“As the big doors swung behind me I caught the echo of a roar of laughter that went up to the ceiling of the bank. Since then I bank no more. I keep my money in cash in my trousers pocket, and my savings in silver dollars in a sock.”
The writer Stephen Leacock concluded his story My Financial Career with those words over one hundred years ago. Times have changed enough that most of us must bank somewhere. The feelings in his story are familiar though, especially to anyone who has applied for a loan or credit, in person, at a branch of any financial institution. You remember that look from the account manager – that feeling of being judged? It’s no wonder surveys tell us most Canadians prefer a trip to the dentist over visiting their bank branch.
But with modern banking, who’s really judging you? When you apply for credit with most banks, your judge is not the person you’re speaking to, its something called Predictive Modelling. Simply put, most of the time, your loan application is adjudicated by a computer. The analysis is fairly detailed, perhaps even looking at the deposit history for your chequing account for the last eighteen months but in the end, if it doesn’t meet the right criteria, it will be declined.
If your account manager likes you or is anxious to meet his sales target, the decision can be appealed, likely this time by an actual life form. There’s still some problems though;
a) Even human beings love pattern and regularity. If you’re self employed, you know you don’t fit those patterns.
b) The human being looking at your application doesn’t know you. As humans, we’re apt to think the best of people we know.
c) The last point is the most abstract ( and the most “terminatorish”) but perhaps the most important. As large institutions give more and more of the decisions over to algorithms, the human decision makers become less and less able to exercise their critical thinking skills; it becomes easier to confirm the modelling decision and not think “outside of the box”.
I know, I can hear you thinking “ don’t make eye contact” and humming the tune from the Twilight Zone but, let me give you an example:
Last week I meet with some new clients, a wonderful couple who have a Home Equity Line Of Credit on their principal residence for about two hundred thousand dollars. Over time, ( let’s call them ) Bank of Running With Scissors had increased the rate on the HELOC to OVER 4%! It’s not drawn down but if it was, the monthly cost to the couple would have been a little over $700 per month vs $530 per month if the line were offered at standard rates. Its important to note that one of the spouses has a fifteen year relationship with the Bank of RWS. I almost put “has enjoyed a fifteen year relationship”…
Did a human make the decision to increase the rate? Nope, it was the predictive modelling.
Anyway, the important lesson here for the ( hopefully ) ten people that have actually read this far – most Financial Institutions will look to make as much profit from you as they can. They simply can’t afford to have the relationship with you that we would all like to have with the people we do business with.
When looking for mortgage credit in particular, its important to have someone who advocates for you and only you. That’s why there are Mortgage Professionals.