What I would tell my Banker, if I thought they would listen.

 I have borrowed a lot of money over the last forty-five years. I have often felt the bankers ask the wrong questions. Here is what I would tell my banker if I thought they would listen.

Bankers are risk adverse, that is as it should be, Their function is to lend money at the least risk with the highest return and safety for their stock holders and depositors. As I see it, there are several problems with banks today. One, is that banks have to many ways to make money that do not involve lending directly to their customer. Two, is that bank's lending procedures are old fashion and do not take into account the credit situation currently at hand. Three, is that banks ask the wrong questions. Fourth, they suffer from the 1-800 syndrome.

Banks do not do enough small business lending or consumer lending. It is easier to let visa and master card lend to consumers. Banks are always fighting for depositors because they no longer have a family approach to the customer. It use to be a customer looked to the bank for deposits, loans, savings and all manor of financial advice. The banks are losing that interaction. Credit unions are filling in the best they can.

Banks make their money more from fees these days. They bundle loans and sell them off. They sell insurance, stocks, bonds, trade stock, do investment banking and the list goes on. Lending to local consumers and small businesses is not the banks main thrust. They deny this of course. They point to all the branch banks as evidence. Yes they want the easy money, loans that are guaranteed by Uncle Sam, SBA loans, student loans and the like. They want the home equity lines and mortgages that they then bundle and sell off for fast cash. But walk in and try and get a small business loans and see if they don't reach for the 1-800 number. When the branch manger has no lending authority the bank is giving you lip service, that is just a fact.

When the banker looks at making a loan they are looking for people who do not need the loan. That is the ideal customer. The problem is the method's used to evaluate that loan are the same ones from fifty years ago. The loan must be secured based on the (quick sell) value of the assets securing the loan. (this is as it should be) The customer must have liquid assets that can be cashed in to pay the loan or the payments. (This is not reality, yet it persist) The customer must have a certain credit score number to be even considered. But the credit score agency's scoring methods are broken and no one wants to admit it. The credit reporting agency's logarithms are out of whack and the reliance on these so called credit scores is a huge mistake. The banks have lost the local focus and local lending approvals so they are a slave to the credit score.

For example; I have more positive monthly cash flow (income) now then I have had in ten years, I have less credit card debt then any time in the past ten years, my over all debt has been paid down by 80% (over a million dollars) my net assets exceed a million dollars and then some. I have a perfect payment history and over twenty years on the job. I have no car payments, my home has been paid off for fifteen years. My adjusted gross income last year was $112,000. I also have more then a 2 to 1 debt coverage ratio. Yet my credit score has declined. I can not get even a credit card limit increase, or a loan from my bank. I am the epitome of success to everyone except Equifax, Transunion and Experian. (Read the squeeze on this web site for more info on this quandary)

I use three banks, a credit card processor, and an equipment leaser to get my banking done. It use to be it was an advantage to have all your business with one bank. Instead of that being a plus, it has become a negative thing. Relationship banking has gone away. The bank uses the information they gathered by you giving them all your business to take advantage of the customer, rather then to give the customer a better deal, or to take better care of the customers needs. I can not tell you the number of times I have heard the comment “that decision was made by another division” or “I'm sorry I have no authority over that area” The bank says they want to be with you during good times and bad, it's a lie. Tell them sales are down and they watch your account like a hawk, let them know you had a bad year and they call your loan.

Bankers have suggested for decades that I keep more cash on hand, The banker wants to see liquid assets. I could accumulate more cash, but I choose to use my extra cash for real estate investments instead. Let me see, the banks do not want to make the real estate improvement loans that I use my cash for, and if they did make the loans the interest rate would be 8% or higher (not my personal home you see), the cost of getting the loans would be high, what with appraisal fees, and origination fees, etc. The bank is currently paying only about 1.5% on money on deposit. On top of that, my real estate projects would be more risky if I took out more loans, as I would have less positive monthly cash flow. Not a good deal.

The banker always ask the question, "If things get tight where will my payments or payoff come from?" The better question to ask about the borrower, and certainly about an active businessman like me is "Does this customer have sufficient assets so that he can not easily go broke on me?" Keep in mind I am assuming the borrower also has the monthly income to service the loan.

If a borrower has the liquid cash assets that the banker likes to see, then the bank will make him a loan. I ask you dear banker; If your borrower then spends the liquid assets, which was the better question to ask?

Banks are still using the same lending perimeters they have always used yet the world has changed. Credit card companies have changed their procedures, and terms, and methods and these changes are playing havoc with credit reporting agency's algorithms, so peoples credit scores are screwy. Especially for the self employed. The commercial credit score companies such as D&B are even more inaccurate. Banks do not train local bankers how to evaluate loans, plus banks will not spend the time or money to check a customers facts, so the credit score becomes the predominant criteria. And the 1-800 syndrome further isolates bank loan decisions makers from the communities they are trying to serve.

What to do:

Banks could save a fortune in call center cost if local branches could help the customer. Dear banker, train your staff, then empower your staff to take care of customers and then get out of the way. What is the worst that your employees could do, sell something, make a loan, solve a card problem, cash a check, take in a CD. Every thing good and very little wrong would be the result. You could then spend your time fixing the exceptions. Instead you spend your time supervising the bureaucracy you have put in between the bank and it's customer. Your employees are not happy because you made taking care of the customer difficult and where is the job satisfaction in that. This isolation of customer and employee, this centralization of decision making, always and with out fail, creates more customer service problems, increases your operating cost and results in less satisfaction for everyone. Then you advertize to get back the customers you lost.

Quit screwing your customers with unwarranted fees. Over drafts should be an opportunity to set up an overdraft service (at a small fee cost) not an income source. Stop charging cashier check prices for money orders and bank checks. The fees should be reasonable maybe $2 not $8 . Hot check fees are a problem. If the customer is not worth saving (back to that branch manager training) then get rid of the customer who write hot checks, they are not future revenue sources. Post payments in a timely fashion. Stop posting checks before posting deposits to get over draft fees. Stop changing mail to addresses for payments, delaying payments to collect late fees is sinful. Get out of the pay-day loan business that you run under wholly owned subsidiaries. You could offer a similar service in your branches at a lower cost to the consumer and still make lots of money. I could keep going but you get the idea. Review policies, practices, and fee schedules for abuse, then get back to honest, businesses practices that keep customers coming back and happy. I know I have not been very nice, you say your bank doesn't do these things. Great, then you won't mind reviewing the bank's practices with an open mind. Ask how is this fee or procedure viewed by the customer, is this good business or is this taking advantage of the consumer.?

Banks keep giving away their business, why is that? Why is the bank the last place people think of going for a mortgage? Why is the bank not even on the possible source car loan list of customers? Why are small businesses borrowing against their credit card receipts instead of applying with you? Why are banks not even considered for equipment loans? I can tell you why...banks are not lender friendly. You have over the last thirty years given up all these lucrative business lines to non-bank, banks in the name of centralization, consolidation and cost reduction. Then your own investment bankers lend money to the companies who provide these non-bank lending services that you gave up. Then you have to overcharge on fees to cover your local branch operating cost.

One more suggestion concerning pay; I have run businesses for 45 years. I have tried every pay plan and commission or bonus structure imaginable. The employee will twist what ever plan you come up with to maximize their check. Those high dollar pay and bonus plans used at your headquarters have lots of unintended consequences. That is why Wall Street and big banks have had such a mess on their hand. High pay and big bonuses gets you greed every time. Deny all you want, it is just human nature that man will do anything to make the big buck bonus. I have heard the argument that the high pay is needed to attract the best talent. It's the big lie, it is just not true. High pay and big bonuses are substitutes for not having sound training and not practicing good, honest business practices. Instead why not give the higher pay to your local branch mangers and up their bonus for performance, then watch your banks grow.

Lobbyist: You big banks should have your lobbyist, lobbying for fair consumer laws that protect the consumer and thus you as the lender. Instead of trying to get the laws twisted in your favor. You should be trying to get legislation passed that protects your small business customer and the consumer form abuse by credit card issuers, payday lenders, and the like. Lobby to get rules passed that stops credit card companies from taking over the payment process completely, which they are fast doing. You are starting to loose the business to business payments to Visa. When that goes, so goes the loans that business took out to carry their receivables. Lobby to get lower credit card interest rates and fees, they are to high, and more and more the banks will continue to lose ground to the credit card issuers. Banks need to lobby for mortgage rules and standards that cover all mortgage loan originators, because it keeps competition down and protects consumers, instead you exempted yourself. Now the mortgage originators are pointing out the banks want special rules and how their employees are not as qualified, a valid argument. Your lobbyist should be lobbying for faster payment posting, faster check clearing, lower fees and the like. Higher fees brings more non bank competition that then steals away your customers. Become the consumers best friend and watch your banks grow.

 

I know I don't get it, the big picture and all, the need to compete in the world market place. OH! But I do get it, I get that you are pleasing wall street at the expense of local banking and at the cost of being a good banker. What you don't get is that if you where a good banker your stock price and your bank's reputation would take care of it's self.