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Jamaica Gleaner - - ARTS&EDUCATION -

NOVEM­BER 27, 2016

IAM not your ‘perfect’ bank bor­rower/cus­tomer. I am not a ro­bot that al­ways pay my credit card on or be­fore the due date, and oc­ca­sion­ally, I do go over­drawn. More­over, I, like, I as­sume, most of my fel­low cus­tomers, don’t live on hunky-dory street where sources of in­come al­ways ex­ceed ex­penses and never ar­rive late. Of­ten, I have to be rob­bing Peter (my left pocket) to pay Paul (my right pocket). And more times than I would like, nei­ther Peter nor Paul has any­thing to rob. Does that sound fa­mil­iar? Hav­ing said that, I al­ways try to make ar­range­ments be­fore­hand, with my bank man­ager, to cover my over­draft. And I have been known to pay off loans and mort­gages (smile). In other words, while I may be con­sid­ered a bank de­plorable, I think I am far from be­ing the worst.

I would sub­scribe that the above por­trays a sig­nif­i­cant por­tion of bank clients. And I feel there are mu­tual ben­e­fits to be gained from lend­ing to us im­per­fect peo­ple at rea­son­able rates.

Re­cently, my wife and I sought to buy a se­cond-hand car for our daugh­ter, and we were turned down by the bank that we have been do­ing busi­ness with for more than 20 years, and still do.

Be­ing ‘des­per­ate’ to buy that car, we searched around for al­ter­na­tive lenders. What we found were rates that var­ied be­tween 50 and 100 per cent an­num, down to the most rea­son­able of them – of­fer­ing a “rate of 14%”. That 14 per cent is what is told to clients as the rate. But in re­al­ity, I, be­ing a past banker, knew that this rate is of the ‘add-on’ va­ri­ety.

EX­PLAIN­ING ADD-ON RATE

It means the en­tire 14 per cent is added on to the prin­ci­pal on a yearly ba­sis. So that for five years, 70 per cent (5x14%) is added to the prin­ci­pal of, say, $1,000,000, mak­ing the to­tal re­pay­ment $1,700,000. This is then split over 60 monthly pay­ments ($1,700,000/60).

Be­cause that amount is paid back on a monthly ba­sis, the ef­fec­tive rate is much higher than the nom­i­nal 14 per cent. More­over, since this monthly pay­ment is re­quired to be paid in ad­vance, the ef­fec­tive rate is fur­ther in­creased.

In this case, the ef­fec­tive rate worked out at 22.69 per cent per an­num, which is much bet­ter than the 50 and 100 per cent per an­num rates but still vir­tu­ally three times the eight per cent rate of­fered by some com­mer­cial banks and other sim­i­lar en­ti­ties on such loans.

What makes mat­ters worse for us bor­row­ers is that if we were ever in the po­si­tion to pay out the loan ahead of sched­ule, there are sub­stan­tial penal­ties that ac­crue and that are beyond the av­er­age per­son to recog­nise or cal­cu­late.

Yet the in­for­ma­tion (and se­cu­rity) re­quired is just as strin­gent.

My ques­tion is, aren’t the banks and sim­i­lar fi­nan­cial en­ti­ties leav­ing a lot on the ta­ble by re­fus­ing to deal with us im­per­fects and forc­ing us to seek other means of fi­nanc­ing at these dra­co­nian rates?

The op­por­tu­nity def­i­nitely ex­ists for some en­ter­pris­ing bank to make money off some­one like my­self at a slightly higher rate, rather than ‘forc­ing’ us to bor­row from these mer­ce­nar­ies.

How many slightly im­per­fect de­plorables are out there? De­plorables who pay off their loans/mort­gages not robot­i­cally but yet con­sider it their obli­ga­tion and do, in fact, pay them off?

Of­ten, I hear of taxi men com­plain­ing about hav­ing to bor­row at these de­plorable rates. Rates that, in ef­fect, put them in servi­tude to those lenders. And the hard part is, they are un­able to de­ter­mine the ac­tual ef­fec­tive rate charged.

There should be in Ja­maica a ‘truth in lend­ing’ law that re­quires lenders to re­veal cer­tain ba­sic fea­tures of their loan, in­clud­ing, of course, the ac­tual ef­fec­tive rate per an­num.

And it may not be for a loan of $1,000,000 to as­sist in buy­ing a

se­cond-hand car to give one’s daugh­ter or to run a taxi. It may be to help pay for tu­ition fees for a fu­ture prime min­is­ter.

PAS­TOR RIPS BANKS

And in ‘Pas­tor rips banks for abus­ing power’, in The Gleaner of Novem­ber 22, 2016, Christo­pher Serju wrote:

Pas­tor David Henry on Sun­day used his ser­mon to call out ra­pa­cious com­mer­cial banks and cor­rupt pub­lic of­fi­cials, chal­leng­ing them to stop abus­ing their po­si­tions of power, and in­stead, to start to truly serve the peo­ple.

“Our tax­a­tion poli­cies must have spe­cial re­gard for its im­pact on the poor and vul­ner­a­ble. You know we have a his­tory in this coun­try of usury, you nuh, some wicked in­ter­est rates – I not even go­ing call them high – and they have dec­i­mated many busi­nesses and fam­i­lies. I per­son­ally be­lieve that in­ter­est charges on some credit cards are in­iq­ui­tous and ex­ploita­tive,” he de­clared to loud ap­plause.

“In­ter­est rates re­ally are meant to pro­tect re­in­fla­tion, not to ex­ces­sively fat­ten the cof­fers of lenders. Rea­son­able profit is fair – don’t mis­un­der­stand what I’m say­ing – rea­son­able profit is fair, but we must not di­min­ish and dec­i­mate the bor­row­ers,” he ex­plained.

No won­der the min­is­ter of fi­nance, Aud­ley Shaw, has turned his at­ten­tion to the process of cre­at­ing a new reg­u­la­tory en­vi­ron­ment for the mi­cro­fi­nanc­ing sec­tor.

BANK­ING COM­PE­TI­TION

Mean­while, in ‘Bank­ing sec­tor shake-up’, Bal­ford Henry of the Ja­maica Ob­server wrote on Septem­ber 30:

Min­is­ter of Fi­nance and Pub­lic Ser­vice Aud­ley Shaw says that two new com­mer­cial bank­ing li­cences have been granted to lo­cal fi­nan­cial in­sti­tu­tions.

How­ever, he warned that the grant­ing of the li­cences were (sic) in keep­ing with the new Gov­ern­ment’s pol­icy of com­pet­i­tive­ness in the fi­nan­cial sec­tor and a pol­icy of fi­nan­cial in­clu­sion, which will in­clude small and medi­um­sized busi­nesses.

So that, in a two-pronged at­tack, Aud­ley Shaw has sought to cater to the bor­row­ers in the mid­dle by cre­at­ing more com­pe­ti­tion among the com­mer­cial banks while at the same time reg­u­lat­ing the mi­cro­fi­nance sec­tor.

Good luck, Mr Min­is­ter!

POLSTER FAIL

Yes, I was wrong in my pre­dic­tions on the re­cent US pres­i­den­tial elec­tions. But so were the vast ma­jor­ity of poll­sters and pun­dits, in­clud­ing some well-known Repub­li­can-lean­ing ones.

The day be­fore the 2016 US pres­i­den­tial elec­tion, most poll­sters and sta­tis­ti­cal mod­els had pegged Hil­lary Clin­ton’s chances of win­ning at greater than 85 per cent, with some mak­ing her the 98-99 per cent cer­tainty.

In ‘It’s com­pli­cated – Part 2’, pub­lished Novem­ber 6, I wrote:

The thought of a facile Clin­ton vic­tory has been thrown out the win­dow as what had vir­tu­ally been a cer­tainty (Hil­lary win­ning bigly) has been turned on its head with one let­ter from the FBI to Congress.

While some polls in­di­cate that the Comey let­ter hasn’t af­fected how vot­ers plan to vote, only a fool (or an os­trich) would dis­count the sig­nif­i­cant neg­a­tive ef­fects of that let­ter on Clin­ton’s chances of win­ning the pres­i­dency.

While I would suf­fer less cog­ni­tive dis­so­nance to side with those giv­ing Hil­lary chances greater than 80 per cent, I feel that her real chance is closer to that of FiveThir­tyEight, that is, around 70 per cent.

I wish to point out that I had to sub­mit my col­umn to the Gleaner editor on Novem­ber 3, five days be­fore the ac­tual elec­tion.

Yes, we were all wrong, but I was the least wrong of them all. LOL. It is of lit­tle com­fort that Hil­lary did win the pop­u­lar vote by 1.5 per cent.

I

Eger­ton Chang

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