FINTECH And The Middlemen Creating Data Nightmares For Customers
Eleven years ago two twentysomethings created a Fintech platform called Plaid. Plaid’s technology allows developers to plug into consumers’ various financial accounts, with consumer permission, to aggregate spending data, look up balances, and verify other personal financial data. Plaid connects to 200 million consumer bank accounts and 11,000 U.S. banks.
What is Fintech? It is a means of providing seed money to startup companies in the financial tech market. An alternative to traditional banks without the regulations required by the federal and state governments. The strings can be devastating:
Unison: Homeowners can tap into their equity for cash without a traditional home equity loan. Unison charges a market rate of interest only payments, but there are added ‘fees’. They advertise an interest rate of 5.468% has an APR of 8.36%. By contrast, a 30 year mortgage rate of 6.3% has an APR of 6.35%. The APR is what you are really paying over the life of the loan annually – they call it deferred interest. This deferred interest follows the same interest trajectory as a traditional HELOC.
However, in addition to the APR rate, Unison takes a percentage of the appreciation of your home at term (10years) or when you sell. The amount of appreciation it takes is 4times the investment percentage up to a max of 60% of the appreciation since the loan. Their minimum is $30,000. Not only are they charging interest equivalent to a HELOC without any government oversight, you will pay back $45,000 on a $30,000 loan.
The initial cost to get the loan? An origination fee of 3%, an appraisal fee, title fee and inspection fees (estimated to be roughly $4,000) and a transaction fee of 3.9%. By comparison, simply refinancing your current mortgage based on the same equity requirement offered by Unison would cost considerably less. A Unison loan may take as long as a traditional refinance.
Example: you borrow $100,000 on a $500,000 home for 10 years = Unison investment percentage of 25%. Transaction Fee $3900, Origination fee $3,000, Closing Costs $4,000, Deferred Interest $15,760, and appreciation cap of 60% on initial investment percentage = $102,600 and repayment of original loan $100,000. Appreciation at 3% per year would value the home at $671,300. You sell your house for $671,000 – deduct $179,260 in Unison costs and the original loan of $100,000 – your walk away with $441,470.
This is called FINTECH. And this will bring you – JOY.
A Traditional HELOC for ten years at 8.36% would cost $47,885 at the end of 10 years.
ENTER companies like, Plaid. Plaid claims to be the middle man in Fintech, bring consumers and clients to the Fintech seed money. Of course, every Middle Man trade requires more expenditures that have to be absorbed thru the customer process. And given everything is ‘alternative’ the typical means of judging credit worthiness, income, debt, credit score, Plaid utilizes ‘social credit evaluation’. To do this they have to have access to everything; bank accounts, stock holdings, utility bills, your family, your neighbors, your LIFE – all data including passwords are analyzed to determine your social credit capabilities via AI.
AI spits back a score and voila – Unison approves you. What could go wrong? Data Breach. Lawsuits. Plaid has been scraping user data, impersonating bank login screens, and not properly disclosing the privacy risks associated with the service. TD Bank filed a lawsuit against Plaid in 2020 accusing the company of trying to "dupe" its users. In a class action, TD Bank customers claimed that Plaid used consumers’ banking login credentials to gather and distribute detailed financial data without prior consent Plaid settled for $58 million.
PNC Fin. Servs. Grp. v. Plaid Inc.
United States District Court, W.D. Pennsylvania
Aug 7, 2024
PNC ASSERTS: “Plaid replicated the authentic PNC log-on screen in order to intentionally mislead consumers into believing that they are providing their private and sensitive information to PNC or to an entity affiliated with PNC in order to overcome the otherwise present and reasonable apprehension to providing financial information to an unknown third-party.”
In other words, the customer data was supposed to go thru PNC’s authentication process and Plaid fraudulently bypassed PNC. Again leaving customer data in the wrong hands – subject to potential hacks and theft.
This is supposed to be the future of banks and credit. And already in a few years it is a MESS. It is usury. It is manipulative. And the customer demographic being targeted? RETIREES!
BUYER BEWARE
So true. Coinbase requires Plaid to connect your bank account. I opted to decline that option. I thought, are people just allowing this third party company to have access to their passwords?