Why I will no longer do business with Wachovia Bank

So yesterday I received a letter from Wachovia Bank. The envelope stated “It feels good to be PREFERRED…”, which warned me that this was another one of those pre-screened credit offers. When I opened it, the first thing I saw was:

$1,200.00 check from Wachovia bank - what's the catch?

$1,200.00 check from Wachovia bank - what's the catch?

Now, I wasn’t born yesterday. If banks handed out $1,200 to random people all the time, they’d soon go out of business. There must be a catch. So I looked at the accompanying letter, and saw this:

Header of the Wachovia letter

Header of the Wachovia letter

Sure enough, this wasn’t a gift, but a loan. And what were the finance terms? I turned the letter over and looked at the other side:

$600 interest on a $1,200 loan? Do they think I'm stupid?

$600 interest on a $1,200 loan? Do they think I'm stupid?

An APR of more than 50%? Almost $600 in interest… on a $1,200 loan? Do they think I’m stupid? Those are finance terms more commonly associated with loan sharks than with respectable financial institutions. I can only conclude that Wachovia Bank has decided they no longer want to be a respectable financial institution.

Furthermore, who do they think is going to fall for this? The answer, clearly, “people with more greed than sense.” And do they really believe such people are going to repay their loans? I mean, come on, this is the subprime mortgage fiasco all over again! It would seem that the Wachovia Bank lending people have not learned from history.

Finally, it’s my opinion that a bank that has so little respect for people as to offer loan-shark interest rates wouldn’t hesitate to take advantage of them in other ways as well. Therefore, I will avoid doing any business with Wachovia Bank, and would urge you to follow my example.

3 Comments

  • imafraidyoudontquiteunderstandhowitworks says:

    Banks do not loan out money that they *have*.

    When a bank makes a loan it conjures brand new money, directly out of thin air, in to your loan account. This is the magic of Fractional Reserve Banking.

    So, a bank is not actually risking any of its capital… it is only
    considering the Opportunity Costs between the different loan possibilities that the loan sharks can think up.

    The Mortgage or Loan Application becomes a BRAND NEW asset on the Bank’s Balance Sheet.

    It is good to be king.

  • Robin Munn says:

    That’s nonsense. If what you’re saying were true, I could take out a loan for $10,000, default on the loan immediately, and the bank wouldn’t be harmed by it at all.

    Furthermore, all this “brand new money” being conjured “directly out of thin air” every time someone takes out a loan would have the same economic effect as the government printing large sums of money: runaway inflation.

    How loans actually work is that the bank is loaning out the money that is being deposited with them by people with savings accounts. But there’s a limit: the bank can’t loan out more money than they actually have, minus a certain percentage that they keep in reserve (the “fractional reserve” of Fractional Reserve Banking). If the bank loans money to someone who defaults on their loan, they have actually lost money.

    What you may be talking about is the “money creation” effect of repeated loans (see http://en.wikipedia.org/wiki/Money_creation for a chart that explains it pretty well), but that doesn’t create any actual money, it just makes that money circulate more widely. And each bank is limited in what they can loan out to the amount they actually have. So it’s in the bank’s best interest to loan money to people who will actually repay it, and that’s why Wachovia’s offer is foolish: the only people foolish enough to take a loan at 50% interest are the kinds of people who will never repay their loan.

  • Bob Haas says:

    If you look at the check and especially the Truth in Lending statement you’ll see that Wachovia is not who made the offer, it was Regional Finance Corporation, who just happens to use Wachovia as their bank.