Chase to jettison small business lines in March

When a ship is sinking, its crew members are last to disembark regardless of who or what is to blame for the disaster.  In other words, passengers are at the top of the hierarchy during a maritime triage. If our financial system were a huge ship about to go under, this moral convention would be turned upside down: Ruthless banks would rush to secure lifeboats for themselves, knocking over consumers and small businesses and leaving behind everyone to fend for themselves.    

Among the many casualties on this boat would be small businesses, the most important sector of our gigantic economy.  (Over the last decade, small businesses have generated 60 to 80 percent of net new jobs in the country.)  Despite the catastrophic effects of the financial crisis and credit crunch on these businesses, the government has been slow to offer much substantive help.  On the contrary, the swift passage of the Credit CARD Act of 2009 gave consumers, not businesses, life jackets and a better chance to survive the cold, oceanic currents. 

For whatever reason, small businesses have been overlooked when it comes to receiving protection against the whims of banks looking to curb their losses.  Perhaps it is because small businesses don’t vote. Or maybe it is because they are a major risk.  As a result of this vulnerability, banks have been changing rapidly their credit terms for small businesses by reducing credit limits, eliminating access to lines of credit, and raising minimum payments twofold. (I wrote about American Express doing this about a year ago.) 

Most recently, Chase sent me a letter, outlining new adverse terms for its business lines of credit.  The changes will go into effect on Mar. 31.  My business line of credit originated with Washington Mutual, which was acquired by Chase during the height of the financial crisis. As a Texan might say: “This ain’t my first rodeo”. I had a premonition that any notification around this time was likely to be bad news.  I read the cryptic letter like an attorney from Harvard Law School.

Here are the morbid highlights:

• We will have the right to permanently block future advances on your line of credit for any reason and give you a “Final Availability Date” notice.
• If you receive a “Final Availability Date” notice, you will be required to pay all the amounts due over a sixty month period.
• We can decrease your credit limit at our discretion by notifying you with a letter. However, this will not reduce your credit limit below the outstanding balance on your account at the time this action is taken. 
• Until the Final Availability Date, you agree to pay each month the amount identified as the “Minimum Payment” on each Statement. Your Minimum Payment will be equal to… (I’ll paraphrase the explanation of the equation: Your new minimum payment will be much more than it is now or a boatload of money. Pun intended.)

So, as you can see, Chase has already claimed its lifeboats. I expect more banks to follow.  My precarious fate, along with thousands of other small business owners, is written.  But there is a bright side to this unfortunate circumstance: I must admit that it was especially courteous to send me a letter beforehand.  American Express didn’t even do that.  Now I can decide what will be my last meal and last words.

Comments

[Kevin D. Johnson]

Steven, you and I are sharing the same battle. After pushing to find out more detailed information about impending changes to my business line, I learned that Chase will raise my ratio to 1/100 plus interest. This, too, is unacceptable.

A good friend of mine stays on top of Chase. I suggest you view his web site and e-mail him. Dr. Robert Lahm, who runs www.ChangeInTerms.com, can give you great advice when it comes to Chase and business accounts. He even has form letters, corporate contacts, and lists of pending legal cases.

Let us know if this helps.

[Steven Wershaw]

Hi Kevin:

Chase has in fact taken action with respect to my final availability date letter. The bank has already charged me interest and 1/60th of the amount owed. I spoke with a Chase rep who allegedly made their best offer of modification, which was still not satisfactory. Also their modification agreement contained release of liability language that I find objectionable. Chase has put me in severe financial jeopardy.

I am strongly considering litigation, either by way of a complaint with a Gov. agency (predatory lending practices) or bringing a law suit in Civil Court for an injunction and damages.

I'd be interest to know your opinion re:litigation, and if any of your other readers have begun or are contemplating litigation against Chase. I'd also be interested to know if anyone in a similiar situation has consulted with a lawyer or if you know of a lawyer with experience litigating against Chase or any other Bank.

Thanks for your response.

[Kevin D. Johnson]

Hi, Steven. Sorry to hear that you, too, received the letter.

Definitely be proactive. After receiving my letter, I visited my local Chase banker who explained to me that the letter was simply notifying me of the change of my terms, not that my account would actually change. Even if that is true, once the changes go into effect, Chase can still impose adverse changes on my account under the new terms. It seems like an indirect way of notifying me of the impending doom. When my local banker called the corporate office to find out more information about the letter, a representative told her that they had no changes slated for my account at the moment. In fact, there was no record of the letter having been sent. I find that to be a convenient answer consistent with a sudden change about to come. In the meantime, do all you can to find out what the worse scenario is so you can better prepare. Pull out your old terms and read through those with a fine tooth comb. As I find out more information, I’ll let you now.

Also, one option is to request that Chase convert the business line to a traditional loan with more favorable terms than the new terms of the business line.

In a side note, President Obama is proposing several new pieces of legislation that will help small businesses more so in the long run than the short run. For example, one of his proposals includes raising the amount the SBA can guarantee on small business loans and lines from $2 million to $5 million. With this increase, perhaps banks will be more willing to extend more loans. Only time will tell. Perhaps this program would give Chase more of an incentive to maintain its current terms and to convert the unsecured business line to one secured by the SBA. This all depends on your credit of course. Here is the link to the president’s brief press release on his small business legislation.

http://tinyurl.com/y9ta3ky

[Steven Wershaw]

I am a victim of Chase's outrageous final availability date. I need a lifeline. Please send me any information you have.

[Kevin D. Johnson]

Great, Teresa. Send over the information when you receive it. I think it will be really helpful to everyone interested in knowing how the truth in lending laws have been violated.

[Teresa]

Hi Kevin: I will be sending you some documentation to post from Chase on the "business lines" and how they violate truth in lending laws. I complained to the FTC but of course nothing will come of it I am sure. Everyone should request copies of their originals agreements now because it takes them forever to respond. Usually takes several requests.
I can post some fax #s to send requests to. Everyone should have them handy for later when they start getting jerked around on their accounts.

[Tricia B.]

I am not surprised. Things are only going to get worse. Just don't use credit at all in my opinion!!