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Collector Conservatism, Part 3: The Consequence You Never Saw Coming
Posted By John Nampion On December 7, 2009 @ 3:00 pm In NewsReal Blog | No Comments
To read part 1, click here:
To read part 2, click here:
As the economy continues to slip towards the cliff-edge, financial institutions are becoming ever-more skittish about their bottom lines. In the December 5 Naples (Fl) Daily News, an attorney who represents homeowners’ associations takes off the gloves and lists all the remedies available to creditors if you walk away from your mortgage. The sanctions aren’t really worth listing here. They are meaningless
When someone has defaulted on a commitment, you can sue them all you want – but you still have to collect.
The statutes that regulate banks and other money-lenders are often so intrusive that there isn’t much available to them in the way of punishment anyway.
So they go after the most dependable among us:
The customers who pay on time.
For instance, the lady in this video is perplexed and angry, and rightly so: She can’t figure out why her credit card interest rate just skyrocketed to 30%, when she pays on time every month:
Forgive her her populist sentiments – she really doesn’t understand why this nasty turn of events has hit her like a freight train – so she lashes out against
“…all the big banks who are robbing our current middle class citizens and robbing our children and grandchildren of any hope of a middle-class living in their future”.
Actually, if you are looking for someone to blame, how about President Jimmy Carter and the Congressional class of 1977? (The same bunch who passed the FDCPA, which was discussed in part 2 of this series.)
Did these guys love regulation, or what?
With the signing of the Community Reinvestment Act, the liberal doyens of that era were able to plant a seed that is bearing some seriously poisonous fruit in A.D. 2009.
According to Wikipedia, the original act was
“…designed to encourage commercial banks and savings and loans to meet the needs of borrowers in all segments of their communities, including low and moderate income neighborhoods.”
The legislation also took a special interest in addressing
“the deteriorating conditions of American cities – particularly lower- income and minority neighborhoods.”
Instead of allowing smart and creative entrepreneurs to find a niche in a blighted area (and have the opportunity to make a whole lot of money), the Federal Mounties decided to make depositories give loans to businesses and individuals in these precincts or face the very real prospect of not being able to “expand through merger, acquisition, or branching.”
So what happens when you can’t use credit and income to filter through potential customers?
You squeeze the ones you have.
Hence the yowling – there is more than one video like this, and I definitely know more than one person this has happened to. My “customers” use it frequently as one of the main reasons why they stopped paying.
All because regulators couldn’t leave well enough alone back in 1977.
Just like the FDCPA, the CRA has become larger and more onerous with time.
As Ernest Istook details in this 2008 article,
“The Clinton Treasury Department’s tough new regulations in 1995 compelled the banks to engage in far-riskier lending practices or receive a failing CRA grade. To avoid an “F” from the CRA, which could jeopardize their viability, the banks were pressured to direct hundreds of billions of dollars in high-risk mortgages to inner-city and low-income neighborhoods. Moreover, under CRA pressure, banks would “hire” radical, non-profit groups like ACORN to find them customers. Once trillions of dollars began to flow, politicians and lobbyists tapped into this stream, and so did left-wing activist groups.”
I am the 1st person to agree that a person’s skin color or ethnic background should have zero to do with his or her ability to get a loan. A good credit history and a stable employment record should mean everything. (Of course in real estate matters, the neighborhood a person lives in will always be a factor, no matter how many CRA’s are passed, since you can’t finance a million dollar property in a Hooverville without taking an immediate and serious equity hit.)
Here’s the real reason laws like this get passed, at least to my mind:
We are trying way too hard to be fair. Does everyone really need to have a college education, regardless of their qualifications? Must everyone own a home? Where does it say anywhere that life is all about the pursuit of equal outcomes?
In early 2007 I moved to Phoenix to run an office for the company I have worked for for almost 17 years. I uprooted my family and moved to a town where I knew not a soul, all to chase the next big rainbow.
Three years later, after losing 70 employees to attrition and layoffs, taking a 20% pay cut, losing over half the value in the house I thought I had damn near swiped (it was the first thing I did when I moved down here, and then the market fell apart,) and now, getting divorced from the woman who gave up everything to move here with me, I think I understand a little bit about the wish for fairness and certainty.
But if it was all about guarantees, then where would the opportunity be?
Besides, it’s getting better – we are profitable again, a lot of my pay has been restored, and I’ve had some good and bad experiences that have taught me a lot.
The bottom line is you can take a gamble, and very possibly fail, or depend on Uncle Sam to make sure you never get an owie.
Like my son’s football coach used to say:
“Rub some dirt on it and get back in there!”
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