Archive for August, 2009

Anonymous Banker’s Fantasy on how to lower credit card rates

Thursday, August 27th, 2009

I don’t watch much TV, but a friend of mine thought I’d enjoy the show Boston Legal which is now in re-runs.  He taped a few episodes to whet my whistle.  It is soapy and at times ridiculous but incredibly fun.  And, in each episode there is a message on some social or political issue that is so remarkably well thought out and well delivered as to give me pause.  I have to admit that I’m now addicted to the show and have purchased five years of episodes.


In 2005, there was an episode called Legal Deficits in which attorney, Alan Shore played by James Spader goes head to head with legal council of a bank credit card company.  Shore’s secretary found herself in debt to the tune of $50,000, a direct result of her bank raising her rate to 30%.  She simply could no longer remain current on her payments.  Alan agreed to negotiate a settlement with the credit card company and if unsuccessful, was prepared to bring suit. 


It was my intent to post a copy of this show’s transcript  here.  But I discovered upon re-reading it that it was James Spader’s delivery that brought the words to life.  I encourage you all to take advantage of your tax dollars at work and visit your local library that is sure to have all seasons available on DVD.  Or buy them.  They will give you hours of pleasure, some of it mindless but always with that touch of thought-provoking wisdom artfully mixed in.


This episode originally aired in 2005.  It speaks on the issues of zero percent teaser rates, bait and switch tactics,  30% interest rates, the lack of usury laws, universal default, the lack of OCC regulatory enforcement, the power of credit card lobbyists and Congresses bowing to their every whim, the credit card industry’s nickname for credit card customers who pay off their debt (they are called deadbeats because the credit card company doesn’t make any money off them), the targeting of people who they know won’t be able to pay,  the ‘too big to sue’ power of the banks and credit card companies, the deceptiveness of the credit card contract, and the analogy of credit card companies and heroin pushers.  It speaks to seven million families that filed for bankruptcy in five years and Congress changing the bankruptcy laws to make it almost impossible for people to discharge credit card debt.


This spot, of course, had a happy ending and the secretary’s debt was discharged.  Well, it is a TV show and Alan Spader never loses.  So I forgive the unreality.


But imagine this.  The show aired in 2005 and it was not until 2009 that Congress finally passed credit card reform.  And even then, it doesn’t go into effect until 2010.  And today the banks are taking mighty advantage of this time lapse and raising every interest rate they can to 25% to 30%.  Each day, more and more Americans find themselves unable to pay their credit card bills because of this systematic rise in rates.  So it should not be surprising that credit card default rates have risen above the 20% mark for the first time and are expected to go even higher as our economic crisis grips our country and unemployment rises.


Clearly, James Spader, in the role of Alan Shore, is not going to appear before Congress and argue in favor of a national usury law, win and get those rates down.  So what can be done?  What if we, as a people came together and refused to make ANY credit card payments until the banks either reduced all credit card rates to some reasonable level or Congress enacted a federal usury limit.   


Fantasy, you bet!  But what a fun thought, eh? 



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Anonymous Banker Weighs in on the failure of the SBA ARC program

Wednesday, August 19th, 2009
I thought I would be inundated with (America’s Recovery Capital) ARC loan requests over the last few months.  But alas, even the small business owners across America know that the program is nothing more than rhetoric.
I finally put through one request that I thought should be approved.  The funding would have given this particular client some breathing room to make it through this depression.  Yes, you heard me right….. I dare to use the word depression.  Not surprisingly, the client was declined.  Why?  Well according to Small Business Administration guidelines, the business had to either show evidence of profitability or positive cash flow in one of the past two years.  Unfortunately,  this company had a loss of about $2500 in 2008.  Never mind that it has been in business for ten years, and has been current on all payments.  Or that it has personal credit scores of 685 and 745.  Or that it has received a 20% increase in revenue for 2009 due to some new local-government contracts, and indeed that its cash flow projections show a return to strong profitability in 2009 and 2010.  Apparently, a loss is a loss is a loss.  It only took the bank ten days to come back with a rejection. 
I was so outraged that I went back to the SBA site to check on the progress of the ARC program and the list of participating banks and number of loans made by each bank.  There has been a total of 1193 ARC loans made to date.  Let’s assume that each loan was for the maximum amount of $35,000.  That equates to almost $42 Million dollars in SBA support provided through the ARC program to America’s entire small business community.   Did you perhaps notice that I did not use the word billions.
The names of the banks that participated in this program were, for the most part, unknown to me.  Most of them were not any of the big banks that have received so much help from the government…. or more correctly, the taxpayers and citizens of this country.  Bank of America and Citibank were not listed as lenders.  Regions, Sun Trust, and Wells Fargo did appear on the list, along with JPMorgan Chase who has made no more than 2 ARC loans in the State of New Jersey and no more than 8 ARC loans in the State of New York -two of their largest markets.
It’s impossible  to tell how many ARC loans were made by each bank.   In President Obama’s new age of transparency (yes I’m being sarcastic), the SBA website did not see fit to break out the totals for each bank.  Instead SBA duplicitously inserted the total number of loans made in each state next to the name of the first bank listed. This, of course, leaves the reader guessing to what extent the other banks participated.  COME ON, Ms. Mills!!!  Your report makes it clear that you don’t want anyone to be able to do a simple tally and know unequivically the lack of support the banks, that took so much from us, are providing to the small business community.
The Recovery Act allocated a mere $255 Million dollars for ARC loans to the entire United States Small Business community.  Now it is falling short of even my lowest expectations. 
I expected that those paltry funds would be gobbled up in the first 60 days of the program.  But not more than 16% of the funds have been dispersed through the banks.   Is this because  the small business owner is not really suffering through this economic crisis?   No one could possibly believe that!  Or perhaps the banks, which we have bailed out, have once again refused to meet their fundamental role as lenders?  If the banks cannot find their way clear to make loans to small business owners, loans, mind you, that are 100% guaranteed by the government, then clearly they are not doing their job.
And if the applicants are not qualifying for loans under this program, then what does that say about the state of this nation’s economic recovery?  Wake up  and take notice.  The ARC plan has failed.  And the government’s transparent abandonment of the small business community in their economic recovery plan is quite clear to all of us.  If this is the best it can do, then this country is in big, big trouble.

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