Bank abuse

Banking abuses are crimes of fraud or fraud committed by banks, financial institutions, managers or bank employees, whose victims are customers.

Banks can engage in abusive practices in various ways in order to improve their bottom line or to avoid bankruptcies or losses. There are financial entities that, seeking to gain the maximum benefit, offer their clients toxic products, abusive clauses in mortgages and excessive bank commissions.

For these practices to be considered abuse, they must be carried out by the directors or employees of the entity and will affect both the bank itself, as well as the customer.

Abuses in financial products

Many financial products have historically been used to commit bank abuses, by being offered to people who did not have the appropriate profile for these products.

Some of the financial products that historically have caused the most bank abuses are:

• Preferred shares: They are financial products that are acquired in perpetuity. They grant economic rights since they allow participation in dividends, however, unlike shares, they do not allow voting at shareholders' meetings. The problem is that the client does not know how long they will own them, since the entity that issues them does not have an obligation to buy them back on a certain date, but they can have an unlimited life.
• Promissory notes: They are documents that consist of a future promise of payment, their main problem is that they are not backed by any Guarantee Fund. If the bank fails, no one returns the investment, and customers must join the list of creditors and wait their turn to collect.
• Mortgage bonds: They are bonds guaranteed by the bank that issues them. The client lends money that is guaranteed with mortgage loans already granted. They must be sold in secondary markets, this can lead to loss of profitability as they are complex and highly saturated markets.
• Subordinated debt: Debt issued by the bank, which in case of bankruptcy, its holders will collect after the judicial administrators, the Treasury and Social Security. Its valuation is excessively low, in many cases, consumers have experienced that the price at which they bought the debt is much lower than the market value.

Mortgage abuse

Bank abuses can also occur in mortgage contracts.

Below is a list of the most common mortgage bank abuses:

• Floor clause: They are barriers that prevent the consumer from benefiting from the drop in interest rates on mortgages.
• Clips: A fixed interest rate is established for mortgages, instead of linking them to interbank market interest rates such as the Euribor. If the rate is above the interest rate set in the clip, it will be the bank that pays the difference, but if the interest rate falls below the fixed rates, it will be the consumer who pays the difference.
• Hypertasations: Excessively high appraisals. Homes are valued well above fair value. There are banks that used these practices to fatten their balance sheets.

Bank account abuse

Some of the most common abuses in checking accounts are the following:

• commissions: Excessive amounts for the provision of banking services.
• Direct debit of payroll: Excessive charges for direct debit of payroll and receipts.