Tuesday, February 23, 2010

Banks Continue to Fire Good Customers

The marketing mentality of most banks right now is amazing. Getting rid of good customers still seems to be a much higher priority than getting new customers. In a Chief Executive Boards International meeting this past week, I learned of yet another member who's been asked by his bank to take his business elsewhere. In this case, it's a bank presently notorious for firing small business customers -- they're apparently exiting that market. He's wisely approaching five banks in parallel, to minimize time duration in getting this hassle over with. Related Article....

In the past year, I was fired as a customer by one bank and one credit card company. The first is a bizarre tale of the current disarray within Bank of America. I refinanced a home mortgage in February 2009 (I couldn't turn down 30-year money at rates below 5%). I've had an occasionally-used 6-figure Home Equity Line of Credit since the 80's, when I first learned about them. B of A had the HELOC on my current home. In fact, they've had it since the home was built in 1996, when they had both the original lot loan (100%) and the first mortgage.

After this refinance, I called and said I needed to get the line re-subordinated to the new mortgage. That's all it took to get that done 7 years ago after the last refinance. Well, the voice on the phone said, "We can't do that any more, we'll need to re-apply". Same home, same customer, 13 year-old LOC and we need to re-apply? Just like some unknown guy off the street? Yep, that's the deal, they said.

Not needing the line immediately, I decided to just let this play out and see what it took to get this done. It took 6 months (to not get it done). About every 3 or 4 weeks, having heard nothing from B of A, I would call up, talk to a different person in the call center, and get a different story about the next piece of documentation they needed. Of course, they never called me or told me they needed anything additional.

Finally, they said there was a "loan-to-value" problem. Considering that the first mortgage PLUS the line fully drawn down would still have been below 70% of the recent appraisal by the real on-site appraiser for the refinance, I was puzzled. "We did a desktop appraisal", she said, and then gave me the results of that -- 30% lower than the appraisal done by the on-site appraiser, considering 8 comparables. This quickie appraisal was roughly the construction cost of the home in 1996, excluding the lot! And, it turned, out, not subject to review, revision or negotiation.

We went around on that for a few weeks, and they finally declined the loan, citing LTV as the problem. So much for a 14-year "relationship".

Relating this story to my financial advisor, he recommended Schwab Bank, who took the application over the phone, asked for all the documents they needed in 1 pass, did a drive-by appraisal (10% under the on-site appraisal, but close), approved the loan and sent a lawyer to my office to close it. No cost, no fees, no muss, no fuss.

So, I decided to fire B of A as my business bank, and it's been more 6 months -- they don't seem to notice my checking account has become dormant, although when I terminated my merchant services (credit card clearing) agreement I would have thought they'd pick up on it. They clearly don't want or need small business customers.

Last month, I got fired by First Equity Card as a credit card customer. We maintain Visa Cards for use by myself and other CEBI employees. We don't use them much, preferring American Express, which most of our vendors take. Well, imagine my surprise opening the mail to discover our First Equity cards had been cancelled, for "lack of use", the letter said. I checked back and, sure enough, we hadn't used those cards in 90 days. Oh well. I emailed my new banker for a Visa application, and coincidentally received a promo letter and application from Capital One. Don't know what got into those First Equity guys, but they apparently don't need any more customers -- or the ones they have now, either.

So, where do you find banks interested in new customers? Community banks. A local community bank, Greenville First, is out there scooping up small business customers right and left. They realize something most banks don't -- that befriending customers when credit availability is tough will build business long term. And, of course, if you're looking for debt capital, cast a wide net. Approach a dozen banks in parallel, rather than working through them sequentially. It'll save you a lot of time.

Finally, it's become clear to many business owners that they need multiple banking relationships, and more than one account for their working cash. You never know when your banker is going to wake up one morning and decide he doesn't want your business any more. Be wary, and have a fallback plan already in place.

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Terry Weaver

Chief Executive Boards International

Chief Executive Boards International: Freedom for business owners & CEOs -- Less Work, More Money, More Freedom to enjoy it

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