Banking's New Version of Russian Roulette

Considering the current economic crisis, it is doubly troubling when you come across an article such as the one that appeared recently in the Business section of the New York Times.  The article was titled, Drawing a Bead on Debtors, and it focused on how some banks and credit card companies are mining databases to pitch new loans to troubled borrowers.

The articles profiled the travails of Brenda Jerez, who in 2005 became ill with cancer and ran up $50,000 on her credit cards after she was forced to leave her accounting job.  She filed for bankruptcy protection last year.

For months after she emerged from insolvency last fall, 6 to 10 new credit card and auto loan offers arrived every week that specifically mentioned her bankruptcy and, despite her poor credit history, dangled a range of seemingly too-good-to-be-true financing options.

Russian Roulette, as you well know, is like the art of suicide with a little Las Vegas odds thrown in.  You load a bullet into one of the six chambers, spin the cylinder, hold the gun to your temple, pull the trigger and hope for the best.  Only, in this banking version, all the cylinders have bullets.  

The business practices outlined in the New York Times article is akin to giving a recovering drug addict a sample of cocaine or a recovering alcoholic a six-pack of beer.  It's all about the next product sale--regardless of whether it has the underpinnings of the next tsunami in the economic crisis. 

Singling out even struggling American consumers like Ms. Jerez is one of the overlooked causes of the debt boom and the resulting crisis, which threatens to choke the global economy.

Today, companies comb through an array of sources, including bank and court records, to create detailed profiles of the financial lives of more than 100 million Americans.  They then sell that information as marketing leads to banks, credit card issuers and mortgage brokers, who fiercely compete to find untapped customers--even those who would normally have trouble qualifying for the credit they were being pitched.

Sound like the next financial minefield?  Except in this case we are planting the minefield and throwing away the map.

I used to feel very proud to say I was part of the financial industry--first as a banker and now as a consultant.  But today it is hard to put the words bank and trust in the same sentence without it sounding like an oxymoron.  Unfortunately, for the majority of banks that operate with the utmost integrity, morality, and social consciousness, we all suffer from a little guilt by association.

That's why today, more than ever, the number one job for all banks is to reestablish that one-to-one trust with our customers, so they will then view us again as true partners that are looking out for their well being.  

Trust me on this one.

Cheers,

Nick Vaglio