A ‘Proven Method’ for Undermining Your Banking Brand

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Here’s a story from a reader of The Financial Brand. We’ll call her Erica (that’s not her real name). Erica got a letter from Chase a month ago. The letter informed Erica that her home equity line of credit was arbitrarily being cut by 65% — down to $171,000 from $495,000.

Here’s what the letter said:

“With home values falling in many parts of the country, we’ve used a proven method to estimate your home’s value at $530,000. Unfortunately, this value no longer supports the full amount of your Line of Credit.”

A more honest version of the story probably goes something like this: “We were running low on capital, credit got tight, housing prices plummeted and we freaked out. Sorry. We’ve had some time to think it out, and we acted hastily. Ooops.”

The Financial Brand has confirmed that Erica’s house is easily worth at least $1 million — there’s no doubt about it. You can’t find any 5,000 square foot luxury homes in her city — in any major metropolitan market, on the water, with amazing views and a private elevator — for anything close to $530,000.

Needless to say, Erica was miffed. Even though Erica had never needed to use more than $60,000 of her home equity line and the current balance was less than $50, she liked the idea of being able to borrow half a million bucks just by writing a check.

Sure. Why not?

Erica was on the verge of shipping an official appraisal off to Chase to prove she was indeed worthy of having her line of credit reinstated. The appraisal would have put his house at around $1.4 million.

But then, all of a sudden, out of the blue, came another letter from Chase:

“We apologize for a recent letter that incorrectly reduced your home equity line of credit. Unfortunately, the valuation was not properly matched to your property. So please disregard that notification. Your line of credit limit has been reinstated to your original credit line of $495,000 and you may begin drawing against it again.”

In an email, Erica wondered aloud (to me, along with 40 of her friends and family), what shape Chase would be in today if they used their “proven valuation method” in other areas of their business.

Key Question: Did Chase use their “proven valuation method” when they decided to takeover WaMu?

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Reality Check: Things like trust and confidence are the most delicate of brand assets. Just like with our interpersonal relationships, trust can take years to build and only seconds to lose. Often, all it takes is one bad decision and “poof!”

Observations & Reflections:

  • Erica will probably never trust correspondence from Chase again.
  • Word-of-mouth marketing is powerful stuff. Personal, first-hand accounts like this one — whether they are good or bad — are the kinds of brand stories people tell one another.
  • It was good that Chase caught it’s own mistake, but it’s a mistake that shouldn’t have been made in the first place.
  • A more honest version of the story probably goes something like this: “We were running low on capital, credit got tight, housing prices plummeted and we freaked out. Sorry. We’ve had some time to think things out more clearly, and we acted hastily. Ooops.”

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