What Makes Banks Unfair
Banks by themselves are not evil. At least not purely.
As long as you have cash deposited and a solid financial situation, things will be good in most cases.
The trouble begins as soon as you find yourself in a financially tough situation and have to get money from somewhere outside to stay afloat.
If you choose to lend money from a bank in such a case you are making yourself vulnerable.
Even if it is just for a short term and you might just need a quick boost of cash, banks can become severely unfair in their practices against lenders.
It all starts with the small print in their contracts, and is part of a massively optimized, legally enforceable system.
Already in the bible the term to owe someone was used and emphasized a form of obligation to the other person, even if used in non-financial terms.
If you owe money or other obligations to someone, it is pretty hard to argue against that.
Especially if everything is written in finely printed contracts, and legally enforceable.
Banks have whole departments of lawyers and in many countries the courts even rule in favor of the bank because of the macroeconomic interests.
Put simply, this means that even if the laws in your case will be on your side, the courts might still decide in favor of the bank because they are an important part in the economic system as a whole.
And protecting the financial system is more important than the destiny of an individual.
This not only sounds unfair - it simply is unfair.
It means that the bank will be favored, even if you didn’t do anything wrong.
If you ever face tough times (and sooner or later we all do) and can’t make payments on your loan as scheduled in the contract, this will mean serious trouble for you.
From the legal perspective, you have done “damage” to the bank by not paying back the amount you lended.
Even if it was just for a short period of time like a few months on a 30-year-loan.
The bank has the full right to enforce all legal actions against you, whether appropriate to the situation or not.
This does not mean that the bank will immediately take legal action and throw you out of your home, but if the situation is “right” for them due to a crisis or whatever, they are legally able to do so.
A punishment for damage, even if nobody was hurt
In our last blogpost we learned that banks actually create money out of thin air.
It is therefore ridiculous to claim that you have damaged the bank by not being able to pay your monthly rates a few times - since all the money you lended was only created because of you taking out the loan!
The laws however do not take into account that the money for a loan did not exist in the financial system before the loan was taken.
Actually the granting of the loan only made this amount enter the monetary system at all.
Without you and your request - the money would never have existed.
Banks giving out loans is how money gets created in the first place.
This is what drives our economic engine.
But legally, you are seen as a thief or even worse if you can’t pay it back.
The money you owe now was created because of the loan.
You started a process by building your house with that loan. Actually you even increased the economy a little bit through this transaction.
Paying it back would only mean that the bank receives additional money that did not exist before from your labor out in the economy.
You become a kind of employee who is working for the bank - with the only difference being that you have to pay the employer and not the other way around.
The Credit River Case
There was one man in the 1960s in Minnesota who went to court because the bank was taking his home as he could not pay the monthly rates anymore.
He proved that the money for his home did not exist before and that the bank created it out of thin air simply in their books.
He argued that because something created out of nothing has no value, he also would not have to pay it back.
And guess what - he won this case!
This court decision should have been a shockwave and spread like a wildfire!
It proves that the whole banking industry is a fraud, but unfortunately the case was not mentioned in one single media outlet.
No newspaper, not TV station. Nothing.
Thanks to the internet, there are some websites and blogs who put the story online.
You can read more details about the case on wikipedia: https://en.wikipedia.org/wiki/First_National_Bank_of_Montgomery_v._Daly
For whatever reason however, the court decision was nullified the next day.
You can make up your own mind about how mighty the FED and other banking institutions are if they just take a legal ruling from a court and nullify it.
You can think for yourself now why this might be the case, and why a government would not want its citizens to be free and independent.
I personally believe that nothing will change sooner or later about this system.
And since the 1960s, no similar case has been reported.
Many others have tried to use the case as precedent, but the courts across the country now dismissed this case as “baseless”
Banks and their position in our society seem to be unshakeable.
A legal battle ends in favor of the citizen instead of the bank because they simply cheated in our system - and the decision is called “baseless”.
The lawyer who won the case even was disbarred after the decision - meaning he no longer was allowed to practice law.
This is just to give you an idea of how powerful banks actually are, and that even with the strongest legal support your chances of success are slim to none.
They are above the law.
Unfair Advantages Of A Bank
What makes a bank fundamentally different compared to any other business is that they seem to have certain “special rules” for themselves in front of the law.
That means a bank can do things and act in ways that would be forbidden and would be even considered criminal for others.
For example:
In my country the longest period a company is allowed to store data about customers by law is 7 years.
Even the tax department - which can be really considered the highest authority in any financial matter - is only allowed to save data and check back on any issue to a maximum of 7 years in the past.
But when I was working at a local bank in 2019, I could see sensible financial data from customers back to the 1990s!
Why is a bank allowed to do that when not even the tax department of the state is?
How can a private institution be granted more rights than the highest state authorities?
Much less to speak of any other private institutions.
Even to this day there is no reason why a bank is allowed to do that, if it is clearly against the law.
Or maybe there are other laws written for the bank?
Whatever the reason was, if you did not pay your credit car payments in 2001, the bank would see that even in the year 2019.
Oh, in 2005 you had a bounced check.
And further in 2008 there was a bill you paid 3 months later than due.
Looks like you are in trouble.
Your credit score just crashed, the loan will be either expensive as hell, or you won’t be approved at all.
Legally, nobody should be allowed to see this.
But the bank sees it.
Even though all this information far back should not have been visible to anyone according to our law, at the bank I could see it for everyone of our customers.
You might not think I was probably a high employee to have access to all this sensible information.
Fun fact: I wasn’t a high manager at that bank!
I was just a bank teller, and left this job after 3 weeks already because I hated every minute of it.
But let’s think for a moment what this means if you are a customer of such a bank.
I as the bank teller could put pressure on the customer with such information.
And I could even threaten them to make further use of it, like downgrading their credit score, or demanding high interest the next time they would need any form of financing.
Every other company in the world would be shut down for such tactics.
This is not a brilliant sales strategy.
This is pure blackmail.
And what a surprise - the bank even actively uses the information against its clients.
And again, nobody seems to care.
That's why I could not work there for very long, among many other reasons as well.
From what I heard in many law cases is that oftentimes economic welfare is rated higher than personal freedom and protection of the individual in front of a court.
And banking seems to be the heart of the economy, at least when you ask supreme court judges.
As banks are part of the economic system, the government actively looks away when laws are broken instead of protecting its citizens.
Actually protecting its citizens is the main purpose of any state, and not protecting banks.
But instead governments around the world are willing to sacrifice individuals for economic growth.
That is the main reason why fighting against a bank on the legal way will almost always end up in your downfall instead of theirs.
Even if all emotional reasons are on your side, the legal reasons are on their side. Always.
The bank does not care if you will have a stroke of faith, a child with cancer or if the game they play is unfair right from the start.
And they are never your friend, even if they pretend to.
Can you report a bank for unfair practices?
Yes, you can of course report banks who are working with unfair methods against you.
In the US, there are even specific departments that deal with such complaints - ironically run by the Federal Reserve themselves.
You can find them here:
However, do not expect too much help from their side.
After all, the Federal Reserve is the head of the banking system themselves.
One could think that they set up such a system to hear about cases like the Credit River case upfront.
When & How To Use Banks
Despite all these shocking tactics and unfairness to their customers, banks can also be used for the good.
It is similar to a weapon - it can either kill you or be used to defend your family.
And admittedly, somehow they can contribute to economic growth with their lending.
The common rule is to not overdo it, simply put.
If you are making 150k per year, and you buy a 300k apartment in your town, then your bank will certainly be happy to help you.
And in such a case, your income would be enough to cover the whole payment costs in a reasonable time.
This means you will pay it off much sooner and pay much less in interest.
If you look at short time periods like 5 years, it is at least partly possible to plan what will happen, especially if the amount is appropriate to your income.
But nobody could ever anticipate what will happen in 30 years or what the world would look like then.
Thus the longer your loan and credit payments last, the more unpredictable the outcome.
And here many people fall into a trap:
The longer the contract lasts, the cheaper the monthly payments seem.
Shorter running time in smaller proportion to your income for a loan will mean that the bank is much less dangerous since you have enough cash reserves to defend yourself.
If you always pay on time, even in a bad economy or other downturn, there is not much the bank can do.
You kind of pulled out the monster´s teeth.
Since your income will be large enough to withstand the credit payments in this case, there is no big threat that could await you in bad times.
And besides, the apartment you financed is an asset.
In most cases, the real estate prices will go up over time, making it more valuable as time passes.
You could rent it out and create additional income with it.
To learn more about such assets, check out our blog post on How Money Works.
A completely different situation would be to earn 150k per year, and buy a home for 900k.
In this case, you would again be on financially thin ice, and the bank can become a serious threat to your life in case something should go wrong with the payments.
The monthly payments will be so high that any minor financial problem you encounter could already derail you.
Losing your job, a recession, a health issue, or just a pregnant wife all would threaten your financial plans. The bank could again become your worst nightmare and you would be helpless.
The trap many people fall into is that a home would actually also be a solid investment by itself.
But the high price compared to the income available does make all the difference whether it is a solid investment or not.
When you are using a loan for whatever reason, always check if you could also pay it if you would lose your job, your spouse would lose her job, or if a disease or other crisis would happen to you.
A fellow entrepreneur and mentor of mine who died as a very rich man once said:
“You always need to have as many assets as you have debts.
If you can pay back all your debt immediately if necessary, then the bank will be an equal partner”.
Always try to minimize the exposure towards the bank by having enough savings or other assets like real estate, precious metals, bonds, stocks, etc. compared to what you owe them. A good rule of thumb is to have as many assets as debt, but I know this is often hard to do in real life.
The problem often does not start at the bank, the problem starts with people living way above their means.
They drive expensive cars or have a huge home when in fact their income is mediocre.
And then these people take too much credit which will be hard to pay back right from the start, and often have no idea how serious this game with owing money to a bank and their unfair methods really can get.
The dose makes the poison.
A certain, easily coverable amount of debt will be no problem.
Being in debt too much with the bank basically owning all your possessions, this is when you are in trouble.
If you already made such a mistake, check out our strategy to get out of debt now!