Undeletable Coercive Loan Apps First Hobble Then Shut Down Your Smartphone If You Fall Behind On Repayments

from the still-think-you-own-your-hardware? dept

The modern smartphone is a technological wonder, cramming into its compact form factor multiple functions -- phone, pager, computer, camera, calculator, diary, multimedia player, radio, TV, clock, maps, GPS, voice recorder, eBook reader, gaming device, WiFi hotspot, flashlight etc. etc. -- that required over a dozen separate devices a couple of decades ago. No wonder, then, that most people want one, and would like to buy a model that offers all these features. However, in many parts of the world, the price of a good smartphone represents a big chunk of their annual wages. The obvious solution is to take out a loan, but that typically requires a credit rating, and many people in those countries lack a credit history, and may not have a bank account. To get around that problem, companies have come up with a new kind of smart loan for the "unbanked", as they are known. A fascinating article on the Rest of the World site, about the Indian Datacultr app, explains how the system works:

the easiest way for retailers and online stores to get high-end devices into working-class people's pockets has been through a new method of lending: collateralizing smartphones. Vendors are selling smartphones to first-time borrowers on high-interest payment plans financed by loan companies, but only after users install an undeletable app at the point of sale. The apps can then monitor repayment behavior throughout the duration of the loan. One late payment leads to instant blocking of the phone, rendering it useless. For loan providers and smartphone sellers, this form of lending opens their products to a new class of consumers. But users purchasing phones on loan are bearing the brunt of the coercive repayment tactics built into their devices.

The lack of formal credit scores is addressed by using the undeletable loan app to spy on the smartphone user. By looking at how people are using the smartphone, and accessing their texts, images and location, the app can gauge how likely the borrower is to default on the loan. To prevent that, software like the Datacultr app uses "nudges" of increasing severity:

The app starts by sending audiovisual prompts in regional languages as reminders. If the user misses their first repayment, it forcefully changes the wallpaper on their cellphones. If Datacultr's data scrape reveals a user to be a prolific selfie-taker, for instance, the app will send notifications every time the camera function is opened. If the user continues to default on the loan, frequently used messaging and social apps like Facebook or Instagram are progressively blocked, severely restricting the use of the device and ultimately shutting down all of the phone's functionalities.

It's not just India where these loan apps are being rolled out. The Rest of the World article says that the US company PayJoy has licensed its smartphone locking technology to lenders in over 20 countries, for example in South America and Africa. Google, too, is active in Africa with its own app called "Device Lock Controller".

Although "collateralizing smartphones" may indeed allow the "unbanked" to acquire models that would normally be well beyond their budget, there are some obvious problems. The first is the intrusive and coercive nature of the nudges and shutdowns. Secondly, the approach requires people to give access to personal files on their smartphone in order to assess their creditworthiness in real time. In other words, they must give up their privacy in return for the loan.

Finally, it's worth noting that the use of undeletable apps that can take over control of the smartphone at any time means that people don't fully own their device. That's not a new problem: Techdirt was writing about it back in 2011. And in 2014 the New York Times noted that companies lending money for cars required starter interruption devices to be fitted that could immobilize the vehicle if people fell behind on repayments. What's new is that nowadays all that is required is that most mundane of 21st-century artifacts -- a smartphone app -- which not only watches you constantly, but can punish you for "bad" behavior with a variety of tailor-made digital tortures.

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Filed Under: apps, india, loans, ownership, smartphones

NYC Judge: Taxis Must Compete With Uber, No Matter The Medallion Industry

from the bravo dept

If violence is the last refuge of the incompetent, as Issac Asimov's delightful line in Foundation tells us, then perhaps desperate lawsuits are the last refuge of the disrupted industry. There is simply no better example of this than the many groups affiliated with many city's taxi services and their many lawsuits against Uber. We've seen this dance play out in the past, with the disrupted industry flailing away in court, attempting to get the government and/or the law to protect its own business interests rather than competing with a disruptive newcomer. It almost never ends well for the old guard.

But it isn't just taxi companies themselves who have attempted to get into this mix against Uber. Take a case brought in Queens, for instance, in which Melrose Credit Union joined others in an effort to force Mayor de Blasio and New York's Taxi Commission to ground Uber on its behalf. Melrose Credit Union has most of its loan portfolio tied into medallion purchases, lending money to taxi companies in order that they could pay the once-expensive medallions. The problem, obviously, has been that taxis aren't making as much money as they used to because Uber is displacing them. As a result, taxi companies and drivers can't make enough to pay back the loans, the loans are defaulting, and Melrose Credit Union is freaking the hell out. They told as much to Queens Supreme Court Justice Alan Weiss. Weiss, as it turns out, was less than impressed.

“Any expectation that the medallion would function as a shield against the rapid technological advances of the modern world would not have been reasonable,” he wrote. “In this day and age, even with public utilities, investors must always be wary of new forms of competition arising from technological developments.”

In other words: compete or die. And those really are the options, no matter what other legal actions might be taken or verdicts rendered. The fact is that the progress of technology will indeed march on and will create more efficient ways of performing within any given industry. Attempting to stem that flow with trumped up legal actions and proclamations of the industry's destruction would only work in the short-term, if at all. In this case, the court ruled that de Blasio and the Taxi Commission aren't required to keep Uber drivers from picking up customers. And why should they be? If the public wants the service, Melrose Credit Union would deny them that service on the argument that it will lose money? Judge Weiss wasn't having that.

Judge Weiss made clear that that’s not his concern. “It is not the court’s function to adjust the competing political and economic interests disturbed by the introduction of Uber-type apps,” he wrote.

Indeed it isn't, nor is it the court's function to countermand the Taxi Commission's stance that Uber rides are pre-planned rides, instead of hailed fares off the street, and therefore don't require a medallion. If medallions become less valuable, that's a problem for the medallion money-men to endure, not the public.

Filed Under: cabs, competition, disruption, innovation, lawsuits, loans, medallions, new york, taxis
Companies: melrose credit union, uber

Border Patrol Drone Fleet Straying Far From The Borders When Not Being Loaned Out To Whatever Agency Comes Asking

from the the-CBP:-everywhere-you-want-to-be dept

"How much spying on Americans is too much spying?" is the question no one seems to be asking, unless prompted by document leaks or a handful of legislators. Customs and Border Patrol (CBP) has had access to drones for a few years now, mainly using them to (you guessed it) patrol the borders. The immigration legislation that is working its way through Congress seeks to expand the CBP's drone armada.

This wouldn't seem to be much of an issue if these drones were used as intended. Instead, the CBP has been acting as a drone lending library, loaning out its drones to other government agencies.

As Congress considers a new immigration law that would expand the fleet of unmanned drones along the border, the agency in charge of border protection is increasingly offering the military-grade drones it already owns to domestic law enforcement agencies and has considered equipping them with “nonlethal weapons,” according to documents recently made public...

The flight logs provided by the agency show that it has become increasingly generous with its unmanned aerial vehicles. They have been used by the Federal Bureau of Investigation, the North Dakota Army National Guard, Texas Department of Public Safety and the United States Forest Service, among others.

Agencies that have used the 10 Predator drones owned by the Customs and Border Protection Agency have deployed them to investigate fishing violations, search for missing persons and inspect levees along the Mississippi River, among other things.

The uses listed here are acceptable, with the drones acting in an investigative fashion targeting specific areas or activities. The concern is more with the fact that each drone is capable of 20 hours of flight between refuelings and usage by other agencies doesn't seem to be subject to oversight.

Skeptics say the use of drones raises the prospect of ubiquitous monitoring, especially by law enforcement, and several states have already proposed measures to restrict their use by police.

“What concerns me is the lack of clear, transparent rules for domestic drone use,” said Representative Zoe Lofgren, a Democrat from Northern California, who recently introduced legislation to limit their use in domestic airspace. She said she was concerned about “the government’s increased interest in using drones for domestic surveillance and security, including the potential use of force. But the law today has weak requirements for individual privacy protection, transparency of drone use, and limitations on arming drones with weapons.”

The CBP itself has already broadened its usage of the drones, mainly by broadening its definition of the word "border," according to the EFF.

According to the documents, CBP already appears to be flying drones well within the Southern and Northern US borders, and for a wide variety of non-border patrol reasons. What’s more — the agency is planning to increase its Predator drone fleet to 24 and its drone surveillance to 24 hours per day / 7 days per week by 2016.

The FBI's usage of these drones is also problematic. A few weeks ago, the director of the FBI, Robert Mueller, admitted the FBI was using drones for domestic surveillance, although he claimed it was done in a "very, very minimal, very seldom" way. Mueller said the issue was "worthy of debate and legislation down the road." One would think the debate and legislation should have preceded the drone usage, but this is how things are done, apparently. Get the fleet up and circling overland before agreeing to discuss it further at some undetermined point in the future.

Not only is there no legislation covering the FBI's drone usage, but the FBI itself couldn't even be bothered to whip up some internal controls before sending the drones skyward.

[Mueller] said the FBI was in "the initial stages" of developing privacy guidelines to balance security threats with civil liberty concerns.

As for the CBP, its drone usage is escalating sharply.

CBP’s three years of daily flight logs detail when, where and how the agency flew its Predator drones on behalf of other agencies. These logs show a marked increase in drone flights over the years. In 2010, CBP appears to have flown its Predators about 30 times on behalf of other agencies, but this number increased to more than 160 times in 2011 and more than 250 times in 2012.

While CBP blacked out important information about dates, geographic location of flights, and, in most cases, agency names, these logs do provide some insights into the agency’s drone program. For example, we’ve learned that CBP conducted drone surveillance for law enforcement agencies ranging from the FBI, ICE, the US Marshals, and the Coast Guard to the Minnesota Bureau of Criminal Investigation, the North Dakota Bureau of Criminal Investigation, the North Dakota Army National Guard, and the Texas Department of Public Safety. These missions ranged from specific drug-related investigations, searches for missing persons, border crossings and fishing violations to general “surveillance imagery” and “aerial reconnaissance” of a given location.

Again, as is the case with the FBI, the CBP has provided no details on what it's doing to protect the privacy of American citizens. The EFF is calling for a halt of the CBP's drone flights until it answers a few questions on flight locations, privacy protection and its intentions to arm these drones, with lethal or non-lethal weapons.

Not every drone is bad news and they can serve some very important functions. Unfortunately, the agencies using these drones don't have a very solid track record when it comes to civil liberties. They've also demonstrated they'd rather get their drones airborne first, and sort out the impact on American citizens at some point in the future. It's a clear indication of how these agencies view the rights of Americans: as an annoyance to be dealt with only when forced to.

Filed Under: border patrol, drones, loans

BofA Tries To Foreclose On Home Despite Not A Single Missed Payment

from the merry-christmas dept

Perhaps rather than worrying so much about Wikileaks, or buying up hundreds of domain names involving various combinations of their top executives along with "sucks" or "blows," Bank of America should get its actual banking house in order. Consumerist has the story of how Bank of America tried to foreclose on a couple's home despite the fact that they'd never missed a payment (and the foreclosure was targeted for Christmas Eve, no less). The CT Watchdog site has all the ridiculous details, which get more and more ridiculous as you read through them.

The short(ish) version is this: the couple applied to refinance their home mortgage, as many people have done recently thanks to low mortgage rates. The plan was to use the refi to pay for some home improvements and to consolidate their debt by paying off whatever other debt they had. They asked the BofA rep they were working with for "the cheapest option," and the BofA rep simply put them into a program used for loan modifications -- specially developed for people who are behind on their mortgages, even though this couple was not. When they received the paperwork for this, they decided not to go with this program, because it had additional escrow costs and home insurance payments they didn't want -- so they instead decided they wanted a conventional mortgage.

What they didn't realize, was that as soon as the BofA rep put them into that particular "Making Home Affordable program," (even without the couple signing the documents) BofA immediately sent out a notification (without telling the couple) to the credit bureaus indicating that the couple wanted a loan modification due to financial difficulties. Almost immediately, all of their creditors freaked out: they dropped their credit limit on credit cards, had other creditors close their account, and had other debt automatically shifted to the highest possible interest rate category. Of course, this also killed any possibility of doing the refi, since their credit score no longer would allow a refi.

After many, many complaints to BofA, the bank apologized (in writing) and promised to remove the couple from being listed in the program and correct the credit report, but the couple was on their own in getting others to know about it. Except this foreclosure notice came months after BofA apologized and promised to fix things (which it hasn't fully done yet). The couple has been calling BofA to ask why and everyone they speak to notes that they've never missed a payment at all, but that the account is flagged as "under review." No one can explain why the foreclosure was set in motion.

Yes, this is a situation where BofA didn't just screw up, but after finally admitting its original error and promising to fix it, it has made an even bigger and more egregious error.

The TL:DR version: BofA screwed up and ruined a couple's (previously fine) credit rating, destroyed their plans for a mortgage refinance, and then after apologizing and promising to fix everything, decided to foreclose on the couple's house despite the fact that they'd never been late on a single payment.

Not surprisingly, the couple is now planning to sue BofA.

Filed Under: banks, credit, foreclosing, loans
Companies: bank of america

Does Capital One Offer Different Loan Rates Based On Your Browser Software?

from the give-IE-users-the-sucker's-rate dept

Consumerist is pointing to the claims of a guy who noticed that Capital One offered him really different car loan rates, depending on which browser he was using. He was using Firefox, and saw a rate of 3.5%. That was different than a rate promised to him in an email, so he thought perhaps the calculator wasn't working properly in Firefox (since he was using the beta version of Firefox 4). So he opened up Safari... and got a rate of 2.7%. Then he checked chrome: 2.3% and Opera: 3.1%. No word on how much more (and you know it would be more) you'd have to pay if you used IE.

I just tried it myself and saw the same thing. Here's the loan rate page if you'd like to try for yourself. For me, it's 3.5% in Firefox and 2.7% in Chrome. I found an old machine that still has IE... and it's actually showing the same Firefox rate of 3.5%. I also checked it out with Dolphin Browser on my Android phone... and got offered a 2.3% rate. It's kind of strange. A commenter on the Consumerist article suggests it's random -- saying that if you reload, you get different rates, but that doesn't appear to be the case for me. It might be that the initial display is somewhat random however, though that does seem like incredibly misleading advertising from Capital One...

Filed Under: browsers, loans
Companies: capital one

Person To Person Lending Not Saving The Economy... Actually Looking Really, Really Bad

from the maybe-banks-are-on-to-something dept

We've discussed peer-to-peer lending sites in the past, though mostly with respect to regulatory questions revolving around their attempts to securitize the loans. However, every time we mention those sites, we get comments or emails from people insisting that such sites are terrible and much riskier than they make out. Right after the economy crashed back in 2008 the various P2P lenders all stepped up their PR campaigns, claiming that such P2P lending could step in and provide credit where the banks were pulling back. Of course, now reports are starting to come out suggesting that, indeed, peer to peer lending is incredibly risky with extremely high default rates:

To look at the results of Prosper's loan marketplace, though, is to see not a solution to the credit crisis, but a microcosm of it. Loans to unqualified borrowers; reliance on mathematical models that turn out to be a lot less useful than they seemed; failed hopes that high interest rates could make subprime loans profitable; sky high default rates--Prosper has it all. Prosper's Web site advertises returns of 6 percent to 14 percent for lenders. But the reality is that the lenders who loaned $188 million through Prosper have not earned anything like these returns. On the contrary, the majority of them have lost money, as they've watched their loans go bad at shockingly high rates.

Much like the loans made by banks during the mortgage boom, Prosper's loans have gone into default at rates much worse than predicted by historical credit data. In November, 2007, Larsen told the Associated Press that Prosper's default rate "hovered at around 2.7%." That, however, included many new loans that simply hadn't had time to go bad. Larsen refers to this obliquely in the AP story, noting that as more loans matured the rate would rise, but there's no hint of just how steep that rise would be. Prosper's data now shows that now shows that close to 36% of the loans made before Nov. 27, 2007--the date of the AP story--have ended in default, roughly thirteen times what a casual reader would have thought from Larsen's comments. That is close, coincidentally, to the total 39% (or roughly two in five) default for the Prosper loans that have reached the end of their three year term.

The article goes on to highlight more and more ugly looking data concerning these sorts of loans -- noting that for those who try to counter the high default rate with higher interest rates, the default rate goes up sharply. This is not a surprise -- it's basically how it should be based on your typical risk/reward tradeoff -- but when the default rate on certain types of loans is over 50%, that's not exactly a reliable investment strategy.

And from there, the article highlights how Prosper appears to mislead potential lenders with some sleight of hand:

In other words, only by cutting out more than two-thirds of its loans, does Prosper manage to eke out the positive results for AA to E rated loans that prospective lenders see on Prosper.com. Or you can look at it another way and ask how many investors have actually gotten returns in the 6 percent or 14 percent range that would-be lender see blazed across the Prosper.com front page? Thanks again to Eric's Credit Community, we have a pretty good idea: Of investors with a portfolio of loans that are an average of at least two years old, folks who have lost money outnumber those who've earned 6 percent annual return by more than six to one.

The article goes on and on in that vein, and it's really damning to the claims from some of these sites. Given how many articles have praised such services as potentially "revolutionizing" how people raise money for things, it's definitely worth highlighting these questionable results.

Update: A few folks are suggesting that Prosper is different than others in the space...

Filed Under: defaults, loans, person to person lending
Companies: lending club, prosper

The Contrarian Banker Who Avoided Bad Loans... And Is Now Buying Up The Scraps

from the no-gov't-money-needed dept

While we've wondered why those who made such bad bets on Wall Street are getting bailed out and even relied upon to save the economy, Forbes has found one of the guys who knew better: Andy Beal. A banker in Texas who basically stopped taking on any new loans for years as he thought things were going out of control. In fact, he barely worked at all -- stopping by just a few hours a day, playing board games with his staff, and even laying off about half of his employees. He did this while waiting for the market to collapse, knowing that things were way out of control. In return, he got investigated by regulators, who couldn't understand why he wasn't joining in the fun.

Of course, now that things have collapsed, he's buying up distressed assets for pennies on the dollar, and wants to buy more, planning to become a huge bank. Oh, and all that government money that's supposed to help those private companies who are buying up these assets? He doesn't qualify for most of it (no more than a token amount that's not even worth taking). Instead, it's really designed for the folks who screwed things up in the first place. This guy -- who actually saw what was going on, and prepared for it, now has to compete against those who screwed up and are being handed billions by the government.

Filed Under: andy beal, banks, contrarian, economy, loans

Turns Out P2P Lending Might Run Afoul Of Securities Law As Well

from the oops dept

First off, a quick disclaimer. Lending Club has offices in the same building as Techdirt, and we're actually right across the hall from them. I'm also pretty good friends with some folks who work there (since even before they worked there), but I have no additional insight into what's going on at the company, other than that everyone I know there is very smart and capable. A few months back, we got into a discussion about attempts to take the peer-to-peer "lending" model and move it into venture funding. At the time, we pointed out that this would raise serious regulatory problems, as the public markets (regulated by the SEC) were already, effectively, a peer-to-peer venture capital system. However, at the time we didn't think too much about the regulatory implications of peer-to-peer lending itself -- and, unfortunately, it appears that Lending Club may not have either. Apparently, Lending Club has put all new lending activity on hold, as it needs to deal with certain regulatory matters.

The company won't provide any additional information on what's going on (even, I assume, to those of us across the hall), but the speculation is that its lending practices clearly fell on the wrong side of certain regulations, quite similar to the ones we discussed having to do with any attempt at a peer-to-peer venture offering. The Peer-Lend blog points to this analysis of the problem (though, that's for a competitor of Lending Club). Basically, the question is who owns the loan itself, and how is it transferred. Since the loan may be owned either by the company itself or by the lenders (the "peers") at some point the loan may be getting transferred around -- meaning that it's no longer a "loan" but a "security." And, as we know, securities are regulated. This could get even hairier as the government is suddenly quite concerned about "securtized" loans these days since (as you might have heard) some of the financial world's problems have something to do with such instruments. This certainly isn't a problem that just faces Lending Club. In fact, it's almost surprising that it happened to it first, rather than its larger competitors like Prosper and Zopa. In the meantime, though, it's a good reminder that while web 2.0 startups can enable a lot of neat things, the folks back in Washington DC still have plenty of power over what certain businesses can and cannot do.

Filed Under: loans, p2p lending, securities law