The value of the banker-customer relationship

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The value of the banker-customer relationship

INTRODUCTION

The relationship between a banker and a customer has its foundations in well- established UK case law, reinforced, since 1992, by a code of conduct. Until 1997, however, the code was silent on the matter of dealing with non-performing loans. In 1997 banks made a firm commitment to ‘consider cases of financial difficulty sympathetically and positively’. They also pledged themselves to ‘help you (sic) to overcome your difficulties’. The banks’ commitment covers the period before formal insolvency action and also echoes a much ignored plea from lenders for customers to give early warning of debt problems. Among the motivations for making this plea are that problems can be averted and a customer retained.
Coincidentally, early warning of problems allows lenders to act to their own best advantage by taking individual action for debt recovery before the competing claims of other lenders level the ‘playing field’ with the collective nature of the bankruptcy procedure.

The code is silent, however, on the banks’ treatment of customers following notice of formal insolvency. At these times there is growing evidence that banks act purely in their own short-term interests.

This paper focuses on the law and practice surrounding personal and unincorporated business debt, although parallels in the corporate world are evident. The paper looks closely at the banker—customer relationship at a crucial time of crisis (customer insolvency) and surveys the various circumstances that influence bankers, including the increasing demand for consumer credit and society’s changing attitude to bankruptcy.

The paper also looks at the statutory choices faced by insolvent debtors and their creditors and goes on to review the general economic factors that have coloured creditor behaviour during the last decade. It touches on the operational handling of insolvency situations, the creditors’ policies towards problem debt and the ethical considerations that guide them.
The paper concludes by arguing that in a highly competitive environment, where debt is a direct corollary of credit granting, banks can do much to regain the trust and security that lead to profitable lifetime relationships with customers.

Representative APR 391%

Let's say you want to borrow $100 for two week. Lender can charge you $15 for borrowing $100 for two weeks. You will need to return $115 to the lender at the end of 2 weeks. The cost of the $100 loan is a $15 finance charge and an annual percentage rate of 391 percent. If you decide to roll over the loan for another two weeks, lender can charge you another $15. If you roll-over the loan three times, the finance charge would climb to $60 to borrow the $100.

Implications of Non-payment: Some lenders in our network may automatically roll over your existing loan for another two weeks if you don't pay back the loan on time. Fees for renewing the loan range from lender to lender. Most of the time these fees equal the fees you paid to get the initial payday loan. We ask lenders in our network to follow legal and ethical collection practices set by industry associations and government agencies. Non-payment of a payday loan might negatively effect your credit history.

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