Chile’s Economy – A Natural Habitat for Financial Predators

By Christian Scheinpflug / The Santiago Times

Word count: 2148 (Click here for Spanish version)

The Chilean comedian Bombo Fica, performing his routine “tarjeta master plop” (master plop card) at the 2012 Festival de Viña del Mar, mocked the mafia methods with which financial institutions do business. 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’s performance was less an act, but a pretty accurate, if comically recounted, description of 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, he was informed in a second step that his debt would be reported to the Superintendency of Banks and Financial Institutions, the industry watchdog. 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 annual credit card charge (CLP$ 68,000 (~US$ 108)) for 2016 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 this hassle and charged the annual fee directly to his card, thus activating it and somehow feeling entitled to deduct any fees and maintenance costs from the customer’s account. But ever since the customer closed his account and still refuses to pay that ‘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,’ is commonly used to keep 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). A brief inquiry unearthed that the money was charged to her account accidentally when someone unrelated cashed in a cheque and the bank employee erred in typing the account number, belonging to 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 these steps had effortlessly been reproduced by the bank, it still insisted on the interest payments — which developed purely as a result of 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. Such predatory behaviour, however, makes sense when capitalism isn’t seen as just an economic system, but more broadly as a social system that, like feudalism, keeps segments of society in check while exploiting them for economic gain. 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 victims of financial abuse, states clearly that it’s impossible to hold institutions to account for no laws or regulations exist that outlaw such behaviour. 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 out another dimension of financial power, namely that most of these predatory businesses are owned by the country’s richest people, who preside like feudal lords over the economy and the media, and have therefore power to make or break politicians’ careers. Being accepted by this über-class, which Chilean folk wisdom appropriately 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 with a monthly income of CLP$ 280,000 to CLP$ 600,000 (~US$ 422 to US$ 960), and whom Mr Mella identified as main victims of legal theft through consumer credit. One reason why this group disproportionately falls victim to such scams lies in the school system, in which criminally neglected public schools often inflict math and language deficits on pupils, and which lower and lower-middle classes can hardly escape. When picked up by CMR salespeople, they’re nevertheless offered 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 while communicated via phone.

Many people, apart from being kept in the dark, sign up because they’re unable to resist the mindfuck techniques applied, and because the family holiday or flatscreen TV comes within reach. Financial predators allow their victims only a short period of joy, however. They bet on victims’s inability to keep up payments at one point in time. 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 the beginning of a new round of battering. This tactic is applied mercilessly. Mr Mella says that 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 are allowed to work the land, but aren’t let off the hook, at least until they pay what the master desires.

Indeed, Mr Mella confirms that some institutions admitted loans over CLP$ 2 million (~US$ 3200) but pushed the acceleration clause until they could repossess a victims’ house worth much more than that. 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 — categorized according to address, income level, and countless more parameters — are then purchased by the same entities that collected them in the first place, be they supermarket chains or predatory lenders, which are often one and the same. 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.

The only defense when caught by such lenders is to get rid of any material possessions, either by simply selling them or putting them into a so-called Anonymous Society, basically 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 obtain work later, get another loan, or a job promotion. This impedes the creation of new businesses 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 are stacked with sorcerers apprentices, who can think of ways on how to fleece the population 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 directly owned by the country’s elite, but even in public universities such as the supposedly stellar Catholic University, many lectures are ‘sponsored’ by private companies, which supply material that streamlines students’ thinking with corporate and elite objectives. The educational deficit is flanked by the establishment’s ability to detour public outbursts of indignation via their control of the mainstream media, which focusses on street crime and bling-bling. Moreover, 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 inevitably to a breakdown and the state had to expend resources because the banks gave away money they neither had nor could acquire in the form of loan repayments. The rescue package included a 40-year plan, meaning in only five more years the state, and hence everyone who’s unable to put their wealth into tax havens like Liechtenstein or Panama, will have paid for the banks’ recklessness, without however having acquired any property rights that supposedly come with the exchange of money. Both the 1878 and 1982 crises were systemic in nature, but are barely mentioned, whereas the crisis of the early 1970s, artificially induced by a foreign power and the local bourgeoisie, flares up each time calls for improved public services arise.

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 sooner or later someone’s got to clean up the mess. Guess who?
No bank or retailer could be reached for comment.

(Click here for Spanish version)

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