Should banks lend to people who have at some time declared bankruptcy?
In a recent column Gerry Lipkin, chief executive officer of New Jersey's high-performing Valley National Bank, said he would almost never do it.
"Declaring bankruptcy is a sign of weak character," he said.
We asked readers for their views.
W. James Tozer Jr. of New York's Vectra Management Group, agreed with Mr. Lipkin:
"As a trainee at Citibank in the mid-1960s, I had occasion to prepare an analysis of a potential investment," Mr. Tozer wrote. "Though the project sponsor had gone bankrupt in the late 1930s, he had an excellent performance record and the projections indicated high expected rates of returns. As a result I recommended that the investment be made.
"(My boss') response was, 'Bad guys do not make good on loans.' My experience over the last 30 years has proven this axiom to be valid all too often."
Kathleen Lewek, senior consultant at Culver City, Calif.'s Lewek & Associates also concurred with Mr. Lipkin:
"I strongly agree with the bank's decision to almost never lend to anyone who has filed personal bankruptcy," she wrote. "I am amazed that many banks not only no longer follow that policy, but actually target recent filers of bankruptcy for credit.
"Our industry has lobbied for bankruptcy reform while actually rewarding borrowers for the undesirable behavior." Meanwhile, she noted, banks close checking accounts with excessive insufficient-funds activity "and report these clients so they are unable to open an account with any other bank."
Kurt Esser of Banc One Financial Services in Delaware also spread the blame around.
"I really don't think people want to file bankruptcy," he said, "but the federal, local, and state regulations make it too easy to file. In addition, he wrote, "lawyers manipulate many uneducated people to file just to make retainer dollars.
"Filing is possibly a sign of weak character, but is more a sign of weak education about personal finance."
Don Luntry, a former banker in Redmond, Wash., wrote that the bankruptcy debate showed "too many financial institutions are overly concerned with the shareholder and have completely lost focus on the customer and employees (except the management employees, of course.)"
Indeed, several respondents complained about Mr. Lipkin's hard-nosed view. They told of difficulties ranging from employer downsizing to family illness that had forced them to declare bankruptcy.
For example RuthMarie Wires, an administrative assistant at First USA Credit Card Services, Westerville, Ohio, wrote of her reasons for declaring bankruptcy and of what happened to her credit rating.
"In April of 1997 I moved myself back to Ohio and acquired a job at Bank One," she wrote. "Since December 1997 I have had a very nice, low-priced Visa card from Bank One.
"This is partly because I am now employed by Bank One, in the bank card division," Ms. Wires wrote, "and also because my boss went to bat for me. But he did that because he had seen I am a good credit risk, and that my character is quite strong, rather than weak.
"Although I was able to qualify for a good Visa card, I would NOT expect to receive a home loan if I applied. But I would expect the refusal to be based on my salary level, not on 'she must have weak character, since she's been through personal bankruptcy.'
"In my considered opinion, your CEO friend has a blind spot," Ms. Wires wrote. "No doubt some bankruptcies are caused by 'weak character.' But I would venture that many more are due to circumstances that were beyond the control of the persons in question."
But the best response to our contest for a day as president of Schmidlap National Bank came from Thomas J. May, market manager at the Dallas bartering company Intermerc. Mr. May wrote:
"After experiencing a job loss from corporate restructuring several years ago, I suffered a heart attack, which required two angioplasty procedures on the same artery over a two-month period. As you may have surmised, I was uninsured. At the same time, I was going through a divorce, and consequently my combined medical and legal bills were staggering.
"The sheer financial weight of a house payment, car payment, child support, and the basic necessities of life made it impossible for me to fulfill my financial obligation, and bankruptcy became an abhorrent necessity.
"Prior to this incident, my credit history had been blemish-free since the day I opened my first checking account as a teenager mowing lawns 24 years ago.
"Here is what rankles me about your friend's attitude: After 24 years of banks' making money on my money in various checking accounts, savings accounts, CDs, car loans, mortgages, ATM fees, and a variety of other financial services, I am now a pariah, without hope of redemption in his eyes.
"Maybe this is why the vision most nonfinancial types have of bankers more closely resembles Mr. Potter than it does George Bailey in 'It's a Wonderful Life. I might also suggest that this is the type of attitude that makes it extremely difficult for most people to have much sympathy for the banks in the banks-versus-credit-unions debate.
"Should you award me the honor of Schmidlap's presidency for a day, you can look forward to a 'kinder, gentler' financial institution. If this is indicative of weak character, so be it."
