A crop of commercials has emerged for a new kind of loan called Rise. The ads feature a victorious montage from Rocky II, and promise "a new way to borrow the money you need fast, without having to use a payday loan." Is that actually possible, or could Rise simply be the next chapter in a long history of predatory consumer finance ploys? Let's look under the hood to get a better idea.
The rise of... well, Rise
Not too long ago, the company behind Rise -- Think Finance -- was known by a different name. Think Finance was founded in 2001 , as loan distributor ThinkCash , the theme of which was "there's a story behind every loan." It wasn't uncommon at the time for this company to dole out a payday loan -- or several, if need be. There were two brands of loan to its name: ThinkCash and PayDay One.
When the economy threw everyone for a loop in 2008, ThinkCash had to reevaluate its game plan. The company changed its name in 2010 to Think Finance, and this time, it presented itself as a financial option for people who rely on "non-bank financial services ." The payday loan having become something of a pariah in the banking world, Think Finance shifted gears (or at least convinced everyone it did) and began offering an array of "next generation financial products" for people who "want help managing life's everyday expenses but demand convenience, speed, ease of use, and transparency."
The makeover of ThinkCash's identity seems to have come out of the playbook of Mint.com and Quicken's well-respected home base Intuit, but instead of personal finance management products, Think Finance was still giving out loans and lines of credit. Its first product as this new iteration was a credit line called Elastic. By February 2013, Think Finance reportedly brought in $502 million in sales, and on Oct. 28, 2013, Rise was born .
How does it work?
Calling itself an "emergency non-bank lender," Rise claims to offer flexible schedules for payment, as well as rates that supposedly lower over time with repeated successful payments. On the "Know Before You Owe " section of its website, Rise also explains that a number of fees could possibly be attached to its loans, including broker fees and late payments. In Ohio and Texas, Rise doesn't make the loans, but provides a third-party lender to do the job. The company also urges users not to take on too many new loas, as the results "may be harmful to your financial condition."
Rise takes pride in distancing itself from payday loans, but in reality, the two aren't actually all that different. On its website, Rise explains that the annual percentage rate (APR) on its loans is generally between 36% and 360%, while the typical payday loan is around 706%. According to a definition on the FDIC's website, however, a payday loan's rate can range from 300%-1,000%.
Additionally, the amount of money offered through a Rise loan surpasses that of a general payday loan. The FDIC reports that most payday loans are less than $500 in size. Rise, meanwhile, offers loans of up to $3,000 for use in an emergency. Rise is also only available in a handful of states that have laws in support of "small dollar credit products." And what's one of the most well-known types of small dollar credit product? Payday loans.
The payday lending stigma
There's a good reason for Rise not to want to associate itself with payday loans -- the government has been keeping an eye on them for some time now. The FDIC's acting chairman, Martin Gruenberg, is "deeply concerned" by "the expansion of payday lending and ... activities under third party arrangements," explaining that they target "borrowers who are experiencing cash-flow difficulties and have few alternative borrowing sources." Gruenberg has also promised that the FDIC is investigating the lenders that deliver the loans.
The Justice Department is taking part in the payday lender crackdown as well, putting pressure on banks to stop doing business with these types of lenders, and thus "choking them off from the very air they need to survive," according to one official. With oxygen quickly draining from this industry, payday lenders are faced with the choice to either reinvent themselves or suffocate.
If it looks and quacks like a duck...
This is one company that's gone to a ridiculous amount of work to make itself look trustworthy to consumers. Every detail, from its ads to its website, is meant to appear reputable and safe, and not at all like a payday lender. In truth, Rise appears to have pretty much the same core as a payday lender -- it offers sizable chunks of change to consumers with the expectation of being repaid over time or else adds interest to the amount.
In my mind, regardless of any savvy publicity campaign, these kinds of loans are often more trouble than they're worth. Rise even admits in the fine print of its website that "this is an expensive form of credit ."
It may seem like a good idea at the time to take out that money and see financial troubles magically disappear, but they'll crop up again soon, and be worse the next time around. If you're headed for a financial panic, talk with someone at your bank or local credit union to see what options are available before taking a risk with a product like Rise.
