By Christian Scheinpflug
This article appeared elsewhere in a slightly different version on February 27, 2017.
Chilean comedian Bombo Fica, performing his routine “tarjeta master plop” (master plop card) at the 2012 Festival de Viña del Mar, masterfully mocked financial institutions’ mafia methods. The comedian describes a grotesque journey while trying to get rid of an unsolicited credit card that mysteriously keeps piling up fees and charges. Unfortunately, the genius behind the routine, got somewhat lost in the story’s absurdity. Bombo Fica described pretty accurately, if comically enriched, the way Chile’s financial industry hunts its prey — full of chutzpah, free of shame, fuelled by sense of entitlement.
The country’s financial institutions operate similar to how mafias extort money; they first impose a ‘service’ on their victim and subsequently make the victim pay. But in contrast to mafia rackets that feed on the economy, financial institutions in Chile constitute a pillar of the economy.
Big banks follow the routine Bombo Fica satirised frighteningly close. In one case a bank gave a credit card to a customer who opened an ordinary bank account for his business, although the customer never requested it. Assuringly, the card had to activated by the customer, via a purchase or by confirmation in one of the bank’s branches. But since the customer never did any of these, he didn’t bother. Once the customer closed his account, the bank told him that it would report his debt to the industry watchdog Superintendency of Banks and Financial Institutions. Baffled upon this notification, because in a first step the bank employee told him his account actually had a positive balance, the customer inquired where the debt came from. It turned out that it consisted of the 2016 annual credit card fee (CLP$ 68,000 (~US$ 108)) plus CLP$ 5,000 (about US$ 8) maintenance fee for each month of that year. How’s that possible on a card he never requested, never activated, never used? Well, the bank relieved him of such hassle and charged the annual fee directly to his card, thus activating it. From now on the bank felt just entitled to deduct any fees and charges from the customer’s account. But ever since the customer closed his account, refusing to pay the ‘debt,’ the bank, via call-centre henchmen, harasses him with phone calls, even illegally outside office hours.
Another case, from 2010, involving another well-known bank, emphasises the bank’s sense of entitlement, even though they admit to a mistake. A cashier at the bank got a friend of hers to open an account, to help her reach the target and receive a bonus. (Imposing targets, or ‘incentives,’ helps keeping basic wages low and pressure high, while monetising employees’ social relationships). The friend, however, never used the account, but upon closing it she learned that it was in the red with around CLP$ 60,000 (~US$ 96). It emerged that the money was charged to her account accidentally when someone unrelated cashed in a cheque. A bank employee then accidently typed the account number of the empty account that was opened purely as a favour. Since the bank couldn’t find money in that account it charged the money to the credit line, which consequently accumulated interest payments in favour of the bank. Although the bank could easily reproduce these steps, it still insisted on the interest payments — which stemmed from the bank’s error.
In these cases it’s hard to see the liberal theory of capitalism, which holds that innovation and business acumen entitle companies to profit. Predatory behaviour, however, makes sense when capitalism isn’t just an economic system, but a social one that, like feudalism, keeps segments of society in check to facilitate exploitation. This would also explain why predatory lending, not just credit card scams, are entirely legal.
Iván Mella, Director of Defensa Embargos, a law practice that specialises in defending financial abuse victims, explains that it’s impossible to hold institutions to account for lack of relevant laws or regulations. The most plausible reason for this legislative neglect is that these institutions enjoy substantially more power than individual customers. Banks, for example, finance electoral campaigns, so even they may not explicitly corrupt politicians, representatives still know who owns their debt. But despite this, in every presidential race renegade candidates, though often running clumsy campaigns, criticize the role of banks and elites. They may not stand a chance but point to another dimension of financial power, namely that most of these predatory businesses belong to the country’s uber-rich. They preside like feudal lords over the economy and the media, and have therefore power to make or break politicians’ careers. Being accepted by this uber-class, which Chilean folk wisdom dubs ‘the owners of the country,’ becomes essential to politicians’ work.
The impunity resulting from such power relations, coupled with elites’s substantial control over the economy, facilitates the insertion of mafia methods into other industries like retail. CMR for instance, is the financial arm of Falabella, Chile’s dominant retailer currently taking on Latin America. Mr Mella, the lawyer, singled out CMR as especially ruthless, even as “Machiavellian.” He deals with cases in which CMR salespeople ambush construction workers outside their workplaces. This demographic belongs to the lower-middle class (monthly income of CLP$ 280,000 – CLP$ 600,000 (~US$ 422 – US$ 960)), and whom Mr Mella identified as main victims of legal theft through consumer credit. One reason for this group disproportionately falling victim to such scams lies with the school system. Almost criminal neglect of public schools, which the lower and lower-middle classes can hardly escape, often leads to inflicting math and language deficits on pupils. CMR salespeople, taking aim, nevertheless offer them consumer credits often four times their monthly gross income. Or they are phoned while at home. Call centre slaves then offer in intentionally sloppy language a credit whose terms remain rather obscure.
Apart from being tricked, people also sign up because they’re unable to resist the ad industry’s mindfuck techniques, and see the family holiday or flatscreen TV within reach. Financial predators allow their victims only a short period of joy, however. They bet on victims’s inability to maintain payments. When that happens they trigger a so-called acceleration clause, giving them the right to declare the borrower broke the contract. Since they see the contract as broken, lenders then call in their outstanding money, which borrowers, of course, can’t pay. Battering borrowers this way makes them vulnerable to agree to a new contract under worse conditions, which is merely starts a new round of battering. This tactic is applied mercilessly. Mr Mella said some clients fell behind for only two consecutive months, but could fill the gap with a one-time payment in the third month. Banks or retailers rejected that, and instead forced a new contract, and in a last step, a trial in court with the aim of repossession. Lenders don’t care about installments, they want to squeeze their victims; a practice the geographer David Harvey identified as ‘accumulation by dispossession.’ This procedure, in fact, links feudalism with contemporary neoliberal capitalism; victims may work the land, but aren’t let off the hook, at least until they pay what the master desires.
Mr Mella said some institutions confirmed loans over CLP$ 2 million (~US$ 3200) and pushed the acceleration clause until they could repossess homes worth a lot more. This clause is a diabolical instrument that plays the tunes of consumerist society.
The fuel for both strategies comes from data dealers. Most Chileans undervalue privacy and are unaware of the consequences of handing out data such as like Email address or taxpayer ID number (abbreviated RUT). People have no problem, for example, to give their number at the supermarket cash out in exchange for a discount. Businesses level these discounts by selling this data to companies that often describe their work as ‘digital marketing.’ These wizards enrich the data and process them into salable databases (but not even God knows what the surveillance state does with this treasure). The databases, containing address, income level, among others, are then bought by the same entities – retail chains or predatory lenders, which are often the same – that supplied the data. Unwitting citizens supply for free the raw material a billion dollar industry eats on, and which helps lenders to target their prey ever more precisely.
An effective defense against such lenders is to sell any material possessions or put them into an Anonymous Society, a business arrangement owned by no one. These vehicles are relatively easily set up by anyone with accounting knowledge. If lenders face such a barrier they have no choice but to “archive the case under ‘uncollectible,’” Mr Mella says. But while this may save borrowers from walking naked, their records still go to DICOM, the debt register, which potential employers routinely check. As a result, many victims find it hard to get work later, get another loan, or a job promotion. This impedes new business creation and actual upward social mobility, damaging not only individual lives, but also national prosperity.
The macroeconomic dangers of this behaviour are very much underestimated for educational and socio-economic reasons. First, not even the most prestigious universities enable their students to develop a sense for systemic risk. That’s why financial institutions employ sorcerers apprentices, who can think of ways on how to fleece the public but can’t imagine any long-term consequences. One reason for such educational deficits is the total subversion of scholarship to corporate interests. Universities are often assets of the country’s elite. But even public universities such as the supposedly stellar Catholic University, allow private companies to ‘sponsor’ lectures material that streamlines students’ thinking with corporate and elite objectives. Adding to the educational deficit is the establishment’s ability to detour outbursts of indignation via the mainstream media, which focusses on street crime and bling-bling. Especially the print media deride even social democratic initiatives as Bolshevist bollocks. This keeps a lid on debate and sustains an incestuous ruling class as greatest benefactor of an unstable system. It’s a recipe for recurring crisis.
Historically, preying on citizens by forming cartels and related predatory lending, followed by taxpayer-funded rescues, is the essence of the Chilean economy and the preferred model of its elite. In 1878, for example, according to historians Simon Collier and William Sater, the financial system collapsed due to reckless lending of banks. The state then had to inject taxpayers’ money and save the banks. The same happened in 1982, due to the reforms — denominated liberal — of the Chicago Boys, and violently imposed by the quasi-fascist dictatorship from 1974 on. Neoliberal restructuring entailed a free lunch for banks in the form of state guarantees for any loan. The resulting lending spree led to a breakdown which the state had to cushion with public resources. Banks just gave away money they neither had nor could acquire in the form of loan repayments. The rescue package included a 40-year plan. Thus, in only five more years the state, that is everyone who’s unable to put wealth into tax havens, will have paid for the banks’ recklessness, without having gained any property rights that supposedly come with the exchange of money. Both the 1878 and 1982 crises were systemic, but barely figure in public discourse. This is curious since the crisis of the early 1970s, artificially induced by a foreign power and the local bourgeoisie, comes up regularly as an example of catastrophic economic policy.
This way everything stays as it is while the music of the buildup of the 1878 and 1982 crises keeps playing. In accounting, consumer credit or credit card debt, whether requested or forced on recipients, constitutes instant income for the respective institution. Yet, this ‘income’ remains fictitious until the last peso arrives, but financial wizards keep up the fiction with accounting tricks. The bigger the institution, the more tricks are available. Such practices make an actually indebted business appear healthy, and, worse, make the economy look prettier than it is. But given the educational deficit and the potential explosiveness of the debt issue, no questions are asked until, as happened before, the whole thing blows up.
Meanwhile, some celebrate the extraordinary achievements of Chile’s economy and others adore the mirage of upward class mobility of credit-fuelled consumerism. This music’s still playing, but eventually someone’s got to clean up the mess. Guess who?
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No bank or retailer could be reached for comment.
Christian is Managing Editor at Chile Today, where he curates the foreign policy blog Teatinos One/Eighty. Christian is also Lead Editor of E-International Relations, co-editor of an open access textbook on International Relations Theory and Director at the Chilean Association of International Specialists (ACHEI).