September 5, 2017

Current lending policies encourage people to get into debt. Consumer debts are bankers assets.

There is little doubt that the credit granting industry promotes a culture of greed and immediate gratification both amongst its employees and customers.   Even low level bankers are driven by bonuses and are known to fudge numbers to help people qualify for debt products they probably should not have access to.  Executives in the industry are well aware of this phenomenon but permit it to continue because although defaults increase slightly profits increase even more.

Our office recently met with a retiree, an individual aged well past retirement.  As s/he walked into our office leaning on his/her walker it occurred to me that just one look should tell the bank clerk that s/he won’t be able to work to increase her/his paltry government pension income.  The retiree owns no assets beyond the basic necessities of household goods and clothing.

This individual was given not one but two separate debt “products” (credit cards) by the bank – presumably approved at the branch level.  Each one with a credit limit of $20,000.00, in addition to another, non-bank issued, credit card worth as much again.

Sounds bad already doesn’t it – two questions arise:

1) why would the person apply in the first place?; and

2) who on earth would qualify such a person?

Think about it – the customer has a grade school education, has always worked in blue collar jobs, has been retired for almost a decade, has a basic government pension income and has banked at the same bank for many years.

Conversely the attending banker has a post-secondary education, has access to vital information about the customer including a credit report, a visual inspection (because that is still kind of important), access to all of the customers income and expense information and one of the most sophisticated computerized screening systems in the country.  Not only does the banker have access to income and expense information but also has the ability to see how and where the customer is using the debt facilities.

So the customer made a few purchases and soon discovered that the debt isn’t getting repaid any time soon – not on that fixed income!   So what does our responsible senior citizen do to try to repay them obligation?  S/he hits the Casino – where the bank has “conveniently” installed ABMs that accept the debt cards and pay out cash advances to “help” the customer access his/her account!

Remember this customer had access to $40,000.00 in debt from this one bank alone.  But after a year of trying the futility of the exercise became apparent – the Casinos really don’t pay out.  There was absolutely no other conceivable way of paying this debt back!  The customer walked into our office, head bowed low, totally ashamed of the stupidity that had transpired – and confessed her/his sins as if trying to obtain absolution.  Credit card statements were produced that showed there was still some room (for “abuse” if that is what you like to think of it as) left before the limits were reached.  On the bottom of the statements, in tiny font, likely only present because of a legal obligation for it to be there, was the indication that if the customer continues to make minimum monthly payments it will take a mere 131 years to pay down this debt.  Yes you read that correctly, one hundred and thirty one years, it would take a 70 year old two more entire lifetimes to pay off the debt.

Should we at this point be referring to this person as a “customer” a “client” a “fool” or a “victim”?   You probably have guessed which way our sympathies lie.  During our conversation the bank’s “victim” advised that back at the geared to income senior’s residence there are several other “victims” that s/he knows of who are incapacitated and use online gambling to try to win back enough money to repay their obligations.

The government could pass rules regulating the banks and credit card companies, apparently they are not responsible enough to do it for themselves, limiting how much can be loaned on all credit card and lines of credit – let’s say to an amount representing not more than 5% of the customer’s gross income.   Perhaps with a clause stating that the full balance must revolve (be paid off) at least once every five years.  Such a policy would put me out of business but it would be very good for our economy.