Kevin, a San Francisco software engineer who asked to be identified by first name only, says he has made around 400 loans totaling $100,000-he says he earns about $3,000 a month from r/borrow. Kevin said that he’s mostly in it for the money, but his longstanding interest in Internet communities has shaped his participation as well. “As a teenager in the 2000s, I grew up participating in tight-knit internet forums and made lifelong relationships with strangers I only knew as a nickname online,” he said in an email.
But one reason why r/borrow’s loans come with such high interest rates-which in turn explain why users like Kevin can profit so handsomely-is that the subreddit has no legally binding enforcement mechanism. No contracts are signed, no collateral is requested, and no credit reports are pulled. Any Reddit user with an account three months old and a modest posting history is considered more or less eligible for a loan.
The primary consequence for failing to repay is an unsightly red post tagged “UNPAID,” which is recorded by LoansBot, a script that stores users’ lending history. In other words, borrowers have an opportunity to take lenders for a ride at the risk of little more than not being able to borrow on Reddit again. Lenders have little recourse-it’s difficult to break someone’s kneecaps over the Internet, and there is no evidence that any r/borrow lender has used threats to collect an unpaid debt.) And yet, the system mostly works. Of the roughly 60 percent of loan requests that are funded, 70 percent are repaid. By comparison, a 2015 study by the Center for Responsible Lending found that 46 percent of payday-loan borrowers default within two years of their first loan.
In order to protect their investment, lenders sometimes ask first-time borrowers for a link to their Facebook profile and a photo of themselves holding a form of ID (sometimes while striking a unique pose, a tactic that helps keep scammers at bay). A Reddit comment history is also important. One moderator, who asked not to be named because he didn’t want his activity on r/borrow to be associated with his marketing business, told us that users who post on drug-related subreddits, for example, are less likely to get loans. “Different lenders have different criteria, but almost everyone looks at your Reddit history,” said Kevin, the software engineer.
A small group of r/borrow lenders make a majority of the page’s loans, and often earn significant profits
Tavares Allen, a civil engineer living near Pittsburgh who has taken out loans 25 times using r/borrow, posts frequently to Reddit forums on cooking, music, and baseball. “Teemunney has been my username for everything on the Internet,” he said. “I don’t want to delete it and come up with another.” He added, “I can’t take [money] and run,” he said. Allen has repaid every Reddit loan promptly, and says that now, when he makes a post requesting a loan, he gets multiple responses in minutes. “If my credit score were based solely on my Reddit post history, my score would be over 800,” Allen said.
If a loan falls through, it’s often difficult for lenders to recoup their loss
r/borrow depends on 10 somewhat overworked volunteer moderators, who are tasked with identifying scammers and predatory lenders, enforcing posting protocol, and maintaining LoansBot. The moderators’ oversight is important, but they can only do so much to ensure loans are paid back. The moderator we talked to said that he has banned some “nakedly predatory” lenders, who were demanding interest payments that exceeded 100 percent.