Friday, June 17, 2005

The fix is in

I wouldn’t even bother to open the things if I didn’t need to shred them to avoid identity theft. Nearly every day they arrive: credit card offers begging me to bury myself in debt with one bank or another. As I process them to feed the pertinent pieces into the shredder, every so often something catches my eye, and lately, it has been the word “fixed” - as in “A 0% fixed APR until the first day of the billing cycle that includes 11/1/2006. After that, 7.99% fixed.a

Searching the fine print for the tiny superscript “a” one learns that: “You understand that the terms of your account, including the APRs, are subject to change. This means that the APRs for this offer are not guaranteed; APRs may change to higher APRs, fixed APRs may change to variable [et cetera].”

Which leads me to wonder: what, exactly, is meant by “fixed” in this Chase Bank offer? It means “NOT fixed.” Is it legal for a company to redefine at will commonly-understood words, with the clear intent to mislead? A person believing that they are being offered what is stated will soon learn that they are being lied to, and that the bank has no intention of adhering to the offer so blatantly made. This is deceitful and borders upon fraud, but it does seem to be the way the game is played these days. Borrower beware.

Another huge scam I heard of recently involves mortgage refinancing. Assuming I understood correctly, a syndicated financial commentator said that in California (and perhaps he said nationwide), home mortgages are “non-recourse” loans, meaning that in the event of a foreclosure, if the sale of the home doesn’t produce all that’s owed to the bank, the bank cannot seek repayment from other assets of the borrower. In what appears to be a near secret (in my small survey of homeowners no one had heard of this), the refinanced mortgages are nearly always “recourse” loans, so those lenders can come after any and all assets to make up the difference between amount owed and amount recovered.

No one likes to think about a potential foreclosure, but bad things happen that can result in such a financial disaster. But I wonder just how many people who’ve refinanced their homes are fully aware of their vastly increased exposure to financial risk from this subtle change in the language of the fine print.

Here again, it appears that the intent is to mislead. One should not need a degree in law or accounting to competently conduct one’s everyday financial business, but that does seem to be the case. Lenders who behave in such a manner are unethical, but theirs are probably quite profitable enterprises, as they take advantage of the fact that many in today’s society are functionally illiterate, and one is led to conclude that lenders would prefer all their customers to be illiterate. We clearly need some re-regulation of the banking and money-lending industry, given their deceitful tendencies.

Borrowers deserve a clear explication of the terms and conditions of any loan, not the sort of bait-and-switch that has become commonplace by mainstream financial institutions. Instead it seems that banks try to drive borrowers into the very bankruptcy status that, thanks to bank lobbyists, can no longer be remediated by declaring bankruptcy. In other words, banks seem hell-bent upon driving as many people as possible into a state of financial ruin, from which there is no escape, and this antisocial behavior can’t be condoned, and should not be allowed.

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