Bank of America Takes Another PR Hit

by Mercator Advisory Group 0

Bank of America has become, in some respects, a poster child for bank-bashing, and it happened again this week, beginning with a report in the Los Angeles Times that opened:

“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.”

As evidences of the bank’s supposedly egregious behavior, the article cites two cases of smaller borrowers who reportedly have paid interest-only on their nearly $100,000 loans for years. These two claim to have been taken by surprise by the need to begin repayments, while the bank claims to have provided more than a year’s notice to the “very small percentage” (per BofA spokesman Jefferson George) of small business customers were to be affected by changes in lending policy.

Most experienced commercial lenders recognize that small business loans can be relatively high risk; small businesses have a well-documented higher failure rate than longer-established firms. One of the factors contributing to these risks is often the financial naiveté of the small business principals whose expertise is, after all, in their chosen line of business, not in finance.

The Los Angeles Times goes on to report:

“The changes also include added annual reviews of borrowers and annual fees, and often reductions in the maximum amount of credit. [BofA spokesman Jefferson] George said the aim was to reduce Bank of America’s risks and to bring the loan terms in line with more stringent standards imposed after the 2007 mortgage meltdown and 2008 credit crisis.”

If the bank had not been performing annual credit reviews, much less quarterly or semi-annual ones, it shares some of the blame for having encouraged and allowed bad habits among small business borrowers. However, no borrower is entitled to keep the bank’s money indefinitely; the very idea of “borrowing” includes the expectation of “repaying.”

The Huffington Post adds some balance with its quote of the same Jefferson George, reporting that he is “adamant” about the bank’s continuing commitment to the small business sector, even if not to every single small business:

“We’re working with each and every small-business customer we have on their current needs — new, existing and down the road — and I’m not going to minimize anyone’s situation,” he said. “We’re going to try to find the best situation for them that would prevent a bad loan, because a bad loan would hurt the small business much more than the bank. We’re going to continue trying to make every good loan we can to businesses that show an ability to repay the loan.”

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