Original Posted: https://x.com/arampell/status/1893883095646093315?s=20

From first principles: If you ask me to loan you $100, and I think there’s a 50% chance you don’t pay me back, I should only make the loan if I get $200 back. Otherwise, I shouldn’t make the loan! And you won’t get the loan.

The A in APR is Annual, so even if I think there’s only a 10% chance you don’t pay me back, and the loan is a week long, the APR will be enormous on a percentage basis, but only $11.11 on a dollar basis (.9 [probability] X Repayment = $100, so Repayment = $111.11)

That’s a nominal APR of 577% (or a compounded rate of 23,900%).Should that be “illegal”? If you want to restrict access to credit, then yes. I think most people would say that being able to loan their friend $100 to get back $111.11 the next week when their friend is only 90% reliable…should be perfectly fine…particularly when both parties opt in.

These headlines always miss the fact that most Americans don’t have good access to credit and more competition is the best way of lowering costs, not forcing banks to make money-losing loans (that doesn’t work!) or making it hard to start new companies to compete (the CFPB enjoyed doing that)