Anne-Marie says she fell into a "vicious" debt trap after losing her job in late 2007.
The 41-year-old single mother, who doesn’t want her last name published, was working at a financial services firm when the global credit crunch hit. She quickly became collateral damage.
She found a new job, but at just half her previous salary. Making ends meet suddenly became difficult.
Saddled with some old business debt, she began relying on a personal line of credit and her Visa card to cover daily expenses. Although she kept up with her payments, Anne-Marie spiralled deeper into debt.
It was the Toronto civic workers’ strike that pushed her over the edge. Scrambling to find alternatives for her daughter’s city-run day camp, she was left with a maxed-out credit card and the prospect of having no money in her account for 10 days.
Randy Carswell is another hard-working parent.
Married with five children, the 51-year-old autoworker from Oshawa has been laid off from General Motors several times since January 2008. "All you do is constantly worry about your family and your kids and keeping the roof over your head," he said.
His Employment Insurance benefits ran out early this year, just as he faced another brutal seven-week layoff. Without any support, Carswell was at risk of falling behind on his mortgage and other bills.
Although their stories are different, there is a common thread. Anne-Marie and Randy received urgent help from their banks – and they are far from alone.
Canada’s biggest banks are busy offering financial lifelines to distressed consumers during this recession, and some are doing so on an unprecedented scale. Tens of thousands of customers are being allowed to skip mortgage payments without penalty, consolidate their debts and switch to lower-interest loans.
Banks say it’s about giving their customers a helping hand during a tough economic time. But it is also an astute business strategy designed to keep loan losses in check, secure client loyalty and generate priceless word-of-mouth advertising to attract new customers when the good times return.
Provisions for credit losses, money banks set aside to cover soured loans, are rising and not expected to peak until 2010. Those reserves come at the expense of profits.
Moreover, economists expect the unemployment rate to rise in the next few months even if the recession ends. The national jobless rate hit 8.6 per cent in June but is expected to reach 10 per cent.
Increasing numbers of Canadians are falling behind on their bills, prompting bankruptcies to soar. That’s worrisome for banks because outstanding loans are wiped out if a person files for bankruptcy. . It makes sense for lenders to get customers back on their feet.
Credit restructurings make a certain amount of financial sense but the banks’ public relations strategies will inevitably raise eyebrows with key stakeholders, said Thomas Velk, a banking and economics expert at McGill University.
"You don’t want a potentially valuable customer, as a debtor, to go under and therefore cause you to lose your entire loan," Velk said. But offers of help to borrowers in the worst financial shape will cause bank stockholders, bondholders and other depositors to wonder about their own pay off, he said.
"It reminds me of the cynicism of Rahm Emanuel, the adviser to (U.S. President) Obama, who said you never want a good crisis to go to waste," Velk added.
TD Bank, for one, has helped nearly 20,000 clients facing severe financial hardship from February to July under a program dubbed "Project Umbrella." That internal codename is meant to signify the bank’s willingness to shield customers from a rainy day.
"That number (20,000) might seem large, but I don’t think that number is anywhere near the real story," said Tim Hockey, head of Canadian banking and president and CEO of TD Canada Trust.
At one point, TD was receiving about 1,000 inquiries a week from distressed customers. That number has tapered off a bit but the bank is bracing for higher demand same day cash advance. "We think there are more than a thousand customers a week that could use our help if they just felt comfortable doing it," Hockey said.
While it is impossible to help every client, TD estimates its success rate is about 75 per cent. With that in mind, it took the unusual step of launching a cross-Canada campaign to encourage even more to seek help.
Much of that initiative centres on an interactive website called "TD Helps." Customers are giving it mixed reviews. Some online comments are full of praise, while others suggest the site is simply a "PR ploy."
The massive outreach effort is a first in the bank’s 154-year history. Hockey freely admits the move is "counter-cultural for the average bank." Getting it rolling required a massive effort to retrain staff, and executives weren’t convinced at first that going public was the right approach.Project Umbrella is expected to have "no material impact" on TD’s earnings or loan loss provisioning. The bank has 11 million Canadian clients and about 65 per cent of its branches are in Ontario.
Anne-Marie is one of those local clients. In her case, TD arranged for a consolidation loan worth about $19,700 to cover her line of credit, Visa card and overdraft debts. She’ll be debt free in seven years.
She said asking for help was "embarrassing" at first, but she credits TD’s staff for putting her at ease. "The respect they gave me, it felt like I was millionaire coming in to buy a portfolio position," she said.
BMO, too, has launched a special recession support initiative. It started in April as a regional test program in hard-hit communities like Windsor, Hamilton and Oshawa and became a national program in June.
To help get Randy Carswell through his rough patch, BMO provided temporary overdrafts on his account. He was allowed to skip some mortgage payments and was able to refinance his mortgage at a lower interest rate. He’s been back to work since mid-February.
While he had no qualms about seeking help, Carswell concedes it isn’t always easy to swallow one’s pride. "It hurts because you’re a person that’s trying to survive and take of your family, but your ego and your pride gets ripped apart when you don’t have a job," he said.
Canadian Imperial Bank of Commerce is also reaching out to autoworkers in communities like Oshawa, Whitby, Ajax and Bowmanville. "We’ve done some proactive work in communities that have been faced with loss of a major employer," said Larry Tomei, senior vice-president for retail markets. That includes public seminars on loan consolidation, debt repayment and investing severance packages.
Sonia Baxendale, president of CIBC Retail Markets, said the bank is taking a long-term view of its client relationships. "But we also know that when clients have difficult situations, and you help them through those difficult situations, not only do they remain loyal to you, they tell others about it."
The Bank of Nova Scotia is reaching out to distressed clients through its branch staff, while offering a slew of online tips and tools. Clients are seeking help with their investments, mortgages and credit-card debt, said Sue Graham Parker, senior vice-president of public, corporate and government affairs.
Royal Bank of Canada plans to call each of its 10 million customers across Canada this year, said David McKay, head of Canadian banking. In addition, RBC has launched an online advice centre.
It is also offering specialized advice, such as formulating post-layoff financial plans, to customers in such places as St. Catharines, London, Kitchener, Toronto and Oshawa.
"Customers are intimidated," McKay explained.
"They don’t know how to talk to the bank. They are embarrassed. They don’t know where to start – which is why we reach out."
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