Killing Democracy

So listening to Terry Gross on NPR the other day I heard the news. No more free checking. Since banks have been told they can’t charge ridiculous fees on ATMs and overdrafts and credit cards, the free checking’s on its way out. When I got home DH told me CNBC said banks are going to start charging annual fees on the credit cards you don’t use.
The guest on NPR said banks used to make money by making sound loans and earning interest on those loans. No more.
He called the “fee” practice smoke and mirrors. He said banks say the new consumer protection laws are going to bankrupt them, and in his opinion, any business that couldn’t exist without fees wasn’t really a business.
I tend to agree with him.
I’m no financial guru. I just began balancing my own checkbook when we started Dave Ramsey’s FPU. But I know banks have gone out of their way to make us want what we can’t afford. Used to, I thought the credit card Priceless ads were the sweetest commercials on TV. I grew up using a credit card. Carrying a small balance was fair trade off for the opportunity to enjoy the finer things in life.
And then Capital One zinged my interest rate from 3% to 16% for no reason. I used my savings account and paid that card off quick as I could. My story’s not unique. I imagine most fiscally responsible people did the same thing I did. Now the banks have plenty of people with cards and debt, BUT many of those aren’t solid risks.
It reminds me of when our district raised insurance rates by over 50% in one year on our family plan. Most healthy people I knew left the family plan and found their own insurance. The only people left were teachers (high stress, relatively high medical expenses compared to other professions) and their sick family members with pre-existing conditions. That insurance company set itself up for huge failure because they wanted to earn more money. In the end, I bet they about broke even. They weren’t our insurance provider the next year, and a handful of years later, they declared bankruptcy.
Big banks are in a big mess. They have lots of pre-exisiting condition customers.
I’m sure glad we’re committed to debt-free living. I wish I’d have learned the financial peace lessons about budgeting and savings and retirement and real estate and insurance years ago. I think some of the people running our financial institutions need to take FPU before they kill democracy one bankruptcy at a time.


7 responses to “Killing Democracy

  1. Banks are a business. They have a responsibility to their shareholders to make a profit. When the government steps in to say, “You can’t charge for that”, they have to figure out something they can charge for. Just like when the government stepped in to tell them they had to make loans to customers with lousy credit, then blamed the banks for the financial collapse. (Actually, the way I understand it is, they just threatened the banks. They didn’t pass laws forcing them to loan the money.) I’m afraid that what is “Killing Democracy”, as your title puts it, is an increasingly socialistic government sticking its hand into the private sector where it only makes things worse.

    Don’t get me wrong. I don’t like fees either. I think that banks have made some mistakes in how they do business in general. However, I also believe that the market should be allowed to put the pressure on those banks to change the way they do business. Unfortunately, the government getting involved takes the market out of the way. What exactly is the government better at doing than the private sector? …Nope. Can’t think of anything. Nothing besides fighting our enemies in the world, and lately they don’t seem that interested in doing that.

  2. Here we just have to disagree. 🙂
    I agree that banks are businesses and have a responsibility to their shareholders. Which is why they SHOULD NOT be giving loans to high risk people. Or credit cards to high risk people–people like the ones you and I both know with multiple credit cards in default who remarkably still keep getting pre-approved cards in the mail. Or mortgages to high risk people, not just the ones they were “forced to give” but ones they gave so they could earn the interest on those loans and get those payments. It’s like the people in charge of the banks decided profit was profit and if they screwed up the government would take care of them because they were too big to fail.
    Often, I’d agree about the government getting involved. However, the banks begged for help, and they got it, so now, they need regulating. Especially when it comes to their credit practices.
    It’s absolutely insane that K got that pre-approved personal loan for up to $45k a YEAR for school if she would just fill out the paper work and return it to the big bank that offered it to her. She’s 19. At the time, she was very part-time employed.
    It’s ridiculous that Capital One increased my interest rate from 3% to 16% after five years when I’d never missed a payment and never even been late. In the end, they did me a big favor. I paid off the card and I don’t plan on going back down that road. It’s ridiculous that banks all over the nation gave 0% move in loans to young, newly married, newly graduated couples to move into houses they couldn’t afford. It’s ridiculous that I went to the bank in the middle of the boom times and the mortgage lender told me I could definitely afford the dream house I wanted in the dream neighborhood I loved. They were right. I COULD afford that house…if I didn’t eat and stayed in the same clothes for a decade.
    It’s ridiculous that banks are now going to charge me an annual fee for cards I haven’t used.
    I’m all for a free-market, but greed & corruption took over the big banks. All they cared about was the all-mighty dollar. They made one unsound decision after another, and got two whole generations hooked on credit. Instead of saving our pennies, we put it on plastic and pay minimum payments, and hear all about how we “need to build our credit.”
    I’m a teacher who couldn’t pass more than general math if my life depended on it, but I could see the problems with the loans banks were making. Since the people in charge WOULDN’T regulate the way they did business, the government has no choice but to step in.

  3. Should’ve included this: LOVE YOU LIL BRO!
    Brian says until there’s true campaign finance reform big business and the politicians are all going to be in bed together, and as long as that’s the case, it’s not a free market, so the free market rules won’t work.

  4. Oh, I agree. It stopped being free-market driven long ago. I also believe that capital one is one of the worst offenders out there for bait-and-switch interest rates. I have never met anyone who liked them for very long once they got their credit cards. Big business and politicians will always run in the same circles. Campaign finance reform won’t work. The best reform is that no one can make secret donations to campaigns. All donations should be open to public scrutiny. That would make some politicians think twice about who they take money from. Credit cards are offered to people in very bad ways and I believe school loans are, as well. They also offer them to the wrong people. The mortgages, though, were the direct result of political pressure. Those that didn’t bow to political pressure and make the loans didn’t end up with toxic assets (remarkably enough!). Yes, the government has the right to make regulations for the banks who took money; however, I believe more regulation is not the answer. I also agree about the fees being ridiculous. I just think that if we go to the government for every little problem instead of trying to find a solution ourselves it makes for a government with their claws in every aspect of our private lives. I know you aren’t advocating that, but where do we draw the line? More importantly, where does the government draw the line? I’ll guarantee you that it is about 20 feet past where we do.

  5. PS. The simplest way to make market pressures work is to stop using banks that charge for every little thing. Accept that you will have to change banks, as big a pain as it is. There are banks out there with some scruples left. Work with them.

  6. PPS. The reason banks can’t make money on loans anymore is not just because of the bad ones they made, It’s because the prime interest rate has been so low that there is absolutely no reason to loan money. There is almost no profit in it.

  7. I am so glad we took Financial Peace University also. I wish we’d had it years ago, but we’ve made some big changes as a result of the class.

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