This is where your finance takes place

Lara is starting to have doubt on Stephen. She thinks he is looking at other girls once in a while. Stephen denies those affirmations but his friends are telling the opposite. Do not try to lie to a women, they have a sixth sense for this kind of stuff. So do banks. It’s easy for them to pull out another credit check upon renewal of your credit accounts and acknowledge that you applied for more credit cards. The number of inquiries (looks) and the number of recent credits (a new cute friend) will hurt your Beacon Score but in a minor way. Lara will start to watch Stephen closer to make sure he doesn’t go anywhere else.

Sorry honey, but I will be late tonight, we have a case to finish (more credit issues)

Stephen is starting to make up excuses, his friends are shy to speak to Lara. The doubt is growing as there are many indications that Stephen is not being 100% honest in this story. The explanations are not consistent and it is obvious that Stephen is lying. When you start getting late on your payments, banks are getting very suspicious. They will call you and ask questions. As it is the case in a relationship, it will be worst if you start lying.

Lara… this is not what you are thinking it is… (severe credit issues)

That’s it, Lara knew it! She finally has the proof that Stephen is lying…. in the bed with another women. The trust has been broken and so the relationship. Lara will not be able to look at Stephen and believes him when he says that he loves you. Well being late on cards and going to the point of having a collection agency on your back or declaring bankruptcy is exactly the same thing as cheating on your spouse. Credit is all about trust and you perfectly destroyed any hope of this happening.

Come on Lara, it was a mistake, why can’t we get back together like the old times? (trying to rebuild your credit history)

Many people like Stephen, think they can get away with their “small mistake” and get back with their original situation. So when the bank declines your application in regards to credit issue, ask yourself this question: “Would Lara sleep with Stephen again after what he did?”.

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Be a reliable friend (experience with other lenders)

Let’s assume that Stephen is a real gentlemen and that he did not try to push things with Lara. After a couple of dates, Lara is starting to get interested in Stephen. This is when she will ask her friends and maybe his friends to know more about him. She will pull out his “relationship bureau” to see if he had any issues in the past. Lara is not necessarily looking for long term relationship with his ex-girlfriend but more about his trustworthiness. By asking friends about their perception of Stephen, Lara will have a good idea if Stephen is reliable, honest and sincere.

Be on time, buy flowers, be consistent (general credit behaviours)

Stephen is now in a relationship with Lara (man, it’s not an easy job to keep her happy!). They have been together for a few months and things are going good. Stephen is never coming late from work and he his always ready when they have to go out. He buys her flowers and other nice gifts for her birthday and other occasions. But the most important part, he is honest and consistent. Lara truly believes him and he says that he loves her. Fortunately, banks are not that demanding In fact, they just want to make sure that you are making all your payment on time and that you don’t lie about your source of income and your assets. As long as you can proof that you are a honest man, both Lara and the bank will trust you back.

As you can see, building a strong credit score is not that hard. It requires time, consistency and honesty. I admit that human relationships are more complicated. But in the end, it all comes down to trustworthiness.

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In fact, he mainly believes that banks should be responsible for customers in regards to investing and taking care of their personal finance. Sorry boy, banks aren’t your daddy or your mommy, you have grown up and you have to take care of yourself

“In your last post you said that I mistakenly believe banks have high obligations and that I should reduce my expectations, comparing them to grocers. If you said that before then I can’t believe that a week later you believe banks exist to stabilize the economy. They are still here only to make money, just like the grocers. Anything “extra” they do, including managing risk, is only done because regulators force it.”

In fact, Banks have a high responsibility to stabilize the economy and protect clients from any fluctuations incurred within the banking system. This does not mean that they are responsible to show you how to handle your money. Therefore, you should lower your expectation in term of investment advices and money management (which are provided by banks but you have to request and pay for those services) and know that bank’s major responsibilities when you have a bank account and a loan is to make sure that you have access to your money and that economic forces will not make them call back your loan for reasons that are beyond your power. I am glad that CR mentioned that he experienced a short, but great experience with an individual banker who was providing great money advices. Those resources are limited in banks and they are provided to people that are obviously able to afford them. It is sad to say, but we are living in a capitalist country, people with money have access to better service. Banks are providing stability and security to everybody, if you expect more, you will have to pay for it. I was not too familiar with the TD Bank example he mentioned in 2002 but did ever the TD penalized his clients for their risk management mistakes? However, they surely penalized their shareholders

“Another example is the habit of selling loans”

In this part of his article, CR mentions that banks are putting back the risk in the market as they are packaging loans and selling them to a third party. My question is the following: If this financial product sucks, then why would you buy it? There is a reason why banks are selling away their loan and it is quite simple: it is because people are willing to buy them. They think that making money is as easy then lending at a high interest rate and collect your charges every month. Banks were willing to take the risk of lending to people who did not qualify but still desperately wanted to have loan. If people can not make their monthly instalments, the bank will loose money because it did not assess the risk properly and the client will loose their house because they do not know how to count up to ten. It is too easy to blame banks for ones misfortune or miscalculation. The truth is that several individuals simply ignore their financial health until they can not make their payments any longer.

“The point is that it doesn’t matter how they make other portions of their money. We’re talking about how they make money from the relatively helpless retail customers”.

This one made me laugh a lot. How come retail customers are so helpless? Maybe you are telling me that they are not able (read lazy) to shop around and gather information before they make a choice? Before I started working for a bank I did not have much personal financial knowledge. Nonetheless, I went on every bank’s website to look around which kind of products they were offering in order to find the ones that suits my situation. Banks are making a ton of money on interest they charge to clients. Well duh! It’s is part of their business model. It’s like blaming your mechanic for making 300% profit on the motor piece he just replaced on your car. You needed your car to work, here is the price. It is up to you to pay it or not. You want a loan? here is the price, it’s up to you to take it or not. Many people think that obtaining credit is a right, in fact, obtaining credit is a privilege and you must pay the price. Banks are not meant to determine if you should take the loan or not, they simply have to determine if you qualify within their parameters of lending.

A quick advice

I can appreciate CR’s concerns in regards to the poor service he may have received from banks or bankers. As previously discussed, their economic situation (oligopoly) does not encourage to have their teller to go above and beyond in term of services. However, they do provide high level of service for clients with a strong net worth or with several products. If you are not able to get them at your bank, I would suggest that you start looking for an independent financial consultant, financial planner, financial advisor or whatever they may call themselves. As they are making their money based on different criterions, they may be able to help you out managing your personal finance. However, the research process requires a lot of time and energy in order to find the good one. Good luck to all!

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After Customers Revenge’s answer back to my post, I really feel like a lawyer defending a dangerous criminal. I must admit that I smiled when I read his answer. He tries to make me say that banks are offering”bottom-of-the-barrel standards.” In fact, what I was saying is that banks are not more responsible in term of client service than another company.

find also interesting that he gives more importance to financial services than to what he eats. I think there is a much bigger ethical issue going on in our grocery store than with our banks but this is another story (I can’t write about evertyhing; we are here for finance, right?).

In fact, banks are making huge effort behind the scene to provide us with the most stable economy. CR was complaining about the spread Banks are making on loans compare to what they give in return to the customers (a very small 2-3% on bank accounts, 4% if you have a savings account). Welcome to the real world, the world of capitalism. When you only look at the primary resources (the money in the case of banks) compare to the final products (loans and other financial services), you will definitely be concerned about how easy it seems to make money. Well it’s not! Do you really think that the cost of $200 for a pair of jeans is related to cotton and manpower? It’s the same think with banks. In order to create an equilibrium, banks are divided into three big sections; the sales force, the risk management and the compliancy department. Customers basically deal only with the sales force and do not appreciate what is done on the other two sides of this pyramid.

If you think that banks are making big money while charging you fees, you are wrong again. While I can not motivate the decision of changing the fees and offer of products in branches (I work in a head office), I can tell you that it is not the main source of their profit. In fact, they make much more money from the market and their investment operations with other institutions which is far from us, mortals ;-). The risk management and compliancy department are a huge sources of expenses for banks. However, they have no other choice but to provide us with this invisible service in order to guarantee that our money exist when we need it. Worst than that, imagine that the bank would call you and call back your mortgage as they need more liquidity. They would have the right to repossess your house in order to reimburse the debt on the spot. Don’t you think it would make our economy crashes faster than the popularity of Britney Spears? A major role of the banks is to maintain this stability in our economy. We all take for granted that banks are banks and they owe us this to us, but the weight of this responsibility is huge on their shoulders.

I would like to get back on the spread made by banks on money they lend. Banks are working as any other company. While Customers Revenge claim they sell a product they don’t even own, I say it’s completely wrong. They actually pay the customer 3% to gain access to this money, the primary resources in their business. You think it is a dirty cheap cost that they are paying? Well you are the one who’s putting the money there. So where is the problem?

Another theory advanced by Customers Revenge was the fact that he thinks that bankers are paid or rewarded on new accounts. In fact, for the past few years, bankers’ objectives are made in net amount. Which means that we take what you have at the beginning at the year and we look at what comes in and what comes out. What’s left at the end of the year, this is your net. Bankers have a set of tools (rates, promotions, different products) that they can use to keep their clients. However, they are limited to their latitude and every banks have their own promotion. So don’t be surprise when the banker does nothing when you leave, there is just no point trying to offer the same thing or better. It’s like asking for having the Huggies at rebate when the store is advertising the Pampers. You just can’t have it at this time.

Regardless, clients that you lose for a rate or a fee, if you don’t lose them today, you will lose them tomorrow. The real key to keep our clients within the bank is a good client service. As being a client myself, my first experience was really bad. However, when I changed banker, I was totally pleased. My parents are also dealing with a credit union with a very competent women. All this to say that somewhere, good bankers exist! I would suggest Customers Revenge to switch bankers instead of leaving his bank as we will not have much choices left (He already cancelled BMO and both RBC and CIBC are about to be banned as well). I wish him good luck then

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