Posts Tagged ‘Credit Card Reform’

Anonymous Banker’s Call to Action for Small Business Owners

Monday, September 7th, 2009

I’ve been a small business advocate for thirty years.  About a year ago, I brought up the Perc-up.Org  site in an attempt to gather people in support of needed changes in credit card laws.  My site didn’t have much of an impact.  But in the end, credit card reform DID get enacted.

When our congressional leaders passed the regulations inhibiting banks from deceptive credit card practices, they abandoned the Small Business Owner.  In fact, despite all their rhetoric, nothing has been done to provide any assistance to this group that drives our nation’s economy.  SBA plans, be damned.  They reach so few and are handed out by the very banks that have turned their backs on Small Business customers.

The Perc-up site encouraged the people of this nation to write to their Congressional Leaders and provided the links to do so.  I personally wrote several letters to various Congressional leaders and received back boiler-plate emails, completely unresponsive to my queries.

Therefore, I recommend that we all attack this from another direction.  Call your Congressman’s office and request a face to face meeting to discuss your issues.  Bring your credit card statements with you.  Make them take note of the financial hardship you are enduring due to the banks unrelenting increases in credit card rates.  Vocalize your support for new legislation that will set a national usury rate.

Each day I encounter consumers and business owners that had been able to keep current on their revolving debt.  But with each rate increase in the midst of declining revenues, brought about by this economic crisis CREATED BY THE BANKING INDUSTRY, more and more consumers and business owners are falling behind.  The rate increases are a self-fullfilling prophesy.  The banks say they need an increase in rates to help offset the increase in credit card losses.  I say, the increase in rates is CAUSING a good portion of the credit card losses.  Yes, the banks need to recapitalize; for without a banking system, this country’s economy is doomed.  But we have supported every plan to help banks recapitalize as reflected in our nation’s debt which ultimately translates into debt that each American must bear.  In the matter of credit card interest rates, the banking industy must relent and they will never do so on their own.

The Perc-up site was meant to be inspiring.  I wanted to give the people of this nation a sense that if we all worked together towards a common goal that we COULD make a difference.  Our government is counting on our complacency on this issue.  Let’s show them that they are wrong.  Take some action -  ANY ACTION.  Call your congressional leader’s office, set up a meeting, send an email, send an email every day, mail them a letter with copies of your credit card statements (black out your account number please), and if you are a group with perhaps a Ralph Nader’s influence: organize a March on Washington in support of usury laws.

We all must DO something.  My Mom used to say:  If you don’t vote, you lose your right to complain.  (Actually, she was more colorful in her words).        

I say:  If you take no action, then you lose your right to complain.

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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 Slashing of Credit to our Small Business Community

Friday, May 8th, 2009
In response to a recent article over at Business Week, “Snipping Credit lines for Small Businesses”, which discusses how JPMorgan Chase and others are slashing small-business lending in an effort to shore up their balance sheets, I must, unfortunately, question the use of the word ‘snipping’–which, to me, sounds like a tiny trim. Au contraire. Dig deeper and you will find that banks are slashing tens of billions of dollars in credit to our nation’s small business owners.

Does the Obama administration care about small-business credit? It certainly says it does. A typical press release from the Treasury Department avows as much.

But is this for real? Or it this simply rhetoric? As a business banker, I sit in my office each day and deal with small business owners, which I define as those with annual revenue up to $10 million, but often less than $1 million. I see their worried faces as they come into the bank, letter in hand, wondering why their credit lines were frozen. These people need help, and so far as I can tell, they’re not getting it from the administration.

I took a random sampling of approximately 360 lines that received letters similar to the one described in the Business Week article. These 360 accounts represented $20 million in potential money loaned out, which actually owed just over $12 million. About seventy accounts had no balances outstanding and represented $4 million in potential credit. This particular bank (and I’m sorry I can’t identify it for our readers) froze all these lines to any further draws, with an intent to term them out. Based on this sampling, the average credit facility was just over $50,000.

At first glance, these numbers don’t appear devastating, especially when the new buzz words being bandied about are in the billions and trillions. But my sampling is just a drop in the bucket. Imagine that this is happening not to 360 businesses but to 36,000 businesses in one bank. That results in $2 billion in cancelled credit lines. Now imagine that each of the five largest banks (and I’m being gracious) have taken similar action, resulting in the systematic cancellation of 180,000 lines. That would mean that more than $20 billion of working capital has been taken away from the U.S. small business community. I personally believe that the results are much larger than even this.

I understand the need for all banks to recognize the quality or deterioration of loans they hold on their books and their need to effectively reserve for losses, particularly in these trying economic times. But it has been my experience that many of these borrowers never even missed a payment and have met their commitments as agreed.

And what about the prospect of converting credit lines to term loans? Business Week points out, “Business owners who accept the conversion to a term loan will likely see dramatically higher monthly payments.” Once again, a good point; and once again, a drastic understatement. Working capital lines of credit often have monthly payments equal to interest only. They may, in some cases, carry a minimum principal payment equal to 1% of the outstanding loan amount (it depends on the bank and their rules under the original loan agreement).

Take a $50,000 loan at a rate of Prime +2%. Under the interest-only scenario, the monthly payment would be $218.75. If a principal payment of 1% is required, the monthly payment would be $718.75. However, the same $50,000 loan termed out over five years (and with an increase in rate to between 7.5% and 10%) would now carry a monthly payment of just over $1000! So the end result of converting lines to term loans is that the banks have increased the monthly payments for the small business owner by at least 40% across the board while cancelling their access to future working capital.

Let me make this clear to President Obama. Not only are the banks not making business loans to small business owners, they are systematically withdrawing billions of dollars in credit lines from the small business market.

While our president is rallying our Congressional leaders in support of his positions on credit card reform–reform that is likely to exempt small business owners, by the way–he may want to share these observations from the front lines of the banking world so that our leaders can begin to understand and focus their efforts on protecting our nation’s small business community.

Cross Posted at BizBox

 

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