The Other News From England. April 16th., 1993.
It was my intention to try to make you laugh after a long spell of looking at the seamier side of British life, but the pressure is too great. It is coming at me from all sides. In a recession, the scum of human nature always comes to the surface.
In the forties we had the spivs, who were the people who had been black marketeers during the war and hadn`t yet made enugh fast and easy money to stop trying, and they went on into the fifties, when shortages and rationing gradually disappeared, and they had to start looking for other fiddles. Most of them probably became secondhand car dealers of the type you wouldn't buy a car from, and then finally, when the sixties came they gradually faded away for about 20 years - with the odd exception (we had a real beauty who cleaned out a large insurance company) - and came back in the 80's as financial advisers, pension specialists, other financial institutions, and bankers.
It is no longer possible to trust a bank in this country. I Don't mean that they might scarper with your money or that they might go bankrupt (although some of them deserve to). I mean that they behave like pickpockets and thieves. Every week, there's a new scam in the banking world.
I'll tell you the kind of thing. Joe Bloggs (a popular British name for a hypothetical ordinary person in the street) starts a small business. The year is 1988. The bank are very helpful, and fall over themelves to lend him some money in the form of an overdraft facility at about 1% above the base rate. They aren't too worried about who they lend it to, because it is difficult to lend and they have too much of it lying around. It isn't very expensive, and the fact that they charge him a fee (£50) for the facility whether they lend him money or not doesn't bother him too much, because he can afford it.
Business gets a little difficult in 1989, so Joe Just overdraws a little - after all, that is what he has been paying for. But then business doesn't get any better, and the base rate goes up so that in time Joe finds that he has rather overdone it and will not be able to pay the money off for some time - possibly years. NOW is the time for the bank to call in the overdraft, because, you see, the small print in the new terms (quite possibly issued after the overdraft facility was agreed) allow them to charge their standard unauthorised overdraft charge of about 40% per annum. Joe is a slave of Barclays for the next thirty years.
That was the year Barclay's only made £533m profit (1991), so I suppose it is understandable. After all, banks are much more important than the rest of us. This year, to compensate for the damage they have done to their reputation, they decided to show a small loss, and declared a loss of about 1.5m. Unfortunately, the damage is done now, and nearly all those who have had credit with them aren't likely to trust them any more - which is just the thing you need to end a recession.
Well, that's an old scam now, and some of them have moderated their demands to only 5 or 6 percent above base rate! But there are other methods.
One of the things that happened during that year was that those who had been in business and were now supporting the bank had to find a place to put the odd fifty pounds in case they ran into personal financial difficulties, and they opened accounts with other banks and building societies (a building society is a 'club' of savers who originally saved to lend to people who wanted build a house).
So now let me tell you a scam worked by the bank which up until recently was the second largest building society in Britain. You don't even need to be overdrawn for them to work this one.
If you pay a cheque into this bank, they allow themelves 5 days to clear it, even though they might only take 3. If you write cheques against that cheque and present them to other banks on the same day that you paid it in, they will arrive at your original bank before the five days is up. There is a penalty of £20 per cheque for every cheque presented when there are insufficient funds in your account to cover it, so each cheque costs you (in addition to the other charges) a £20 penalty. Not only that, but your account is also counted as overdrawn for the other 2 or three days that it takes to clear your original cheque, so that the bank charges interest on the overdraft they are NOT giving you as well (presumably at the unauthorised overdraft rate!). This bank won the title 'Best Overall Lender' from a consumer association last year, and are trying to avoid it happening again.
The old spivs were slightly less sophisticated by and large (only a little), but they would have loved this kind of thing.
An hour or two before I started writing this, I went to see an old friend of mine who runs a small business. Like me, she enjoys working with her hands and likes to be in direct contact with the customers, so her business is very small. I told her I was about to tackle the subject of bankers and their cronies, and she told me her story.
She has an ordinary small business account, with an overdraft facility she never uses (that costs her £50 per year). The last statement that came in (no overdraft on it) had at the foot of It surrounded in computer-generated stars the inscriptIon "charges £100!" as though it were some kind of special offer. I suppose it really means 'some people charge even more'.
In 1991, a relatively new contender amongst these thieves appeared in the form of a Scottish bank that was aggressively marketing in England. They obviously perceived a new bunch of suckers as being amongst the disgruntled small business people who were using the regular English banks. They hadn't many branches in England, but in those areas where they had, they invited the local business community to call on them as they would understand the position much better than English bankers. They even printed the name of the manager in the advert. so that there was the illusion of personal service. Looking through my files I find that this prompted me to write:
July 15th., 1991.
The Royal Bank of Scotlaid FIX,
301321 London Rd.,
Middx. EN2 6DT
Dear Mr Bennett -
I am a small business person - a designer, small-time manufacturer, shopfitter, musician, etc. - and so I think all banks are a bum deal. Generally, they are the kind of friends who are only there when you don't need them. The consequence of this is that I do my utmost not to use them. I think met of know Just how much damage a bank can do when the going gets tough.
Could you please tell me, without sending me a pile of pieces of printed paper that I will not read, what it is that your bank would do which others would not do if I started banking with you?
It would be nice to know, also, what your bank would do in the event of it becoming apparent that a businessperson with plenty of collateral (but not secured to your firm) was unable to pay off their overdraft? Would you: -
(a) call the overdraft in, thus ensuring that you are in a position to charge very high rates of interest on the sum overdrawn for as long as it took for them to extricate themselves?
(b) assume that they would he in a position to pay it off in due course and let them get on with it whilst continuing to charge them the same interest that you would charge on an ordinary overdraft?
(c) panic, and ask them to start reducing the amount overdrawn now whilst continuing to charge them the same interest that you would charge on an ordinary overdraft?
(d) panic, and ask them to start reducing the amount overdrawn now whilst charging them specially high rates of interest?
(e) suggest other types of credit no more expensive for the businessperson whilst continuing to charge them the same interest that you would charge on an ordinary overdraft pending new arrangements?
(f) suggest other types of credit no more expensive for the businessperson whilst charging them a specially high interest rate until the new arrangments come into force?
(g) suggest other types of credit that are more expensive for the busineesperson but more profitable for your firm and hope they will not notice?
(h) adopt some other approach? If so, what?
Whilst deciding what your answser ought to be, please bear in mind that a person who is unable to pay off their overdraft is unlikely to be able to take advantage of any tax advantage created by any special schemes because it is pretty unlikely they will pay enough tax in the first place to use such things.
Suppose the small businessperson had no collateral except the equipment and stock of their business. Would you approach things differently? If so, what would be the main differences? Would you have given them an overdraft in the first place?
Would things have been any different three months ago? Business and commerce is a shifting world, and if your firm would have done something different three months ago, we small business people need to know what, because it will probably happen again.
I am sending two copies of this letter so that you can If you like write notes in the margin of one copy and send it back, thus saving valuable office time.
I am sometimes surprised at my ow agressiveness on paper. Unfortunately, I cannot find the reply, but it is quite obvious that Mr. Benmtt was pretty evasive, because the next letter in the same file reads:
July I8th. 1991.
The Royal Bank of Scotland PLC,
30/321 London Rd.,
Dear Pt. Bennett -
Thank you for replying to my letter of the 15th. July (yours of 17th. July). I rarely read newepapers, and don' t (have) a television. I was basing my questions on real-life experiences, and was unaware of a lot of bad press. They do deserve it, though.
I was quoting a specific case. From your reply I can infer that you would consider all the suggested courses. From your evasiveness I would be led to believe that the most expensive course for the businessperson in question would be the one finally chosen, unless there wass the possibility of making large amounts out of them after the recession is over, in which case the cheapest would be chosen.
Not much mileage for a business person with your bank, is there? Most would be better off with a safe and a pawbroker.
this is quite interesting, because it would appear that at that time people were giving banks and bankers the sort of grilling I am trying to give them now and I didn't even know.
However, it is now almost two years later and things have not got any better.
The above Scottish bank last year started marketing a credit card through unions, calling it the Unity Mastercard. The idea was that the union members would feel that they 'are doing something for their union (I think the union got a commission on the sales of cards) and at the same time got a special deal on the card. As a member of the Musicians' whion, I have one of these. It is quite true to say that the rate of interest is lower, but they arrange their terms in such a way that once you have failed to bring the account up to date, they charge a higher interest on all the money charged to the account for at least the following month, even if it is not money that is overdue. Not only that, but they have a dodge or two for making sure that if you try to pay the account off right at the end of the month you won't succeed. The payment does not appear on that month's statement but on the next one, thereby assuring them of at least one month's very high interest.
They charge £12 a year for the privilege of having this costly arrangement. I am not financially in a position to hand back my card because I can't pay it off at the moment, which is very nice for them because I notice on the statement that came through my letterbox yesterday that in addition to the very high interest rate, they have a £10 'fine' for late payment. It looks to me like the £165 outstanding on the card largely as a result of their delaying the cheque I paid in to pay it off will become something more like £300 by the time I manage to do something about it. I have just looked at my Midland Access account (a similar thing) and notice a new item - "late charge - £15". Ideas circulate fast amongst thieves, don' t they?
Clever stuff that almost my spiv would be proud of.
Well, although the politicians keep talking about "green shoots of growth" and the like, we are still in recession and I suspect that one of the things that is causing it is the fact that nobody trusts a bank enough to feel comfortable about borrowing money to get their proposed new venture on the road.
Borrowing small money to put new ventures on the road is a thing I used to do almost like a game or a personal challenge just to keep my brain motoring when I trusted the banks, and I can remember others behaving similarly. Some ventures were a succees, and some were not, but by and large one paid for another, and one still had the adventure of doing a bit of trading.
Those were happy and innocent days.