08 scores and I hope they don't get wise about it for that reason. Although I just want to ask if you guys also think the whole idea is a ripoff?

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I just installed the Lenny app on my iPhone and signed up, but only to get the free EQ FICO score - I'm not really interested in the LOC at this time. I was a little concerned that they might make me apply for a LOC during the application process, but they didn't.

UPDATE: On googling a bit more, it appears that Lenny Credit's LOC services are still limited to certain areas - as of last year, it was California only. I live in Virginia and when I finished setting up Lenny Starter I got a message saying that services would soon be available in my area, so it looks like at least for now I'm limited to FICO scores only.