I just finished going through a term-deposit account setup process with a bank, whose name will go unmentioned, where I could not believe the "agreement" that I had to accept in order to deposit funds with this bank. A term-deposit account is basically a CD, whereby you agree to lend the bank your money for a particular term (e.g., 12 months) and in return they agree to give you back your funds at the end of that term, along with an agreed amount of interest for having borrowed your money for that period.
Rather simple concept. But, it seems the bank has lost site of who is important in this deal. The term deposit agreement, which I found utterly detestable, has a passage in it that simply states that in the event the bank goes under, that you (i.e., the depositor, the true creditor of the bank) take the absolute last-seat when it comes to making any claims against the assets of the bank. So, who comes first? Well, that would be others who have much larger interests in the bank than the lowly individual who was nice enough to deposit month with the bank. This group of entities that is more privileged to your money than you yourself are included: other creditors of the bank (i.e., other banks, corporate-bond holders, and so on). Gotta love it!
So, if the bank goes under because some high level managers get their fingers too deep into the corporate honey pot through excess expenses like a private plane too many, over compensation gone crazy, acquisitions that go awry, and many other issues, you the depositor are just screwed since you don't have the influence necessary (as an individual depositor) to demand that you have equal rights to any assets that remain in the event a bank goes under. Instead, other banks that should very well have professionals on staff to evaluate credit issues and the likes prior to even loaning money to your bank will have more rights to your money than you do. And, do not forget those guaranteed golden-parachutes for high ranking company officers that would certainly still be OK'd by any bankruptcy judge, giving the group that led the bank into default more right to your money than you also.
To me, this is just one of many many examples of how corporations and large influential entities like wall street investment houses and banks in general have engineered contracts to best protect their money. So what if the individual term-depositor loses their money? This just seems so utterly backwards to me. And, it could change, but it would take organized protest from all depositors to accomplish -- but, where would anyone deposit money while they protest?? Aha! There is the problem. Since, all banks implement the same basic rules, you can not protest one by moving elsewhere since it is the same everywhere.
In the mean time, I guess we lowly customers of the bank are just to hope they do not go under for any reason.
And, I picked on just banks today. There are many more cases of this type of insane consumer agreement that you must "agree" to in order to use a given service, when companies know you have no option or power to negotiate any of the terms of the agreement due to the fact that wherever you go, the rules are going to be roughly the same.
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