Saturday, November 13, 2010

The Casino Effect

Casinos make it easy to get in, but nearly impossible to get out!  Financial companies do the same thing.  Watch for it!

I went to Las Vegas a few years back.  Gambling is stupid, really, and anyone who tries to tell you it is fun or glamorous is an idiot.  Most places have rows of slots and hard-core addicted gamblers squandering away their life's savings, a dollar at a time.  Casinos are like machines designed to pluck every last penny from the consumer before tossing him out on his ass.

We went to Caesar's Palace, pictured above, and it was interesting how it worked. They had a conveyor belt that lead you into the casino, right onto the casino floor, all the way from the sidewalk.  Put one foot on that belt, and it was like a cow being lead down the chute to a captured-bolt gun.   Try to get out?  Exits were hard to find, and we had to walk through room after room of slots, games, and tables, before we could exit. 

And of course, all of this was not by accident, but by careful design.  They want you to stay, not leave, so they make it all-too-easy to get in, but harder to get out.  No wonder casino fires are such nightmares.

Lenders do similar tricks.  You can get a credit card after a 5 minute phone call.  But getting the credit card companies to stop sending you those "0% interest" checks is damn near impossible. Every means of going futher into debt is easy to do.  Every means of paying off debt is made hard.

90 days same-as-cash deals work the same way.  If you start paying off the balance on one of these deals, you will be bombarded in the mail with offers to spend more.  20% discount if you buy!  Just spent!  Even a penny!  Because if, on the 91st day, you have a balance of even that penny, they can nick you for all 90 days worth of interest.  As I noted in my "same as cash" posting, when I tried to pay off one of these types of deals on the 89th day, they nearly went insane, and spent 15 minutes trying to persuade me to "let the loan ride" and pay it off over time.  I paid it off, at their office, in cash, and made sure they gave me a receipt for the payment.

Similarly, when you try to pay off a loan, such as a mortgage, they don't make it easy.  You have to request a "payoff statement" which usually costs $10 or more, and then mail a certified check (another $10 plus overnight fees) or wire transfer the money ($50).  And they don't make it easy to do.

Citibank sent me "payoff instructions" that were in a grey-scale pixellated sheet that was nearly impossible to read.  And the instructions were far from complete.  Nowhere was it mentioned that the account number, name and the word "PAYOFF" in quotes had to appear on the information line of the wire transfer.   Fail to provide this information and the money will not be applied toward principle, but rather to future mortgage payments (how convenient for them) if it is applied to your loan at all (if it is "lost" they can "put a tracer on it" which will take a week or more).

Funny how that works.  If you are a day late in making your payment, all hell breaks loose.  But you tell them you want to pay off your mortgage in full, and you have to jump through all sorts of hoops - and do them just right, or there is all hell to pay.

What about payments online?  Well the Citi website will accept extra principle payments, but only up to $99,999 and even then, there is a $10 fee applied for payments made more than 8 days after the due date of your loan.  Imagine that, having to pay money to pay money.  They don't make it easy!

But that is the nature of the lending game - the casino effect.  They make it oh-so-easy to get in, but oh-so-hard to get out.  The only way they want you to leave is by paying it off over time, and making all those nice interest payments that make them rich.

Car leasing is another area where the casino effect is used.  Sign here and you are handed the keys to a shiny new luxury car!  But after 36 months, when it is time to turn it in?  Well, we have to talk a bit about the excess mileage and "wear and tear" on the vehicle, you see.  Unless you want to lease another car, you may find yourself paying thousands in excess wear fees just to be able to walk away from the deal.  Easy to get in - hard to get out.

The casino effect illustrates why borrowing is such a horribly bad idea in the first place.  Lenders are not your friends or buddies.  And while you'd think they'd be happy to get their money back, they really would prefer you'd spend any windfall you get and remain perpetually in debt for the rest of your life.  Because that is how they make their money.

It is funny it works that way, but there you have it.  These folks are not your friends, in fact, they are your sworn enemies.  They may play nice with you and all, provided you are making your payments on time and paying them their juicy interest payments.  But try to end the game early, or not pay at all, and you find out they really don't want you around anymore.

The Payoff Statement on my mortgage was enlightening.  I am running $50 a day in interest on the loan, which is a staggering amount of money - enough for two people to live on, frankly.  So making it hard to pay off a mortgage does work in their interest (if you will pardon the pun).  If they can say they lost your wire transfer or your check, for several days, then they can make hundreds of dollars in interest, just by letting some paperwork sit around.

The casino effect is all around us, and I will post another entry on this shortly.  Grocery stores use the casino effect to their advantage, usually arranging themselves in such a manner that you have to follow a predetermined path to get through the store - inducing you to spend more.  Wegman's is famous for this.  And other stores do it as well, with Ikea being one of the worst offenders with its "racetrack" layout that forces you to visit every department before exiting the store.

We are all human - we are all weak.  If you put one foot on that conveyor belt, you will be sucked in to the casino floor, with all its noise and bright flashing lights.  And you will spend - it is not an option.  Your brain is programmed to respond to such stimuli, and they know it.  And even if you have the wherewithal to say "Enough!  I want out!" they make it hard to leave.

It's enough to make one want to stop consuming, quite frankly.