A Case for Spreading Your Biz Around
Posted by Gail | Filed under In the News
The winner of last week’s prize of The Money Tree Myth is Doreen. Drop me an email at getgvo@gmail.com with your address and I’ll post your book off to you. This week’s prize for sending in your “I Need Ideas” post is a Moonjar gift. It will be awarded by random draw from the entries received between Monday and Friday this week for the Success Posts.
They often say that when things start to go wrong that’s when you can tell a gentleman from a bully. It’s easy to be all sweetness and light when everything is going well. The real test of your gentility comes when the crap is hitting the fan and everyone is ducking for cover. Or worse, coming out shooting.
It’s a little known fact that most banks have a clause in their client agreements that gives them the right to dip into your account to recover money you may owe them. I’ve often talked about how the Tax Man can do this, but he’s not the only wolf at your door. Your bank can decide it wants its money back and dip into any account you may hold there to get it. Boinng… that’s your mortgage payment bouncing!
Most people don’t realize that revolving credit – like credit cards or lines of credit – is callable credit; the bank can “call” or ask for it back at any time and you’ll HAVE to give it to them. Well, if they ask nicely, right? Not necessarily. If you have accounts with positive balances at the same place you are carrying your debt, they can just take it!
After a knuckle-headed move earlier this year where TD Bank announced it would charge a $35 fee to people who were not actively using their lines of credit – really, you want me to pay for NOT using it too? – it appears they don’t think their reputation as the “comfortable” bank has suffered enough. Sure they backed away from the inactive fee fiasco. Now they want you to know that they plan to restore some terms and conditions to their account agreements. By this they mean, “we did it before and we can do it again.” Do what?
“We can apply a positive (credit) balance in any of your accounts with us….against any debt or liability you owe to any of us…We can set off any positive balance against any such debt or liability in any manner and at any time we consider necessary (unless we have specifically agreed not to do so) and we are not required to first give you any notice ”
So sayeth the TD Bank, reports the Globe and Mail.
The desperate measure of a desperate institution comes after people who have been highly leveraged in their investment arm are falling short on covering their losses. (Yah, so much for leveraged investing people!) We’re about to see a lot of the same on lines of credit and credit cards as the economy takes its toll on people’s cash flow and they begin to prioritize eating over debt repayment.
I’m already hearing reports of lenders arbitrarily raising interest rates on credit lines. People are coming home to statements notifying them that their rates have just gone up 4%, 7% as much as 11%. If you weren’t convinced that Debt Free is the way to be before, then this most recent heavy-handedness of some lenders should be your wake-up call.
Hey, they are well within their rights, legally. It’s their money you’re using, and if they want it back, they can take it.
I’ve long held my chequing and savings accounts in different places than I hold my credit even though I don’t carry a balance. I remember reading about a lender’s right to “take” their money from an account back when I was working for those good fellas and thought it wise to keep my apples and oranges in separate places. You might want to give some consideration to splitting up your business so that you’re not open to cross-dipping.
July 27, 2009 at 7:56 am
This is a standard lending term/condition…and it is referring to arrears payments…not just cause they feel like taking your savings…no matter where you owe money, they will try and get their payment if it is past due…whether it is debt you owe on or your regular bills..if your car insurance bounces and you have it set for auto withdraw the insurance company will resend the debit every few days looking for it’s payment…everybody providing you a service…banks, lenders, insurance companies, hydro, telephone…etc etc wants to be paid, the full payment you owe that month and on time!…nothing offensive about that…you want your employer to pay you the full amount of your paycheck on the date it’s supposed to be paid…no difference…
July 27, 2009 at 9:01 am
I read that paragraph from TD. Even as an educated person it’s difficult to understand. What happened to plain English they were suppose to use to explain things to customers? I too have my investments and savings and credit card separate (other banks), then my chequing. In fact I don’t even back with the company that holds my CC. I think the article last week with the guy winning 4 mil should give people a heads up on the credit/police check they do when you win big sums. Lotto or casino. Outstanding warrants, this case, child support, and taxes are all looked at before you receive large sum awards.
July 27, 2009 at 9:05 am
This has been a very interesting development with the bank I currently have my paycheck depositied with. I read somethign in some terms and conditions of products they were trying to seel me. This would be the reason behind suddenly pre-approving me for countless credit cards with the bank – so they can hold my debt and dip when they decide too!
It’s a good thing I’ve got strong will to be out of debt, and continue to turn them down. The funniest part is that all he tellers and some of the financial people can’t figure out why I don’t want their credit card at a great rate of 15%? Why when my current one holds an 8% interest limit??? The best part is they still can’t figure it out, and look stunned when I say no thank you.
All the more reason to start looking for better service and better plans I guess.
July 27, 2009 at 9:06 am
I currently hold accounts at two different banks (one for ability to deposit my husbands paycheque without any funds being held for 5 business days and the other at our mortgage bank) and have found that having the 2nd account very beneficial even thou I’ve been tempted to close the non-mortgage bank account to save on the monthly fee. As well , keeping good relations with two banks has improved my negotiating power in several instances.
July 27, 2009 at 9:29 am
Great post Gail – this is something I wasn’t aware of, though – it makes sense. It is their money! If that’s not a case to spread your business around (and GET OUT OF DEBT) and don’t know what is?!
Thanks again for keeping us in the loop of these crafty banks!
July 27, 2009 at 9:34 am
My credit card is held by an independent credit card issurer (meaning they have no affliation with the major banks and credit cards is their only business). My bank accounts are with one of the major banks. It just so happened to work that way. I liked the terms and conditions of my credit card company better than my bank’s. After hearing this, I’m glad I did. When I get a mortgage, it’s going to be somewhere else too!
July 27, 2009 at 9:46 am
Oh dear, oh dear!!!! I just finished moving all our accounts, mortgage, credit cards, etc to one bank – yup – it’s TD! Just wanted the ease of having all the finances in one place so I don’t have to run to three different banks which are located in 3 different directions in the city, for 3 different things!! Time to undo what I have just done. Thanks for the timely post Gail!
July 27, 2009 at 10:06 am
Wow, this is good to know!
July 27, 2009 at 10:24 am
For completely unrelated reasons we have our mortgage, credit cards, and bank accounts with three different institutions. Now it sounds like it might be a good idea. Even though we don’t carry a balance either, it certainly can’t hurt.
July 27, 2009 at 10:32 am
i was aware that CIBC did this, now TD has decided to as well. I am very disapointed in them.
While i understand their need to recover money owed to them, it is very wrong to go into peoples accounts and just take it, whenever they choose.
Keeping your money and credit spread out is definetly a good idea.
July 27, 2009 at 10:44 am
While there might be very good reasons to have your saving and chequing accounts, and credit card at different institutions, because of better interest rates or lower fees, I think that most of the comments today are missing “Sparky’s” point. Banks will not “randomly” withdraw money from your accounts if all your payments are up to date. The only time this will happen is IF YOU ARE IN ARREARS- on your mortgage, credit card, loans or line of credit. It is only when you start missing payments or “bouncing” pre-authorized cheques and debits that the bank will even have the occasion to look at your specific account. If you never give them a reason to do so, because you always keep your bills and payments current, you will never have the bank withdraw money without your authorization.
And, by the way, I do have separate banks for savings and for chequing purposes, but this decision was made so I could get the best interest rates on my savings. It also helps to keep me more disciplined in terms of saving, because it’s not so easy to just transfer between the two accounts. I can’t make “impulsive” purchases; if I really need access to the money, I have to think about it and it takes 24 hours for the transfer to process (from my on-line savings account to my chequing account).
July 27, 2009 at 10:51 am
Some banks charge no fees at all: Canadian Western, ING, PC Financial (and I believe when you’re over 55 Scotiabank as well). We pay no fees or charges to banks and also none to credit cards.
July 27, 2009 at 10:59 am
woohoo! Got to love ING!
July 27, 2009 at 11:00 am
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July 27, 2009 at 11:11 am
Brenda;…THANK YOU!!! for reading ALL the details…the bank doesn’t just help themselves to your money…BUT if you are in arrears they will take their payment…just like anyone else you owe money to…furthermore, this is not exclusive to TD…it is standard for all lenders….and anyone providing a service to you…they want to be PAID and when you took their credit and or service you promised to pay…oh and about the 35.00 inactive fee on a loc…yes, TD was the first bank to introduce the fee AND the first bank to CANCEL it…nobody paid that fee to TD…
July 27, 2009 at 11:48 am
Gail’s post give me the impression that the bank could decide to go into your account without warning for a ‘CALLABLE’ loan and take the money out. (Not the case for a mortgage.)
PLEASE CLARIFY!
I remember an unsecured LOC statement to the effect that if you do not pay (YOU OWE a payment), they can put into on your mortage if you have one.
BTW, read the fine print for a PC TFSA. They can go into that account if you owe them money (behind in payments only as far as I remember).
It is good to have at least two accounts. If the bank makes a mistake and withdraws too much money from your account, you have access to cash elsewhere. Plus, access to two different bank machines without fees!
July 27, 2009 at 11:53 am
I hear what sparky and others are saying-it’s only fair that they take the money owed-and I agree in principle. In practice, it’s obscenely stressful! In our darker days before learning the “Gail way”, we were late on a payment on our TD Visa, and without warning, they froze both of our bank accounts, so I could take no money out until paying them first. Imagine standing at the grocery store and not being able to pay for your food, because your debit card won’t work! Yikes! I have no valid excuse for being late, but it was a pretty horrible realization that they could take those measures. Forwarned is forearmed!!
July 27, 2009 at 12:23 pm
I agree with you Sparky. I was an in-branch administrator for a financial institution for over 16 years.
Every bank and trust company does this. If you owe them money, they will find ways to get their money. The key is to not let your debts go into arrears, or over the limit.
This all points to what Gail has been trying to teach people for years. Do not spend more than you have. Do not live beyond your means. Do not shirk your financial responsibilities. It common sense that sadly seems to not be so common anymore.
Personally, I have always had all my ‘business’ with one financial institution. I have always made at least the minimum payment on my c/c or loc, so there was never a need to ‘hide’ my money from my creditors. Dealing with one financial institution need not be a bad thing.
People’s attitudes towards money and credit has changed alot over the years and banking has had to change along with it.
July 27, 2009 at 12:28 pm
Just to comment further on Sparky’s posts…..
Being in arrears on a loan payment is one thing but I’ve had a situation were the bank made a mistake and payments were taken when the loan was up to date! The bank (CIBC) was taking double payments from my CIBC account every month for my student loan and couldn’t explain to me why! I called them 3 months in a row and the problem still wasn’t fixed or explained. Needless to say I closed the account and refused to give them pre authorized payment authorization for the new RBC one that I opened.
July 27, 2009 at 1:25 pm
I learned my lesson the hard way with respect to keeping financial accounts within the same institution.
In the late eighties I was running my own business. My personal and business (corporate) bank accounts were at Canada Trust. I thought I had a good relationship with my bank manager. One day to my horror I discovered that both by personal and business accounts were frozen. Two disgruntled employee’s of mine (fired for stealing) had gone to my bank and made accusations against me. My bank manager froze my accounts and my mortgage was going to bounce. I did manage to have the accounts unlocked. The bank manager told me that he did not believe the accusations brought against me – but had decided to freeze the accounts anyway!!!???
Never again will I keep all my eggs in one basket!!!
July 27, 2009 at 2:31 pm
Very eye opening post. We’ve had all our accounts at TD Canada Trust for eons (even before they amalgamated). I mean everything. Savings, chequing, TFSA’s, RESP, VISA, LOC, automatic deposits of salaries. We’ve never missed a payment for anything. Since finding our guru Gail, all credit cards are paid in full at the end of the month.
Only time they went into my account without my authority was when I stopped to get cash from the teller and she gave me too much. When I got home and checked my account online $10. had been withdrawn. I called the bank and she said she gave me $10. too much. Checked my wallet and sure enough, there was $10. more than I asked for. I did tell her I thought she should have phoned me first before doing this. You have to love living in a small town so you know everyone and can ask for them by named when you phone.
We have our annual financial update on Thursday. Will see what he has to say about all this.
July 27, 2009 at 3:36 pm
We have our mortgage through a different institution than our regular banking… and though my personal checking is linked to my small business account, there is always my husband’s account at a different bank if for some reason the other one became inaccessable (like Dianna’s). We are not in any consumer debt — hooray for that! — but it’s still good to know we stumbled upon a prudent method!
July 27, 2009 at 7:12 pm
I hope that someone can confirm that banks CANNOT take money out of your RRSP. That would mess up taxes A LOT!
July 27, 2009 at 7:50 pm
Banks cannot take out of your RSP…those funds CANNOT be used as collateral either…no fear…
July 27, 2009 at 8:38 pm
Banks cannot take out of your RSP but YES they can be used as collateral. You cannot use a LIRA (Locked In Retirement Account) as collateral – as these monies are usually only from a retirement fund from your employer that you are eligible to take with you when you change jobs but you are not eligible to access the funds until age 65) so banks can’t use that either. They are entitled to their money if you are in arrears for any payments owed, so therefore they will get their money from where they can. We are no longer banking with CIBC because of an issue that was not our fault but they froze our funds anyway and looked down their noses at us like the issue happened on purpose and we caused it (my hubby’s paycheque bounced!) even though we have banked with them for our entire marriage and at the same branch for the last 14 years. It’s too bad that you can’t get a good interest rate when you stuff money in a mattress!!!
July 27, 2009 at 9:07 pm
nope, can’t use rsp as collateral…it obviously builds up your net worth but CANNOT be used as collateral on credit…they cannot take money from your rsp for their payments so they cannot be used as collateral…
July 28, 2009 at 5:44 am
Sparky, you are not correct. An RRSP can be used as collateral. However whatever money is collateralized is deemed to have been deregistered for as long as it is collateralized. When the collateralization is removed, the funds are deemed to be re-registered. As a banker, you should know this.
It may be a fine point, but it is also the rule. If I decided to use $20K of my RRSP to collateralize a PLC, that $20K would be deemed to have been deregistered. As long as I remove the collateralization by the end of the year, the funds re-register so there is no tax implication.
I have seen this strategy used for short-term, low-cost financing, and it worked fine. Of course finding someone within the banking community that new the rule was the big test. A lot like when I decided to write my mortgage from my RRSP many years ago. I had to explain how it was done to my CIBC RRSP specialist!
Good thing one of us knew what was going on.
July 28, 2009 at 9:47 am
I can’t find anywhere in the lending manual where we can take RSP as lending security…only that we cannot…(I know what you mean about writing the mortgage from your rsp though)…so I don’t know for sure that I am wrong….but I could be…maybe one day in my lending I will be able to put the question to the test:)…thanks for giving me the thought:)
July 28, 2009 at 9:55 am
p.s. upon further investigation the answer I got is that it may indeed be “possible” to use rsp funds as collateral however we DONOT do this as it is NOT within our lending guidelines…so in that case we are both correct:)
July 28, 2009 at 12:15 pm
Speaking of freezing — our PC Mastercard was frozen recently because someone thought a purchase looked ’suspicious’ — why would you buy gas two days in a row????? — even if you did this every month with no problem — and even if you planned to be out of the country later that day and would need to use the credit card. Perhaps the moral is to always have a spare card to use, just in case.
August 25, 2009 at 4:22 pm
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November 25, 2009 at 4:42 pm
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