Posts Tagged ‘Usury’

Anonymous Banker Takes On Congress and the Banks

Wednesday, September 16th, 2009

It’s been almost one year since I wrote to the New York Times’s Joe Nocera and predicted that the Worst Is Yet To Come, and specifically pointed to the economic risks posed by the credit card industry. I’m saddened to say how accurate that prediction was. The banks did, in fact, come back to the Federal Reserve with their hats in their hands, and the Fed duly assumed their exposure from sub-prime credit card debt, disburdening the banks on behalf of the taxpayer. This program, among others, is considered by many to be the government intervention that saved the economy.

In truth, without the bailout of Fannie Mae and Freddie Mac, and without the TARP funds handed out to recapitalize many of the leading banks in this nation, and without the increase in FDIC insurance and the Money Market Mutual Fund Stabilization Program, our entire financial system and the very core of our economy would have been shattered. I do not dispute the necessity of these programs.

However, to declare victory–to even allude to the hope that, as Treasury Secretary Geithner stated, “We are back from the edge of the abyss”–is a tremendous miscalculation of what our future holds, and more importantly how the future is viewed by the people and small business owners of this nation. For above all confidence is the necessary ingredient, and it simply does not exist out here in the real world. Without a feeling of hope in our future, consumer spending will continue to lag, putting a tremendous strain on our nation’s small business community–on which there has been little, or dare I say, no focus by our government leaders.

While there is much rhetoric around programs to promote small-business lending, know this: the granting of SBA loans is in the hands of the very banks that have tightened credit until the small business owner cannot even breathe. The SBA has lending guidelines that the banks are ostensibly supposed to follow. But in the institution where I am employed, whenever I submit an SBA loan, it is declined. And when I inquire as to why it has been declined, I am given reasons that the loan does not qualify under the “bank’s” lending criteria. When I ask why they are holding the credit to the bank’s criteria and not to the SBA criteria (which is somewhat less restrictive), I am consistently told that the bank has a right to hold the credit to a higher standard than that imposed by the SBA. The banks that are given the authority to grant these loans have simply refused to apply the less stringent SBA criteria to the underwriting process!

Additionally, Congress would do well to implement regulations protecting business owners from deceptive credit card practices, deceptive merchant service credit card practices, usurous credit card rate increases, the passing of FDIC insurance premiums onto business banking accounts, the cancellation of credit lines when business borrowers have not missed any payments, and the increase in bank fees across the board for services such as wire transfers, checkbooks and ACH services.

Back to the banks. Of course they need to tighten underwriting standards. But most bankers state that the key reasons for making less loans is twofold: (1) lower demand for loans because borrowing needs declined, and (2) deteriorating credit quality of applicants.

Well, golly-gee-wiz! If the banks measure credit quality, as they do, by analyzing revenue and income trends, then clearly few applicants will qualify for loans during this economic depression! But I see business owners taking extreme steps to reduce expenses, commensurate with reduced revenues, and demonstrating their ability to manage their companies through this crisis. They still need funding, though, and there is simply no place for them to go since the banks have abandoned their fundamental obligation as lenders.

The lack of available capital to support our nation’s businesses has a direct impact on unemployment: if the business owner does not have confidence in his ability to obtain reasonable levels of financing, there will be no new job creations, and worse, an increase in unemployment.

Do I really need to spell out the domino effect that invariably ensues when that happens? Just one reason why I predict that unless there is a reasonable focus on small business lending, we will continue to totter on the edge of the abyss. The SBA has been known to lend directly in emergency situations, such as 9/11 and Hurricane Katrina. Is this economic crisis, combined with the banking industry’s general reticence to lend, perceived as less of a crisis than these events? Personally, I am not confident that our government will enact the necessary legislation to stimulate lending. I hope my prediction in this regard is less accurate than the one I made last November on the credit card bailout.

Reprinted from Bizbox

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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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