Credit card interest rates have now hit a new high. Allegedly this is because the banks are concerned about customers defaulting on their borrowing. So where is the regulation, oversight or responsibility in this?
I fail to understand why banks are apparently exempt from accountability and competency. Banks make profit from lending money. If they lend money to customers who default, they lose money. This is a cost of business. Through competence and effective business practices, these risks can be managed to ensure profitability. It is not up to the public to ensure that the banks maintain profitability. If this is the chosen business model of the banking industry, surely they should be capable of achieving it by finding and implementing effective strategies.
Furthermore, incompetent strategies are exactly what caused the economic collapse in the first place. Lending was excessive and inflexible, customers defaulted, the banks were bailed out by the public and now society will suffer for decades. Yet now the banks have allegedly returned to profitability and bonuses are on the cards for the glorious investment bankers. Why??!
The Bank of England has lowered interest rates with the sole view to boosting the flagging economy. Therefore, the discrepancy between the Bank of England base rate and the rate of credit interest charged by the British banks represents the profit margin. So effectively British banks are promoting a self-fulfilling prophecy!
By raising interest rates to obscene levels, it ensures that those borrowers who were already stretched and struggling will be toppled into bankruptcy. This will impact on the banks, who will write off these ‘bad debts’ and at worst, require a second bail out lest the economy collapse. If the borrowing is repaid, bankers make a mint on the offensive interest rates they are charging. And again, bankers get rich at the expense of the public and the global economy.
So if the point of the exercise of maintaining low interest rates by the Bank of England is to help boost the economy, then why are banks not responsible for ensuring lending rates remain low to help the public clear some of the excessive debt remaining from before the economic collapse to ensure this doesn’t recur? Why should they be exempt from any accountability from causing the collapse in the first place? Why should we face a second collapse due to continued incompetence? The economy will take years before it achieves recovery, why not the banking industry. Lower interest rates may result in lower profit, slower recovery, but if we all benefit, then surely this is an intelligent strategy? And after all, we currently own much of the banking industry so surely they should demonstrate some degree of accountability to the public as well?
Would it not make more sense that if borrowers are having difficulty in repaying lending, that the terms of the borrowing are renegotiated? The current system doesn’t work. It is understandable as a business desire to be able to predict the proposed income from lending. However, clearly the entire system requires an overhaul. When customers miss payments, it is the fault of BOTH the bank and the customer. Therefore, banks should be responsible for re-jigging the lending to ensure the money is repaid. But jacking up the interest rate to push stretched customers over the edge and writing off the borrowing as loss is simple incompetence. Lending should be re-negotiated. Circumstances change. If a customer has had an unfavourable change of circumstances and has become unable to repay the lending, would it not make more sense to put the borrowing until the situation recovers or returns to normal before requiring the lending to be repaid? This would enable the borrowing to be repaid in full. This would reduce or possibly avoid the requirement of writing off bad debts as is the current strategy. It makes absolutely no sense to increase interest rates and therefore the economic burden onto someone who is already under financial constraint. Banks need to demonstrate an ability of problem solving that doesn’t burden the public purse.
Allowing banks to maintain high interest rates at the cost of economic health and at the expense of the public, solely to maintain a high profit margin and ensure large bonuses is insane.
And again, it is simply a self-fulfilling prophecy. Bad debts will repeat because the banks are converting current lending into bad debts. The banks put themselves into this position. They need to find a way out of it; without increasing interest rates, without losing income, without losing profitability. If they cannot accomplish this, then obviously they are incompetent and do not deserve to make any profit, and certainly do not deserve to receive bonuses. Furthermore, the narrow minded blinkered lack of vision which the banks are currently demonstrating only proves they are incompetent and incapable.
When you go to see a doctor for a health complaint, you expect the complaint to be resolved. If the first solution or treatment is not successful, you repeat the exercise until the problem is resolved. Obviously western bankers are morons who only offer one solution. Banking has become a binary system of success and failure. Every other business in the world needs to demonstrate an ability of problem solving to ebb and flow with change and variation. We don't accept this level of incompetence from any other business or industry, so why do we tolerate it from banks?
Even worse, obviously the regulators who oversee the banks are unwilling to impose any change to the status quo. Instead of imposing accountability, responsibility and competence onto the banking industry, they appear quite happy to allow history to repeat. Who watches the watchers?
And in the end, we will all lose.
Credit interest rates need to be reduced in parallel with the Bank of England base rate to boost the economy so that we can all benefit and the economy can recover.
