Government To Banks: Why Are You Making Predatory Loans With Taxpayer Money?
The bailed-out banks have found a new way to annoy the government, according to the Congressional Oversight Panel, the body named by Congress to oversee the federal bailout. Chair of the committee and friend of the blog, Elizabeth Warren, is concerned that the same people who are subsidizing the banks are being targeted by abusive lending practices, says the Wall Street Journal
"The people who are subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending," Ms. Warren told the WSJ. "In a sense, we're asking taxpayers to pay twice."
The article called out Bank of America for raising interest rates on their credit card customers, and Citibank for offering $5,000 loans — and not disclosing in the advertising that the interest rate was (brace yourselves for this) 30% .
Citibank said that the interest rates on the loan mentioned in the article "compare competitively to similar offers in the market," and Bank of America said that "To continue to offer competitive products and services and responsibly lend in this current environment, we must adjust our pricing."
Meanwhile, consumer advocates, including our own Consumers Union, have been keeping an eye on Pacific Capital Bancorp, a bank that accepted TARP funds and is issuing so-called tax-refund anticipation loans. These loans can come with an interest rate that exceeds 100%.
A spokesperson for that bank said that they were not using TARP funds specifically to issue RALs, but that the funds did allow the bank to be healthy enough to lend a "variety of loans."
Wells Fargo and U.S. Bancorp were called out for offering "checking account advance" loans that carry an interest rate of 120%. These loans allow customers to borrow against presumably forthcoming direct deposits.
Bailed-Out Banks Face Probe Over Fee Hikes [WSJ]
(Photo:frankieleon)
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Comments:
To play devils advocate, its the consumers responsibility to read the paperwork before agreeing to the loan. If the interest rate is insane, leave and get a better deal elsewhere. If the other banks are pulling the same games, find another way to get the money-or do without what youre trying to buy.
Its still OK to say NO if you youre being hustled by the fine print.
Perhaps these banks need to be cutting costs rather than hustling in on the "payday loan" scams.
@LegoMan322: Or to put it more simply: If you reward a business for bad business practices, you're only sustaining and encouraging bad business practices.
Today the government learns that dishonest people don't just magically become honest - surprise!
Seriously, who didn't see this coming? There is no reform, these companies are not better just because they're sinking a little. They know if they start taking on water, the government will throw them a life vest. So guess what - dishonest companies continue being dishonest because so far, it's paying off for them.
@Esquire99: At the same time, it says a lot about our society when the onus falls to consumers to protect themselves from being screwed over/ripped off by dishonest/unethical companies all the damned time.
@pecan 3.14159265:
I'm not sure how these banks are being "dishonest". They are making loans to people who want them, and they are fully disclosing the rates on the loan forms. The fact you disagree with their business practices doesn't make them dishonest. If they aren't actually disclosing the rates, that's another story. If they are disclosing, and the borrowers simply aren't reading what they're signing, there is no dishonesty.
@Silversmok3: I totally agree with you, but I also think that there is so much heartache in going through the loan process that if these companies were up front about their interest rates, it would be easier. I don't CARE if Citi is offering 30% interest rate - I just won't go to Citi for a loan. But the fact that it doesn't disclose this rate up front, and you have to sit down with them, look through the paperwork, answer a ton of questions, only to dig up in the fine print that you're going to pay a whopping 30% - that's the problem I have, and that's why it's dishonest, and predatory.
Banks doing this all at about the same time smells of RICO-like behavior.
Anyway, we need to have usury laws rewritten back to the way they used to be, i.e., subject to the laws in the states where the CUSTOMERS reside, not in a state chosen by the issuer which happens to allow enormously high rates.
I presume bank and CC lobbyist were responsible for "convincing" congressmen/women to butcher the old law. Return the law to state level and give the lobbyists a run for their money!
@Silversmok3: Where's the line, though?
And if all banks are "pulling the same games," how would anyone know if a rate is "insane?"
I don't know how a consumer could possibly know enough to protect them from every dirty person in every field. Reading through a contract is not enough when they're battling with an experienced person who wants to cheat them. If mortgage brokers aren't bound to be ethical or honest, most consumers without a finance degree are helpless against. them.
rates have increased across the board, which is quite comical considering that even long-term cds (5+ years) aren't paying above 3%.
prime is at 3.25%, fed overnite is at 0-0.25%, but the "market price" for consumer lending is in the 20-30% range? something's wrong here.
@Esquire99: What if they're making oral promises and assurances that contradict the written contract or misrepresenting it?
"8% is the best rate a bank will offer to someone with your credit" while jacking the rate up more. That's dishonest.
Plain ans simple, we are at war with the banking oligarchs and people are just discoving this truth. Slavery was never abolished, it was just morphed into central banking. Sadly our goverment is now under their control.
@Esquire99: Personal responsibility is great and all, but shouldn't banks, etc., ASLO have personal responsibility to you know, be honest?
We live in a day and age where an intelligent consumer must assume theyre being screwed by any company they deal with.
It sucks, but its the reality of today's consumer market.
As such, a small education on what youre buying and some common sense will go along way to keeping money in your pockets.Remember-its not paranoia when they really ARE trying to rip you off. ;-)
@usa_gatekeeper: i think consumers just need to be a little more conscious about their choices in the marketplace. local savings banks & credit unions often offer loan rates substantially lower than most national banks.
the way i look at it, this is the price you pay for convenience. if you want all your banking needs served by one large national bank, be prepared to get hosed on loan rates. savvy consumers shop banks just like they shop purchases.
Really, how hard can it be to turn a profit from essentially a zero % fed target rate. Are the banks that far in the red that they need to make 30% back on loans? I understand those rates when the fed rate is jacked up, but it makes no sense today.
Everyone knew this was going to happen when they passed the first bailout, it was one of the main reasons why the people were against it. But, the idiots in DC basically gave the banks full permission to do this with their "yes" votes when they passed the bill against the wishes of the people. Nothing's going to change, get used to it.
@Silversmok3: This is kind of true. However, a predatory lender has some tricks up their sleeve. You could be closing a house and they write up different paper work from what you signed before, then pressure you into signing it, then refuse to help you...You could sue in that case, but they like to pull crap like that all the time.
Definitely don't get one opinion when it comes to taking any kind of loan.
@Esquire99: Predatory lenders actively seek out people to loan money to and form a funneling network to get people to bring them more business.
Most of the time they'll find someone and try to sell them a loan, often a loan they can't afford, rather than waiting for them to come to them.
@cabjf: I tell this to my sister all of the time about her children's behavior. She consistently rewards negative behavior but expects that the kids "should know" how to behave.
@mac-phisto: sounds like banks are trying to get back what they lost.
They're over-reacting to perceived risk and making the consumer pay for it especially since they can't hedge their bets with insurance anymore.
@KyleOrton:
That is why you pay a lawyer to read over the loan. He will know the stunts that the broker might pull and if they change the terms on you then you already have a lawyer. $500 is nothing when you are buying a 500 K house.
@mac-phisto: Right on!
I'm not a finance policy wonk, so maybe some could help me understand why the Fed doesn't operate a banking system similar to a credit union--just on a national scale. As long as you're a taxpayer, say, you can enroll and get loans at some of these super low rates the banks all enjoy. This way the Fed could cut out the middleman and we could access our money that we pay in taxes and/or elect to keep in accounts without having to pay a few extra CEOs. I know socialism is a scary word, but I'd trust a collective American banking system (with plenty of private competition out there working hard to earn our business, too) more than the options we currently have. I mean, sometimes private schools are superior, but sometimes public schools are just as good, and I think that having several options in regards to education is great--so why not finance, too?
@LegoMan322: ...Then doesn't it make sense to mention it when we notice them being dishonest jerkfaces? To inform people? And to work to change it?
Ok all, please help me understand. The banks needed the bailout to stay afloat. They got the bailout. People complained the banks weren't making risky loans with the bailout money. So they forced the banks to make loans to people who don't have the best ability to re-pay, and in some cases people who can never repay. So the banks, in order to try and make SOME money/profit are charging higher interest rates on the loans that people/the Government demanded them to make. Am I wrong?
The only thing distinguishing these usurer banks from loan sharks is the fact that presumably the banks don't use violence to encourage payment... yet.
Otherwise these household names are ruining the lives of ordinary Americans just the same, and it's disgraceful.
And these pigs award themselves staggering bonuses...
@HRHKingFridayXX:
I agree in principle. The problem is that they are making money on the majority of people with these rates, it is the ever-increasing number of individuals who are delinquent that seriously cuts into that potential profit. Delinquency rates are going up and up and the banks are forced to reserve for the potential loss (expense), attempt to collect on them (expense), then turn it over to a collection agency (expense), then possibly charge it off (big expense). In part, the people not paying back their loans/credit cards are partially causing the banks to increase rates as they try to recover from those losses. I'm not saying its right, just a reality.
Banks To Government: Because you are too weak-willed to do anything about it.
There is a class of people in this country that feels entitled.They feel entitled to your earnings,they feel entitled to government subsidy,and they feel entitled to government benefits that have no chance of ever being repaid.
This class of people also feel that we taxpayers should have no say in how they use our tax money.Once the check is mailed,it's theirs to do with as they see fit.They are a dependent class that feels that Washington,D.C. i the answer tothe poor circumstance that they find themselves in.
Welfare queens ? Nope.
Illegals, sucking the sugary teat of Uncle Sam ? No again.
Single mothers ? Get real.
This class of people are called "bankers".And the next time you hear or see their ilk complain about "interference from Washington",just remember,they are all on the mooch.
@TEW: Absolutely agree.
@Silversmok3 - They certainly are out to get us. But the way it is and the way it should be are different things. Like TEW said, I'll have a lawyer look my paperwork over but there's no reason we shouldn't regulate the behavior as illegal and give the consumer a hand.
@WhiteGuyOnWebCam_GitEmSteveDave: Unless you can show me something -- anything -- that proves the contention that banks were "forced" to make loans to anybody, yes. You're wrong.
@Terraxsu: Agree, but with the footnote that for charge offs and possibly other write downs, there is a huge tax break that covers some of the costs. I guess my real beef with it is that the people getting charged with huge rate hikes are subsidizing the deadbeats and speculators. I know that is how its supposed to work normally, but when you're talking 30%, thats not something I can overlook.
Banks are businesses, and they create and price their products to make money. It is we who as consumers are free to choose one business, or bank, over another and they will succeed or fail based upon how well they take care of their customers.
Oh wait - they were failing so our government handed them money. So much for the free market system.
@nakedscience: We are going to be the only ones to change that and take control of our money. Calling them a jerk face will only prolong the process.
If you are really interested in change, stop giving them your money and stop using their credit card.
I'm all for personal responsibility and making consumers accountable for the choices they make. However, as the economy has worsened people have been lead to make choices that they wouldn't have made in better economic times. I'm not going to say they were forced, but certain factors probably swayed their thinking in this regard.
Make those loans unlawful, unavailable, and downright impossible to obtain. It's honestly got to happen - so long as there is a market, there will be people out there to supply the need.
@rainbowsandkittens: i don't know if we want to go that far. there are already other options out there aside from nationals. if anything, i think this is the time for us to take back our banks as local communities. i work in a town that used to have 3 local banks. less than 10 years later, not a single "town bank" exists here. the closest thing are 2 small regional savings banks. i would be ecstatic if one or a few investors would open a new town bank.
unfortunately, it's not an easy proposition. whereas banks are definitely very profitable for investors, i wager you'd need at least $20 million in capital to start a banking op. today.
@Canino:
Yeah really, those fuckers can't even get us out of Iraq after getting us into that clusterfuck!
Didn't the government forcing banks to do this in the first place cause this mess to begin with?
@nwaasob:
You got it! My 3 yr old went nuts yesterday when he didnt get *ALL* of the easter eggs in the easter egg hunt.
So, who is the 3 yr old here? The government or the banks?
I pick C, all of the above.
It is hard to encourage large corporations to be honest when most of our elected representatives have their hands in the cookie jar. The fact that we even have this blog with daily instances of large corporations getting away with blatant theft is but a symptom of the rot in Washington DC.
People in the banking industry make too much money. This is why they need to make 30% on these loans. They have us hostage, and they know it. Business could not commence without borrowed money, so if they want to make a killing loaning it, they feel it's fair.
Everyone has the fear of the word socialism, but really, we're pretty much there anyway. We just have enough differences to make sure that those in power can collect a handsome profit.
And on another topic: I am so sick of banks saying that TARP money wasn't used for XXX. If I am broke, I can't say that I have money set aside or this or that, but claim that I need help pay my obligations. If they can't remain afloat without government money, then they are in effect using TARP money.
money = heroin
bankers = drug dealers
Only difference is that drugs and dealing drugs are illegal.
@Frank Murphy: Not really. Banks made subprime loans because they were very profitable. There was huge market demand for mortgage-backed securities. The government didn't have to force banks to do it because they were making money hand over fist. The vast majority of these were jumbo loans made to middle- and upper-class people; the idea that the crisis was caused by lending to the poor is mostly myth.
Federal probe...I think Mr. Lewis needs a 'probe' of his own, perhaps from Mr. Madoff...
Why are you making predatory loans with taxpayer money?
Banks said to Gov: "Because you gave us the money you f*cking morons,....and you are not going to do anything about it anyway!"
Just that statement of "... making predatory loans with taxpayer money" is all wrong. They did it with our money and without our money. Did the government really think it was just going to stop?
Government..... FAIL!