When Banks are Left to Their Own Devices…consumers Get the Hosed

Desperate for money, Jack contacts a money guy referred by his cousin Jerry for a temporary loan. The “VIG” is 25% per week. This is excessive and is an example of loan sharking. This is a criminal act. The terms are clear and it’s all spelled out with verbal communication. Pay as agreed or else.

Draped in the cloak of “good deeds” of community service and efforts of “giving back” many large banks give the appearance of upstanding business citizens. This too may a bit contrived as many bank charters are subject to a percentage of “giving back” to the community as a condition of maintaining their seat. If this provision were removed, how much “giving back” would really happen? There are exceptions, but it is now rare and a welcomed surprise. The smaller community banks of the past could be counted on for a high school yearbook ad, parking lots made available on week ends for the high school band fundraising car washes, or even the sponsorship of a little league baseball team or bowling league. Those small towns with community banks are the lucky ones in this era of big conglomerate financial centers. These small banks are deep into the community and no amount of bank charter requirements for “giving back” would change how they go about their business. They do it because that is the thing to do.

Extraordinary efforts were made by bank lobbying efforts to change the bankruptcy laws to make it more difficult for consumers to wipe out credit card debts. Now, when things go bad and at a specific income level, consumers have to take a Chapter 13 Repayment Plan and pay back the bulk of the credit card debt. The skids are greased to obtain a ready credit card for consumers. Once the addictive fruit is tasted many a consumer is pulled in to the clutches of credit card addiction. With what is going on with the current mortgage fiasco there is extreme pressure on the fringe consumers under heavy financial pressure. A consumer has to ask, “Shall I save my home and keep a place for my family live, or should I skip some credit card payments?” At this point we are not looking at the blame game on how the consumer got into this spot. It’s just where we find many consumers up to their eyeballs in debt.

As a parallel, cigarette smoking has been deemed to cause deadly cancer. The cigarette companies spend their marketing efforts to hook as many smokers as possible to drive sales. It has been further determined that cigarette companies were adding addictive elements that would further hook the user. Advertising has been limited but smoking continues. It’s made to be the cool thing to do as found in many a movie and TV scripts. Credit card ownership has been portrayed as the cool thing to do as well. If you don’t have ready credit you are just nothing by this portrayal. Once credit limits are approached, the credit line is increased or the consumer responds to a credit card offer from another company. The minimum payment each month barely scratches the surface. For the consumers who use credit cards wisely and pay their balances off each month this would be deemed a “loss leader” for the credit card issuing banks to get to the grist leading to high profits on the credit challenged consumers.

Patience on part of the credit card issuer is rewarded as one consumer after another crosses the line by a 30 day late on a credit card bill. Once that happens, per the user legalese embedded in the fine print, a phenomenon called “universal default” kicks in. At that point, all the credit card interest rates on ALL cards are accelerated to the maximum rate. This can be 22%, 29%, 33% or in some cases 40% depending on the state. Couple the maximized interest rates with high late fees of $15 or $25 then the thumb on the scale starts to approach the stratosphere of Jack and his cousin Jerry and their friendly neighborhood lender at the VIG. The banks, which help precipitate the consumer credit challenges with easy credit issuance, have now targeted students and illegal aliens for their credit card products. The banks got legislation passed to close off one escape route, the new bankruptcy law, which was allegedly costing them serious losses, have not reciprocated by lowering rates and fees. If anything, the late fees and interest rates for the credit challenged consumer, have gone up. The last time I looked, in spite of mortgage losses, have been doing real well. I wonder how that is happening?

When a little competition sneaks its nose under the tent the alarm bells go off and the banks are all in spouting phony alarmist diatribe. Wal-Mart introduced a $4.00 drug card for consumers that made sense. There is no governmental agency involved, just free enterprise. Consumers are lining up to take advantage. That’s why it’s a bit unnerving when the banks were moving in force to block Wal-Mart in their efforts to set up a banking operation in their stores. The outcry was loud and continuous from the banks. The lobbyist were button holing every legislator and regulatory with an ear to influence a “NO” against Wal-Mart and their banking dreams. One thing for sure, who ever the competitive player might be, would offer consumers a fairer shake on credit card debt. Sam Walton’s vision would make it happen. You can almost see the dusty old red pick up rolling up to a Wal-Mart to see if consumers were being treated ok on their credit card bills. Sam’s wrath was applied to a Wal-Mart store that he found that was just too dirty for the company’s image. He closed the store and stood outside with the consumers until the store was clean enough for his customers. Wal-Mart or someone like them needs to bring a consumer friendly bank and credit card vendor who will give the credit challenged consumer a little break when they hit a bump in the road. It’s no time to step on their neck and bring sever punishment to the offender. Like many of the community banks, if a farmer got in trouble, the banker sat down and worked it out until the customer could get back on his feet.

I’m sure Sam would have set up some sort of consumer counseling with a family budget information to help get the consumers back on their feet. Something would have been worked out. He would not have stepped on their neck till their faces turned blue. When customers are treated with respect and like a human being, it is never forgotten. Wal-Mart has shown the world that good products at reasonable prices can lead to billions in sales. The banks shake in their boots at that prospect. Shudder the thought that bank credit card lenders would have to act responsibly in the issuance of credit cards and credit limits. To graduate from high school additional emphasis must be placed on consumer knowledge with regard to consumer credit and all the pitfalls that can entail. Family budgeting coupled with this overview of proper credit usage would empower consumers to avoid the pitfalls of operating by the seat of the pants and self-discovery and how the “house” has a decided advantage. Knowledge is power.

In conclusion, the credit issuing vendors appear to have ALL conspired to price fix rates and fees on consumer challenged consumers. This egregious conduct needs a champion to determine just how much is enough for a consumer to pay. Perhaps as an expanded follow up to Senator Carl Levin’s initial Senate hearings with banks the credit card issuers can be placed under further scrutiny. If there ever something that smacks of monopoly conduct, this is it. If it walks like a duck, quacks like a duck, …it may be an abusive credit card lender. Let’s start by opening up the books and take a look at a “fair return” on lending with a Federally and State charted banks. Consumer friendly, I think not. Competition is needed to level the playing field. Sam Walton’s legacy of someone like him is necessary to offer a fair break to consumers with free enterprise. Ralph Nader must be busy. It may just be up to Senator Carl Levin to be the people’s champion for reasonable credit conduct and rules. Enough with stepping on the consumer’s neck. Blue is an unbecoming color when gasping for air. Consumer Bill of Rights anyone?

Dale Rogers
http://www.brokencredit.com