Now Leaving, Debtors Prison
Prior to its abolishment on the Federal level in the early 19th century, citizens could be placed in prison for failure to repay their debts. Debtors prisons were cold and unwelcoming buildings with no heat, cramped living quarters, and overcrowding. This made for unbearable and nausiating living conditions for citizens that owed as little as fifty cents, sharing their misery with criminals and mentally ill patients.
Today, citizens can still be jailed in the traditional sense for debts owed, but are traditionally limited to those that do not pay alimony and child support, and those who have committed fraud.
But the rest of us who have trouble repaying our consumer and business debts face a different type of debtors prison. One that allows us to freely walk the streets and shop the wealth of consumer goods found in the United States, but only if we bear enough cash to make the purchases. Credit reports and representative FICO score tells potential creditors in three numbers if they should lease an individual a place to live, provide an individual with monthly working capital, and offer an individual larger debts for capital expenditures. With strong credit all of these options are feasible but become limited as an individual’s credit rating declines. I have spent the past three years in nouveau debtors prison watching as my friends elevated themselves into new cars, new homes, and new lives while I put all of my efforts into erasing $13,645.22 in consumer debt. But today marks the end of my tenure here, after my final payment of $1,198.98.
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American Express - $0
Best Buy - $0
Circuit City - $0
Chase - $0
Target - $0
Total - $0
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This experience has taught me that taking responsibility for my mistakes, continuous hard work, and patience can lead to unexpected dividends. First and foremost, I have become accustomed to living effectively within an urban environment on a strict budget. My automobile and the associated insurance, maintenance, and gasoline expense has made way for walking, biking, and taking public transportation. And within walking distance, I have access to restauraunts, retail shopping, doctors, grocers, and many other services that I have needed or may need in the future. This experience has also driven me how to set goals, maintain focus on those goals, and attain them sooner than expected. Three years ago my goals were to repay old debt and build a small amount of savings. Today my goals are to buy a house, save for retirement, and build bootstrap | economist into a viable business. And finally, it has taught me how to be a better banker. My experience has provided me with first-hand insight into the warning signs of an over-leveredged customer, and the understanding to work with at-risk customers to provide them an opportunity to repay their debts.
As I journey through the entrance gate of debtors prison, the self-gratification of fully repaying my debt in an expeditious manner is a gift that I will own for my entire life.
Posted on June 6th, 2008 | By: bootstrap economist | Filed under Personal Finance
Mergers and Acquisitions
My first opportunity to learn the banking industry came while I was searching for my third, six-month cooperative education experience while attending Drexel University’s LeBow College of Business. My first two cooperative education experiences had placed me with large corporate companies and I was seeking a localized experience. I chose to work at Roxborough Manayunk Bank (RMB) because the position allowed me to gain exposure to the loan underwriting process and work directly with the Bank’s Chief Credit Officer. At RMB I learned how to calculate industry standard ratios and underwrite basic commercial loans, but RMB’s sale to Citizens Bank within my first week of working is what solidified the experience for me.
The merger provided me an opportunity to learn first hand how employees of a small community Bank act as their employer is merged with an international banking conglomerate. I watched as employees slowly left the company, seeking oportunities with other community banks. I observed managers tried their best to keep loyal employees motivated while workload dwindled and decisions were being made elsewhere. And I remember the sinking feeling I had when I left the basement office of RMB’s main branch for the last time.
But the acquisition and merging process is not entirely cold. My colleagues from the credit side of RMB that stayed throughout the acquisition, were all offered positions with Citizens Bank. I personally served out the remaining month and a half of my cooperative education experience at one of the Bank’s regional offices in Center City Philadelphia, where I learned the difference between offering customers small mortgages and credit lines and offering customers industry-specific loan products and interest rate risk management products. And as my cooperative education experience neared its end, I moved into a teller position so that I could continue my banking industry education.
Posted on June 4th, 2008 | By: bootstrap economist | Filed under Banking
Personal Branding
In banking, it is often touted as part of the four (4) C’s of credit that repayment of our loans comes from the character of the individual(s) who operate the businesses that we lend to. This requires banks to perform their necessary due dilligence including but not limited to how the company has historically handled their accounts payable, handled their prior debt obligations, and how the principals have historically handled their personal expenses. These factors plus market trends in the industries that the business serves and the overall economy are combined to form a risk profile for our potential customer. This provides a snapshot for the Bank to weight two decisions, whether or not to lend to the potential customer and the appropriate fees and interest rate to charge the customer to compensate for the risk.
When I was using my credit cards to finance fancy dinners, flashy cars, and expensive gifts during college, I knowingly jeopardized my personal brand. Mesmerized by America’s buy now and pay later philosophy, my credit card companies considered me a high-risk customer as evidenced by late payments and interest rates that rivaled batting averages. Coupled with my lack of a savings account, my personal brand became a rubber stamp with the word “DECLINE” in bold block letters. Although my friends had the foresight to maintain their financial solvency in college, there were many of my colleagues that graduated with similar debt levels as myself. But the difference lies in how we handled the challenge. Unfortunately, success stories such as my own are often overshadowed by those who refuse to take responsibility for their spending habits. About a month ago, I ran into a former colleague of mine from college who discussed his personal situation with me. Hampered by high-balance credit cards and student loans from college with a humble annual salary, he decided to neglect the credit cards altogether and maintain his consumerist lifestyle. Having a blatent lack of ownership for wastrel spending will ultimately hurt his personal brand when it is time to purchase a house, apply for new credit, and find future employment.
But the beauty of America is that it favors those who work hard and I have a hard-earned opportunity to try again.
Posted on June 2nd, 2008 | By: bootstrap economist | Filed under Banking, Personal Finance