Spend Management Meets Personal Banking — Avoiding Getting Hosed

Just as banks are making it harder and more expensive for companies to borrow, so to are the same institutions making personal lending and banking more costly and difficult. Having just jumped through what felt like miles of hoops to consolidate a rather complicated set of adjustable rate mortgages and home equity lines for a single fixed-rate loan -- and with an institution I've worked with for years, to boot -- I can personally say that the environment presents an extreme challenge. But I should feel lucky, especially after reading articles like this one, which suggests "consumers need to keep their guard up as financial institutions increasingly impose new fees and charges" from all angles. According to one source quoted in the Journal, "Late fees, loan-origination fees, over-the-limit and overdraft charges helped generate 53% of banking-industry income in 2008."

The article goes on to recommend 10 potentially costly areas that individuals should keep their eyes on (from hidden checking account charges to currency conversion rates and fees). It also suggests something that we should always take to heart when it comes to both business and personal banking as well -- that "it's worth the time to ask for a pass" on fees and other charges. But one of the major challenges on the business side of lending -- especially when it comes to smaller and middle-tier suppliers -- is that options are getting fewer and fewer. Credit lines are increasingly expensive and difficult to obtain unless you've got a stellar balance sheet (and banks that are lending more freely know that in many cases, they've got a near monopoly on certain market segments they're targeting).

In my view, the current downturn will help spawn alternative financing opportunities as banks increasingly distance or price themselves out of certain markets. The recent uptake of supply chain finance, for example, shows that suppliers are willing to pay high APRs (often over 20%) to receive payments early. And for consumers, it means that consumer direct and micro-lending sites will also continue to gain favor. But until both business and consumer alternatives become more mainstream, we're likely to see an increasing number of otherwise healthy companies move -- or get pushed -- closer to the edge. So just as banks evaluate risk in their loan portfolios and potential assets (banks refer to debt they hold as an asset -- odd, I know) we too should become just as cautious when it comes to monitoring our own suppliers -- and potential suppliers -- as well.

One final note: The 53% of revenue that banks extort under the guise of origination and punitive penalty fees falls under a category that Banks label "Customer Profitability". Given that they are hugely culpable in contributing to our current economic crisis by having issued far too many high risk loans, wouldn't it make more sense for the Banking Industry to compete on level of service and best product as the rest of us must do?

Jason Busch

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