‘Legitimate’ banks can get predatory, too

My bi-weekly N&R column points out that a “predatory lender” can, and often does, wear a legitimate bank’s clothing.

So called ‘banking relationships’ built over decades with major banking institutions are fine and dandy until you run into some financial trouble.  If that happens, ’real’ banks will treat you like a parriah and become one of your most unrelenting and costly financial predators.

Although I don’t say their name in print, the real life ’predatory lending’ example I cite in the column was visited upon us – several times – by Wachovia Bank.  They are now known around my household as “Watchoverya, the bank without a heart”.

Read on…

*******************

By: David HoggardN&R mast_1_27.jpg

December 6, 2006

Payday lenders with annual interest rates approaching 400% are rightfully being targeted for elimination due to their “predatory� nature.   However, their exorbitant rates can seem downright charitable compared to the money “legitimate� banks can extract from customers when the chips are down.
 
I’ve made no secret of the money troubles my family endured over the last few years.  Due to a combination of bad planning, job shuffling, and an all-too-common previous dependence on credit cards, we were in a precarious position even before my Jinni got hit with the coup-de-grace of financial ruin: cancer.

During the months of seemingly endless $5,000-plus treatment sessions, our sympathetic mailman had trouble stuffing the growing volume of bills into our mailbox.

For a while during that time I would open each bill and stack it neatly on my desk figuring we’d eventually find the time, energy, and available funds to keep up with the minimum amounts due.  But it didn’t take long until teetering stacks of paper got knocked onto the floor by one of our cats.  We just pulled out a grocery bag and filled it full as our finances spiraled beyond our control.

We realized the next month’s bills would come soon enough anyway.  And besides that, collection calls had begun in earnest reminding us daily of how far we were getting behind.

As the bills grew and our credit score plummeted our kids learned to check caller-ID before answering the phone lest it be one of the relentless and ever-growing number of calls beginning with; “This is a very important call…it may be recorded for quality assurance…â€? Quality was not what those folks were trying to assure… they wanted money and they wanted it tomorrow.

Our ‘predators’ circled. For example:

For decades we’ve held a checking account and a VISA card with ‘overdraft protection’ with a bank.  The bank’s checking was free and the interest rate on its VISA/line of credit was appealing enough – around 12 percent initially.  But all of that changes for the worst when you can least afford it.

One month we thought we had scraped together enough money to get the collection calls stopped for a while.  Some previous monthly payments to the bank had been late and the principle amount grew with each $35.00 late charge.  Also, due to our tardiness, the interest rate on our credit line was bumped to 24.98%, which now accounted for $179 of the $186.00 minimum amount due. 

Attempting to pay the loan principle down a smidgen, we wrote them a check for $200.00 but the check bounced.  We’d neglected to record an over-the-phone payment to curb relentless calls from a particularly obnoxious bill collector a week earlier.  So our bank returned the check and removed $35.00 from our checking account for having non-sufficient funds.  In turn, another $35.00 late fee was added to our loan balance because the payment was late.

In light of our decades-long banking relationship, we explained our situation to various supervisors at the bank many times.  We pleaded with them to lower our interest rates and forgive some late fees or NSF charges until we could dig our way out.  Their answer was always the same: No

Had we visited a payday lender for a “predatory� short-term $200 loan, it might have set us back a whopping $40.  However, our “legitimate� bank pocketed over $70 – plus outrageous interest – from a similar $200 transaction.

Experience has provided us with a whole different perspective as to who the “predatory lenders� actually are.

This entry was posted in Life in General, My N&R columns. Bookmark the permalink. Both comments and trackbacks are currently closed.

5 Comments

  1. Keith
    Posted December 6, 2006 at 11:52 am | Permalink

    A very similar incident recently happened to my 19-year old son. In September he took a job with a major employer here in Louisville, KY. As he sat through their job orientation a representative from a large bank was there to make the new employees an offer. The offer was…..we will give you $50 to open a checking account with us and by having your paycheck directly deposited your money will be available one day earlier than if you are issued a check. Now for a 19-year old that free $50 was mighty appealing and my son accepted the offer.

    Almost immediately what seemed to be a great offer became a financial nightmare for him. With the checking account the bank issued him a debit/ATM card. Shortly after his first paycheck was deposited he was introduced to the concept of overdraft charges. While I will admit he has exhibited signs of financial irresponsibility at times, this time he was checking his account balance daily but upon being hit with the first overdraft charge he quickly learned that debit/ATM transactions are rarely posted to the account immediately…..a concept that many of us struggle with considering the transactions are electronic.

    Anyway…over the next several weeks of using his debit card against an account that rarely had more than $50 in it at any given time he found himself hit with several $35.00 overdraft charges for going less than $1.00 overdrawn.

    The last straw came when he was charged a $15.00 extended overdraft fee for not settling a previous $35.00 overdraft fee that was charged when he went 79 cents overdrawn. He went to the bank to ask if there was anything they could or would do to reverse the overdraft charges. The bank representive’s solution was for him to apply for a credit card and use it as overdraft protection. Fortunately he sought my advice before taking the bank representative’s!

    Is seems the bank representative failed to mention that he could also open a savings account and any funds in it could also be used for overdraft protection. You can use your own imagination as to why the representative would fail to mention that option!

    After two months of paying the bank nearly everything he had earned I finally convinced him to close his checking account and deal strictly on a cash basis. Of course not having a checking account can present its own problems, especially when it comes to trying to cash a paycheck. Fortunately he has a savings account that was opened with a local (and much friendlier) bank.

  2. Wendell Sawyer
    Posted December 6, 2006 at 7:35 pm | Permalink

    I read your column that appeared in today’s edition of the News & Record. The topic you discussed, the imposition of so-called “late fees” and default interest rates by banks and credit card companies, is one that I have had a keen interest in during the last several years.

    Back during the early 1980s when I obtained my first MasterCard (I think it was called MasterCharge then) and my first Visa card (I believe the name was Bank Americard at the time), interest rates were fairly standard; set usually between 15 and 18 percent per annum. There was no such chargeable items called a “late fee” or a default interest rate. If a payment was not received on time, the credit card company would simply charge the set interest fee to the outstanding balance and double the minimum payment on the next statement.

    At that time, I think that the banks were still concerned about North Carolina’s usury law which was enacted to protect state residents from being charged unconscionable interest rates by those engaged in the business of “loan sharking.” The usury statute did and still does provide stiff penalties for lenders who charge more than the maximum rates of interest provided for by state law. The state courts issued opinions that any “charges” that exceeded the lawful rates of interest were in fact usurious. In 1897, the N. C. Supreme Court stated that, “Any charges made against [a borrower] in excess of the lawful rate of interest, whether called fines, charges, dues, or interest, are in fact interest and usurious.”

    So, what happened? Why can banks and credit card companies now charge “late fees” and “default interest rates” in North Carolina without fear of being subjected to the severe penalties of the state’s usury law. The U. S. Supreme Court paved the way several years ago by issuing an opinion that permits banks to import, by contract, the state law where they are located into the other states they do business in. For example, many banks have their credit card operations located in South Dakota and Delaware, two states that have little or no regulation on consumer loans. So, when you examine most credit card applications, you will find the following excerpt, “Borrower agrees to be governed by the laws of the State of South Dakota (or Delaware) regarding this contract.” So, when you get that plastic card in the mail, the usury laws of North Carolina can’t help you. For credit card purposes, you might as well be in Fargo or Dover.

    Since that time, credit card companies have been very creative in crafting fees and charges for all sorts of activity. Many banks charge a “late fee” of $39.00 if a monthly payment is posted one day after the “due date.” For example, if a credit card holder charges $500.00 to his credit card for consumer purchases, he will receive a bill with a minimum payment due of $10.00 with a “due date,” for example, of December 15th even though the “billing cycle” doesn’t end until December 21st. Now, let’s say the credit card holder mails his payment on December 10th. The next statement may include a “late fee” of $39.00 because the bank claims that the payment was received on December 16th. That would be a penalty of 390% on the $10.00 minimum payment. Wow! Is that gouging or what? Let’s say that the credit card holder calls the bank to complain; “Hey, I mailed that payment five days before it was due. What was the postmark date?” The friendly credit card company will inform its customer that they don’t use postmarks. Instead, they use their own posting dates. Interestingly, the IRS uses postmarks to confirm mailing dates but banks don’t see the need. After all, they have late fees to collect.

    On November 21, 2004, the News & Record published an article regarding these practices utilized by the credit card industry. “Last year, credit card companies collected $11.7 billion in penalty fees, more than half of the total $21.5 billion in fees they collected from cardholders, according to CardWeb, a research firm.” Then, on September 29, 2005, the News & Record published another article on this topic. “‘Credit card companies are increasingly addicted to their fees,” said Daniel Ray, editor-in-chief at Bankrate.com, an online financial service. “Six years ago, all fees–including late fees–contributed only a minor portion to overall revenue. Today, it accounts for more than 30 percent.’”

    Now, back to the 11/21/04 article in the News & Record, “Duncan MacDonald, who as a lawyer for Citibank was involved in its successful case for deregulation of fees before the U. S. Supreme Court in 1996, now says he fears that he helped to create a monster… ‘I certainly didn’t imagine that someday we might’ve ended up creating a Frankenstein,” said MacDonald, who predicted that the penalty fees could rise to $50.00 in another year. ‘I look at that and say to myself, “Is $50.00 a fair fee, plus a 25 percent interest rate and all these other fees that are thrown on, for folks who are probably not that risky? Is that fair?”‘”

    What are we dealing with here? Predatory lending? Loan sharking? A Frankenstein monster? Shouldn’t we do something about this?

  3. Wendell Sawyer
    Posted December 6, 2006 at 8:05 pm | Permalink

    David:

    In my post above, at the end of the 4th paragraph, it should read, “you might as well be in Rapid City or Dover.” I think I’ve watched the movie “Fargo” too many times. BTW, Dover is still in Delaware; isn’t it?

  4. Brenda Bowers
    Posted December 7, 2006 at 8:02 pm | Permalink

    Mr. Sawyer, Dover is indeed in Delaware, and was still there just two months ago when we passed thru on our way to Atlantic City. We are retired military and stopped at the base to conduct some business. By the way, Dover AFB is where the bodies of American soldiers are brought back home. The ceremony meeting each plane is impressive and is repeated for every plane that lands no matter what time of the day or night, or what the weather is. BB

  5. Posted December 7, 2006 at 8:24 pm | Permalink

    You guys might want to check out the great work that Self-Help Credit Union is doing with regard to predatory lending. This topic and SelfHelp would make for a great article.

    Website for SelfHelp— http://www.self-help.org/

    and here for actual steps taken to kick !@#$ on these high interest thieves—

    http://www.self-help.org/policyinitiatives/index.asp

    thanks