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Friday, December 19, 2008

Why banks shouldn't be given government help

You may have heard about banks calling in lines of credit. Essentially saying to customers "hey, you know that money we loaned you? Well, we want it all back. Now." In many cases, this scenario is playing out with customers who have current accounts, have paid according to terms, but due to the banks perceived changes in credit worthiness of the customer, irrespective of their payment behaviour, they have decided to pull their contract. To be fair, most business lines of credit, and unsecured consumer lines of credit (ie. they don't have an asset backing) contain a clause allowing the bank to terminate the agreement at will.  In this sense, the bank has said upfront to the client: "we may ask for our money back, in full, at any time". It's a contract. You signed it. It's fair.

Having experienced this, due to "changes in my credit worthiness" recently, I have been faced with trying to understand why the bank would back me into a corner. Particularly because, the downgrade in my credit worthiness, is purely because of my credit exposure. Not because of my payment history. I have never missed a payment. When you pull up a TransUnion credit report on me, all you see is a sea of green "OK" boxes going back as far as the credit report keeps a score.

The issue is that I have absorbed quite a bit of debt due to unfortunate circumstances. But the debt I hold is not beyond my reasonable ability to pay it, given my quite decent income level. In fact, I took on most of this debt over a year ago, and I have substantially paid it down over the course of the past twelve months.

A large Canadian bank, which I will not name, has made notice that they would like the balance of my line of credit paid in full (about $8,300) within the next 30 days due to new "considerations" about my credit worthiness. 

While I intend to try and appeal to the bank to reconsider, and failing that, attempt to arrange payment as I am contractually obligated to do, I am wondering why the bank thinks this is "minimizing their risk". If anything, it's placing me into a situation where I am more likely to default. Not just on this particular account, but on others. 

I am not worried in my own case because I have the income level to manage my way through this burden.  But what do banks really think the macro-economic effects of this kind of scorched Earth tactic really accomplishes? 

Unfortunately, and much to my chagrin, I am likely to be forced to do business with said bank, if only indirectly, through my taxes. The government will likely render assistance to this bank as it already has by taking all it's "high risk liabilities" of it's books and handing out cheap loans on the taxpayers dime. 

So despite my absolute desire to cease doing business with this bank, I'll be forced to by an immoral taxation regime that expropriates my wealth to the benefit of said bank.

The bank is transferring risk to the government, and dumping  risk back onto it's customers at the same time. If my money wasn't being expropriated from me and being used to help keep this bank profitable and free of risk, I wouldn't have a right to complain. But we don't live in such a world, do we? So I complain. 

Add this reason #103,930 to why government bailouts do not work.

Posted by Mike Brock on December 19, 2008 in Economic freedom | Permalink


Eek. I've got a low-interest line of credit. I make my payments regularly, but not 100% consistently. Maybe I should be leaving the phone off the hook?

Posted by: Anonymous | 2008-12-19 12:59:15 PM

Let me get this straight: you can't manage your finances and you want to bitch about it? Is that about right?

If you knew up front that the credit could be called in at any time, it means you should have the financial sense to keep said amount in liquid cash at all times. That's common sense.

Posted by: TJ | 2008-12-19 1:00:17 PM

I'm forced to agree with TJ. The fact is, the bank and it's shareholders OWN that money they lent you. They have a right to dispose of their property as they see fit.

Since the bank has decided it wants it's money back. Thems the breaks, as they say.

I agree that the bank is acting a bit aggressive, but that is their right.

You need to hold up your end of the bargain and pay them back under the terms to which you agreed, up to and including the terms that allow them to request immediate repayment of the full amount.

Posted by: Nick P | 2008-12-19 1:16:03 PM

A large Canadian bank, which I will not name, has made notice that they would like the balance of my line of credit paid in full (about $8,300) within the next 30 days due to new "considerations" about my credit worthiness.
Posted by Mike Brock on December 19, 2008

Don't be so dense. If you read the small print in the your line of credit agreement, credit card agreement, or personal loan contract you'll see that in virtually all cases the bank has the right to call in the loan whenever it wants. The moral of the story is get the clause that allows the banks to call in the loan whenever they want removed, or don't borrow the money. Don't be so dense.

Posted by: The Stig | 2008-12-19 1:18:46 PM


Both of your responses are non sequiturs. What are you responding to? I have not said that I don't think I should have to hold up my "end of the bargain" and pay them back as per agreed. In fact, I went to great lengths in this article to affirm the banks right under the contract set forth to do what they are doing. I even directly stated: "While I intend to try and appeal to the bank to reconsider, and failing that, attempt to arrange payment as I am contractually obligated to do".

The point of the article is that I don't want my substantial taxpayers dollars (I'm in a very high tax bracket) going towards helping the financial industry in any way. I feel this bank is receiving help from the taxpayers, albeit indirectly, under the premise they would "ease credit" and they are doing anything but.

Posted by: Mike Brock | 2008-12-19 1:20:23 PM

The Stig,

I direct my last comments at you as well.

Posted by: Mike Brock | 2008-12-19 1:21:47 PM

i understand Mike Brocks point and agree that it is strongarm tactics, because of the economic climate?
I had a recent experience with TorontoDominion Visa that made me cancel their card because of hidden FEES for bullshit reasons that were never a concern before the economic meltdown. BE AWARE.

Posted by: reg dunlop | 2008-12-19 6:18:37 PM

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Term Life Insurance

Posted by: Deborah | 2009-01-11 8:22:01 PM

Hi Mike.
I am in the same predicament here. I live in the UK and the bank is in the US. They gave me 60 days to come up with $ 34K. The rental property (in the US)is worth $ 80K. They want me to sell the property . - I have been paying down the Line of credit and they are being stubborn about wanting their money back asap. Hate them bastards! Have you thought of settling with smaller amount of money? I am thinking to offer them half the money so they can go screw themselves.

Posted by: Tino p | 2009-01-27 6:50:52 AM

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