George S. May Business Blog

Bailed-out banks to face government probe over fees, high interest loans

Due to an eruption of protest to the continued increases in interest rates and fees, on behalf of lending institutions who received bailout dollars, the committee overseeing the whole process has finally decided to launch an investigation.

Contrary to the intended outcome of the Troubled Asset Relief Program, (TARP), many banks who received capital have in fact increased charges on routine transactions, raised the rates on their credit cards, and handed out further “predatory” loans to their consumers.

For example, Bank of America, to date, has received $45 billion from the U.S. government. Last week, B.O.A. notified their customers that interest rates on their credit cards will be doubling to 14% coupled with a new $10 minimum fee on a wide range of credit card transactions.

Citigroup, on the other hand, has been avidly trying advertising that its customers “could get $5,000 today”. The ads don’t include that the majority of the loans come with interest rate of 30%.

Pacific Capital Bancorp, a bank-holding company out of Santa Barbara, got $180.6 million from TARP and is an issuer of “tax-refund anticipation loans”. Basically, if you want your state and federal tax refund immediately, they will issue you a loan for the amount, at a cost. To be a bit more exact, these loans typically have interest rates that exceed 100%.

As I read through statements of such companies, I have found the common defense to be, simply put, “well, we aren’t using the TARP money for that“.

Trash.

The bottom line is this: no matter what a company decides to use the TARP money for exactly, the end goal is to improve the bank’s overall financial health. By improving the banks financial health, the bank is, in theory, now able and expected to make loans to the public that are set up in a way to help the consumer’s financial health. Therefore, where they spend the money exactly is irrelevant, so long as the end goal is accomplished. I mean, it is pretty simple. The American tax payer is giving you dollars now, so that you can help put dollars back into their pocket down the line. But, these institutions have yet to learn from their mistakes and in the end what caused them to lose control in the first place will end up biting them once again when the government begins to issue sanctions or ultimately, take complete control: Greed.

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