Most of you are familiar with George Bailey, the neighborly president of Bailey Savings & Loan played by James Stewart in the classic Christmas movie It’s a Wonderful Life.
George Bailey was generous, helpful, and genuinely concerned for the welfare of his customers – his neighbors – and he helped make Bedford Falls the kind of town where you’d want to raise your family.
Surely you also remember the movie’s villain, Mr. Potter (played by Lionel Barrymore), a miserly old grouch who owned most of the rest of Bedford Falls and used the advantages of his wealth to, well, take advantage of people.
Thanks to the unavoidable economic fallout of the COVID-19 pandemic, our economy is facing a tsunami wave of bad debt. So we are getting ready to find out just what kind of lenders we have in the USA these days.
And right now, the financial services industry is looking a lot like Mr. Potter.
WE ARE ALL ON THE SAME SINKING SHIP
The world economy has crashed the past few months as we’ve gone into shutdown mode. Millions of people have lost their jobs because of government-ordered restrictions.
To soften the blow, the government passed the CARES Act that, among other things, provides you the option of forbearance (deferral) on your mortgage payments for three months.
This could be a financial life-preserver for laid-off Americans who are struggling right now. That is, unless lenders try to play games with the fine print.
Many unemployed homeowners were relieved to learn they could defer their mortgage payments for up to 90 days.
But then they discovered some predatory lenders are expecting them to repay the full amount deferred on the 120th day.
Thanks a lot, Mr. Potter! You let me suspend my mortgage payments for 90 days, but then you demand I catch it all up and make 4 payments at once on day 120 . . . after being out of work that whole time! And then you’ll take away my home when I can’t pay.
That financial life preserver just became a bowling ball.
Other lenders have plans that include tacking extra penalties onto a mortgage and adding deferred payments to the back end of the loan. That’s better than a balloon payment, but borrowers are still being unfairly penalized, and lenders are still profiting from their customers’ misery.
And what about small business loans and revolving credit accounts? If your small business has ground to a halt during this crisis, you’ll never get back on your feet if your creditors back you into a corner and demand payments you cannot possibly make.
This is no time for banks and lenders to play hardball with people’s financial futures.
UNUSUAL PROBLEMS CALL FOR NOVEL SOLUTIONS
What we need – right now – is a financial time-out. Every debtor should have the legal option to suspend debt payments for 60 days, with no penalty.
And what about borrowers who don’t really need a time-out? Give them a 5% discount for paying on time. That should be enough incentive to motivate those who can afford it to stay current.
Normally I love to sing the praises of free markets and robust capitalism. I maintain a healthy distrust of government mandates.
But this is an unprecedented global financial crisis. We are all being forced into positions no one could have foreseen. Right now we need a big dose of what President George W. Bush called “compassionate conservatism.”
It is time for creditors to share the pain with the rest of us, and stop trying to take advantage of our collective misfortune.
It’s time for lenders to start acting like George Bailey and do what is best for our communities.
We need a 60-day time-out on the economy. Every debtor has an option to suspend debt payments for 60 days. Period.
No fine print, no balloon payments, no compounded interest, no penalties, no BS.
The two missed monthly payments should just be tacked onto the back end of loans, without any kind of penalty or extra interest.
Anybody who needs it is allowed to take a mulligan.
That gets us through the worst part of this rough patch. That gives people time to get back on their feet. Then we can all start over with a clean slate.
WE’VE COME TO A FORK IN THE ROAD
I believe our economy, which has been artificially crushed by this pandemic, can bounce back as strong as ever, as long as consumers aren’t driven into bankruptcy by people like Mr. Potter.
When the dust settles from this catastrophe, where do we want to be? If everyone is broke and starting from scratch, it will take years for the economy to recover, and we will all suffer for it.
But if consumers have maintained their holdings, families have kept their homes, and small businesses are still solvent and ready to re-hire; then all of us will benefit – including the banks and mortgage companies.
Please don’t misunderstand me. I don’t hate lenders. I don’t want lenders to suffer.
But they need to share our pain. They need to suck it up and take their hit with all the rest of us.
To borrow some lingo from the investor class, “We’re all going to get a haircut.”
This can be simple and fair. The only reason to make it complicated is because you want to use the fine print to swindle somebody.
Don’t. Do. That.
This is no time to take advantage of people. We are all in this together.
Financial institutions must surely realize that in this age of social media, predatory lenders will be outed and forced to bear the wrath of angry consumers and government regulators.
We spent billions of tax dollars bailing out the financial services industry a decade ago. Now it’s time for them to step up and help bail out the country.
Give it up, Mr. Potter! It’s time to do the right thing.
It’s time for a national 60-day moratorium on debt.