I suspect some readers will say that Assefa Senbet is to blame for screwing up one of his final payments to Citibank on a deferred interest loan agreement. They’ll be right–it was his responsibility. But he didn’t skip a payment, and he wasn’t late. In fact, he frequently overpaid in order to pay it off early. Near the end of the loan, however, he sent in a check for $70 instead of $81. As a consequence, he’s now paying off $887 in deferred interest fees at a 30% interest rate.

The Star Tribune of Minneapolis-St. Paul published Senbet’s story yesterday. The article focuses on Senbet’s generally All Around Good Guy status–he enjoys watching National Geographic and religious programs, he’s worked as a parking attendant for 10 years, he was born in Ethiopia but he’s now a U.S. Citizen. But Senbet could be my crazy Aunt Francis who drinks paint thinner, abuses grocery store clerks, and throws cats at the neighbors, and it wouldn’t matter. What’s important is that the terms of the deferred interest agreement are so extreme that a single, small error on your part can cost you huge amounts of money.

[Citicorp] dropped its “Penalty Pricing” hammer, billing Senbet $887 for interest going back to the date he purchased the television. Citicorp is now charging him 30 percent interest on that outstanding debt, making a payoff nearly impossible.

“I’m very confused,” said Senbet, who has parked cars for 10 years. “I don’t want to pay for this for the rest of my life.”

[…]

Monday, Senbet got Citicorp’s curt response letter saying: tough luck.

“We expect the same from all our clients no matter where they come from,” wrote Citicorp’s Tomeka Harris.

I don’t know anyone who can predict the future so well that he can confidently enter into a contract like the one Citicorp offered Senbet. Let’s say you’re positive you’ll never make a casual mistake when making a payment. What if a technical difficulty beyond your control interfered with a remittance? What if someone stole the money from your account and your payment bounced? What if you lost your job?

Offers like this one are deliberately designed to entrap consumers–make any mistake and the punishment will have nothing to do with your error, but it will be costly, and the bank will make a fortune off of you.

It’s like if you wanted to play basketball but didn’t have a ball, and I’m a prosthetic arm salesman who comes through town and says, “Here’s a basketball. Play with it all you like. However, it’s made of nitroglycerin so if you bounce it too hard it’s going to explode and probably take off a limb.” Why would anyone think it’s okay for me to go around handing out basketballs to people?

“$11 mistake earns 0.0% sympathy from Citigroup” [StarTribune.com] (Thanks to Grant!)

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