Mortgage Meltdown: How the Big Boys Control the Rules

Unfair Competition by Large Banks Created the Infrastructure for this Mess

A few people have asked: Why not do a story on the alternative to the cash-dispensing ATM? After considering the research, and seeing a connection with the mortgage meltdown crisis because this situation is the single greatest marketing tool used by  large financial institutions to decentralize banking deposits (sucking local deposits out of the places they were earned and placed for safe keeping and putting them all over the country, if not the world) and to attract banking customers away from their small local bank or credit union who can and does service their needs far better and far more safely than any large company could with its headquarters and decision makers located thousands of miles away.

If you look at this week’s Economist, you will find on Page 86 that countries in Africa (“third world?”) have discovered a far more elegant and inexpensive solution: The customer activated Point of Banking ATM. In fact, if you look hard enough you will find that more than 25,000 ATM’s are already running in this country. If we used that system as extensively here, crime would be reduced to zero at the site of an ATM, ATM fees paid by consumers would be slashed by at least 2/3, more locations and more convenient locations would provide ATM access, and local bankers and credit unions would start getting their share of the business stolen from them by the oppressive tactics used by large financial institutions to undermine the ability of the small financial institution to compete on a fair and level playing field. 

The Point of Banking ATM is what it sounds like. You perform any of the transactions that are currently available on those monstrosities you see attached to banks, in malls, or in large merchant locations. However instead of an “automated” (which frequently does not work) cash drawer and “vault” (which is fairly easy to penetrate), the customer must go to the cashier to receive their cash. Anonymity and embarrassment of NSF works the same way as all ATMs. But in 21 years of use all over the world there has not been a single criminal act against the user of such a machine, the merchant who maintains the store in his location, or the machine itself. Te concept was started by two ex-American Express managers who had been downsized out of their jobs in the 1980’s.

The standard ATM in this country quite successfully invites all sort of criminal behavior ranging from banging a customer on the head for the cash to using construction equipment to break the machine out of the wall. Only in the United States is the far smaller, far less expensive (in cost and operating expenses) Point of Banking terminal in “disfavor”. 

The reason is the usual — those who disfavor it, do so because it would increase competition, lower consumer fees for access to their money, require virtually no maintenance, require no increase in insurance, and require no extra cash on premises because the Point of Banking terminals produce an astonishing rate of 72% sales. In other words, for every $1 taken out of their account, they spend 72 cents of it on average. Thus the unfair hold that these large institutions and large merchants have over others offering or who would offer the same services, is stifled.

Thus competition generated by ATM convenience would be leveled out between small merchants and large ones if merchants could spend a few hundred dollars (there are even Independent Sales Organizations that will install them for free), and receive interchange revenue from the banking system as well as providing their customers with greater flexibility in their payment options and the convenience of going home both with the groceries (or whatever) PLUS the cash. and most of all, enable small banks to effectively compete against large banks.  

Like all ATM’s the Point of Banking terminal gives a receipt. With the cashless ATM the customer presents the receipt to the store operator or cashier and the customer receives his cash, less any purchases he made (if any). The merchants gets the withdrawal electronically deposited to his designated depository account at his choice of financial institution, just like the use of credit and debit transactions — but in this case the merchant makes money rather than loses it to fee charged to him by MasterCard, Visa, STAR etc.

The odd thing about all this is that the machine used to drive Cashless ATM machines is that not only is it readily available, it already exists (by the millions) in almost every merchant location, large and small. It is the exact same terminal you see in every merchant location that accepts credit and debit for payments. It is programmed over the phone to do ATM transactions instead of or in addition to the “Point of Sale” debit and credit. The card is swiped, the PIN inserted and the choices appear on screen as to what you want to do.

So why wouldn’t small merchants, community banks and credit unions demand access to Point of Banking? The reason it turns out is that the banking associations (or the “networks” as they are commonly called), have passed regulations either banning Point of Banking terminals or severely restricting their usefulness or their ability to generate revenue to anyone who installs one. It seems that to small fearful community bankers and credit unions and small merchants these behemoth data processing centers known as MasterCard and Visa, have taken on the aura of a quasi-governmental entity. 

Thus when the networks say the rules are changed, nobody challenges the rules because “you can’t fight city hall.” The networks have deftly positioned themselves as “city Hall” when in fact they are simply private data processing centers controlled by the largest banks in the country — and clearly doing so against the fair trade and practices statutes of every state, against the rules of the Federal Reserve and against the federal and state antitrust laws. The networks have gone even further by publishing information that associates the Point of Banking ATM with strip clubs, gambling prostitution and other vices, whereas the cash dispensing ATM the largest banks use, are genuine banking machines. it is the same tactic being employed in reverse by the ‘Community Association for responsible Lending” which is trying desperately to legitimize the practice of payday predatory lending charging interest upwards of 500% per year. 

The reason is simple. In economic terms it is called “barriers to entry.” There are 6,000 financial institutions in the Untied States alone. About 1% of these banks control the rules, and have in the recent mortgage meltdown, reduced the Federal Reserve to a whimpering ineffective vehicle for monetary policy. The 1% cannel all the fees, perks from deposits and the customers by offering conveniences that the small bank presumably cannot. 

The small bank or credit union cannot create a network of ATM locations that has convenient locations all over the its own marketing area, let alone the region, the country or foreign countries. But they could do so if they only had to pay a few hundred dollars per location and receive a revenue return on that investment. And the merchants whose daily foot traffic can’t justify the large ATM (with all its insurance, cash loading, armored car, security, maintenance and repair problems, not to mention its sheer size) could benefit along with the small friendly community banker or credit union that “installed” his ATM allowing him to put a sign in his window like “ATM 99 cents”, which is about one-third (1/3) the price charged by Bank of America and other banks at their ATM’s. 

3 Responses

  1. Adjustable rate type schemes should never have been allowed, much less encouraged. But they did and to some degree are still encouraged.

    The old rule (Currently the best still) of not being more then 25% of ones take-home pay after taxes is still embraced by many and should be the rule of thumb instead of a credit rating?

    Use and indebtedness rating and let that be the rule of thumb not the current one that allows too many loop holes to exist for Individuals and Corporations to skirt.

    If they really want to prevent this type of thing from happening again and again? Go to the indebtedness rating and make that the national / International standard.

    As far as the POB-ATM I think the idea is sound as long as the costs are simple and small, and the turn-around time to deposit is 24-72 hours from time of transaction “regardless” the day of transaction. It is after all called CASH Flow for a reason; regardless the method of exchange the ability to “FLOW” in and between exchanges as to “BECOME” as easy as Cash from one hand to another.

    With todays technology in place as it is it is up to the processors to make this happen in a as seamless manner as is possible.

    After much research on this and similar manners I am convinced this what must happen in this industry between banking, merchants and consumers, to come fully into its own..

    This may require the smart card approach to make it work all the way and maybe even with the meteoric rise of cell phones in the US and around the world? Have all new phones equipped to be used as a smart card POS/POB/payment ready. Simply load the bankcard/EBT/ card info at issuance and then have it ready to use, wherever you happen to be.

    It may be more appropriate to have pre-entered accounts like emails in the phone to do such transactions on a one time, one way gate, to maintain security per use/payment..

  2. My recast deals with adjustable rate sub-prime mortgages. Millions of consumers have to deal with skyrocketing interest rates resulting in outrageous monthly payments. Lenders qualified you for your original interest rate promising to refinance you at a lower interest rate in a few years. Two year go by and not only can you not refinance but you’re payment has gone up more than what you were told. Yes, your lender informed you that you are on an adjustable rate mortgage and that it could go up. But failed to inform you that you did not qualify according to there own guidelines for the new rate. It is our opinion that this is deceptive practices and predatory lending and we have had excellent success in proving this. If you would not have been approved at the higher interest rate why is it possible that you now have to pay this outrageous rate and payment?We don’t believe you should! And we will help you not only recast you back to your original interest rate but remove the late payments and penalties that have incurred. If you feel you are a victim of this national crisis, complete the online form and let us deal with your lender for you. Click on the link, complete the form and our auditors will request your file and attorneys will deal with your lender. There is no cost to create an account and talk with our counselors. Thank you and we hope you join the success of many other clients.

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