Loan sharks

Remember when we floated banks all that money so they could lend to small businesses, and instead they used it to pay bonuses and shore up their profits? Ah, good times! Now Bank of America has decided to jack up small business owners by boosting their interest rates to payday-loan-type levels in order to build their “core” business:

Bank of America Corp., under pressure to raise capital and cut risks, is severing lines of credit to some small-business owners who have used them to stay afloat.

The Charlotte, N.C., bank is demanding that these customers pay off their credit line balances all at once instead of making monthly payments. If they can’t pay in full, they are being offered new repayment plans for as long as five years, but with far higher interest rates than their original credit lines had.

Business owners complain that BofA’s credit squeeze is abrupt and could strain their small companies and even put them out of business. The credit cutoff is coming at a time when the California economy can’t seem to catch a break, and bucks what the financial industry says is a new trend of easing standards on business loans.

One such customer, Babak Zahabizadeh, was told in a letter that the $96,000 debt carried by his Burbank messenger service must be repaid Jan. 25. A loan officer offered multiple alternatives over the phone that Zahabizadeh called unaffordable, including paying off the debt at 12% interest over two years. That’s about $4,500 a month, nearly 10 times his current interest-only payment.

Zahabizadeh, known as Bobby Zahabi to his customers, said he has cut the staff of his Messengers & Distribution Inc. to 80 from 200 to nurse his business through tough times.

“I was like, ‘Dude, you’re calling a guy who’s barely surviving!’ ” he said. “My final word was that I can double my payment — but not triple or quadruple it. I told them if they apply too much pressure they’re going to push me into bankruptcy.”

The capped credit lines stem from a corporate overhaul launched by Brian Moynihan, who became Bank of America’s chief executive in 2010. He promised to address losses caused by loose lending and rapid expansion by reining in risks and shedding investments deemed non-core.

BofA spokesman Jefferson George said a “very small percentage” of small-business customers have been affected by the changes. He would not provide exact numbers except to say it wasn’t in the hundreds of thousands. Some of the affected businesses had been customers of other banks that Bank of America acquired, but most were BofA customers from the start, George said.

“These changes were explained in letters to customers, and they were necessary for Bank of America to continue prudent lending to viable businesses across the U.S.,” he said.

3 thoughts on “Loan sharks

  1. Related, Numerian wrote an excellent article about the abuses committed by the big banks and why those practices are likely to worsen and lengthen the depression. It’s posted at
    The Agonist
    and at The Economic Populist

    As organizations, the largest banks are addicted to an extremely high short-term profit margin, and they will jeopardize the world economy and even the future of their own organizations to achieve that. We ought to nationalize them and run them as public utilities.

  2. Evil is what organizations that need liars, so attract, reward and empower the best liars. Those that Rudolf Hoess needed to get their onw people naked and into the gas chambers. Hoess tell us this about them “it was interesting to hear the lies that the special detachment told them with such conviction, and to see the emphatic gestures with which they underlined them”. They are not evil. They have some evolutionary function. When being self serving manipulating is good for the species. While as Hoess observed most cannot kill face to face on a sustained basis, that is why gas was used. A few can. Most of us are nice, a few a nasty. Most of us are nice so we collaborate in ad-hoc units when “Confronting the Tiger”. A few of us are nasty, for when being nice is not good the species, like a famine. Those that are nasty can not collaborate on a sustained basis. That is their weakness, knowing it should used as a strength when “Confronting our intra-species predators”.

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