Consumer Pain & Bank of America Alert

For over a year I have, as most of us, been dealing with clients who are experiencing financial difficulty with trying to make their mortgage payments. Short sales and foreclosures are being experienced in every neighborhood, even those high end areas of our real estate market, such as La Jolla, Carmel Valley and Rancho Santa Fe. This blog today, is not about the mortgage crisis, but about the credit card delinquencies that are affecting those that already have the burden of losing their homes.

Recently this happened to one of my clients who had their adjustable rate loan adjust to an untenable amount and in order to try to keep afloat borrowed against their bank credit card. Warning..warning!! I know, and now they do too... however they told me later that they thought it would be a "short term" fix for their problems. As their credit card balance mounted and their mortgage fell further behind in payments, they found themselves unable to pay the credit card, resulting $39.00 late fees, over-the-limit-fees and 29%+ interest. The downward spiral had begun. Unfortunately here is where the consumer pain gets worse. The credit card was with Bank of America, as was their checking account and their minor children's accounts. One day they went to get funds out of their bank to pay for living expenses, they found all their accounts had been emptied, even their children's! Frantic they contacted the bank and they were told that their accounts had been subject to the "right of setoff". For those of you who do not know what this is; it is simply that the Bank has the right to empty your accounts, at any time, without any notice or your approval, to pay their credit card debt.

Below is Bank of America's small print from their lengthy Deposit Agreement and Disclosures:

Right of Setoff

We may recover amounts you owe us from any account you maintain with us or with our affiliates without notice to you at any time, without regard to the origin of deposits to the account or beneficial ownership of the funds. This provision does not apply to any consumer credit covered by the federal Truth in Lending law.

If you are a sole proprietor, we may charge any of your personal or business accounts. We may use funds held in your joint accounts to repay the debts on which any one of you is liable, whether jointly with another or individually.

We may use funds held in your individual accounts to repay your debts, whether owed by you individually or jointly with another. Your debts include: those owed by you arising out of another joint account of which you are a joint owner, even if they are not directly incurred by you; those on which you are secondarily liable; or any amounts for which we become liable to any governmental agency or department or any company as a result of recurring payments credited to any of your accounts after the death, legal incapacity or other termination of entitlement of the intended recipient of such funds.

If we use funds from a time deposit account, the funds withdrawn are subject to the early withdrawal penalty.

We are not liable to you for dishonoring items where withdrawals described in this section result in insufficient funds in your account.

The last paragraph of the Bank of America's policy further intensified my client's shock, at having all their funds removed, because they then learned that their bills that had been set on automatic bill pay were subject to insufficient funds charges of $35 each.

While it is easy to sit back and to second guess what the clients could have done better, I believe in the adage, "they did the best with what they knew or could do at the time". These are our neighbors, friends and often times, families and it can happen to anyone. Perhaps many of you are more credit savvy than most, but these are trying times, our clients are not always making clear decisions about their finances and perhaps need to be aware that if they have a credit card with the same bank where their checking/savings account is, they can be subject to this action if they become delinquent on their bill. The banks are becoming more aggressive in making up for their mistakes in lending and with the collapse of Indy Bank, there may be more problems ahead for the banking industry.

July 21, 2008 - Bank of America profit tumbles 41% CNN Money

June 27, 2008 - Bank of America Corp., the second-largest American bank, will cut about 7,500 jobs after buying Countrywide Financial Corp. New York Sun

April 21, 2008 In another sign of the pain gripping the financial industry, Bank of America said on Monday that its quarterly profit declined 77 percent and that it was bracing for heavy losses on consumer loans. International Herald Tribune

March 24, 2008 - Bank of America, the largest U.S. retail bank, may set aside a record $6.5 billion in the first quarter to cover possible future loan losses, including in its mortgage and home equity portfolios, according to a banking analyst. CNBC

For more blogs on Bank of America check out Kirk Mulhearn's Blog post Watch out!!! Is Bank of America Credit Card Debt the next big American Financial Meltdown after the subprime debacle???

Or Lewis Poretz's blog Credit Card ripoffs!! Bank of America does not care!