Buttons and Levers for Lenders and Debtors

One Thursday afternoon, I told my son that I didn’t want to get anymore emails home from his teacher telling me that “he didn’t finish his classwork at school today.”  I further stated that if an email was sent that he wouldn’t be allowed to play computer games at all that weekend.

Near the end of the school day on Friday, my boy was close to finishing his work, but not quite done.  He and his teacher were having their daily argument about completing classwork.  That’s when my son asked his teacher not to write an email to me because he would lose computer.

Surprise, surprise, I got an email from his teacher that afternoon.  My son told me about what happened during the day, and I had to chuckle a little bit.  Here’s the approximate conversation that ensued.

Dad: If I give you a box with a huge red button on it.  What do you want to do with that button? 

Son: Push it.

Dad: It feels good to be in control of things, doesn’t it?  Like holding the TV remote or being the moderator on a multiplayer game.

Son: Yeah.

Dad: Being out of control is a scary feeling for people.  We all really want to feel like we are the masters of our circumstances.  It feels good to feel like we’re controlling the outcome of things.

Son: Ok

Dad: Your teacher’s job is to make sure that each of her students learns a body of knowledge during their time in fourth grade.  How do you think she feels when a student isn’t showing their understanding of that knowledge?

Son: Bad.

Dad: And do you think she might be scared that she’s not doing a good job if the student isn’t showing that they know all the stuff they’re supposed to know?

Son: Yeah.

Dad: When you told her that she could control your weekend access to video games by writing me an email, you put a big red button in front of her.  You showed her a way that she could have more control over you.  You hadn’t been getting your work done, and here is a big bright button that will make you want to do whatever she wants you to do.  And what happened?

Son: She pushed the button.

Dad: Yep.  That’s what’s happening when someone complains that someone else is pushing their buttons.  A person is using knowledge about some else to manipulate and control them.  I do that with you all the time.  I’m doing it to try to help you make good choices and develop into a person that will be able to thrive in the world.  Sometimes, people will push your buttons for their own selfish reasons.  Sometimes people will push your buttons for good reasons.  Why did your teacher push your button?

Son: She wants me to get my work done.

Dad: Is that a good thing or a bad thing?

Son: A good thing.  She wants me to learn.

Dad: That’s right.  She doesn’t want to hurt you in the long run.  She needs you to be able to get work done at school and she’s trying everything she can think of to guide you to make that decision for yourself.

Son: Yeah.  That makes sense.

Dad: Now what was your mistake here?

Son: Not doing my work at school.

Dad: Well, obviously that’s a problem, but I’m talking about the button.

Son: I showed her the button?

Dad: Bingo.  If you reveal ways that someone can manipulate your situation, chances are that someone will use those buttons to make you act or think the way they want you to.  We don’t need to fear people, or to keep secrets or hide things.  But we also don’t want to enter an interaction with someone by revealing ways that person can exert control over our choices.

 

We learn what our buttons are when people push them and we don’t like it.  And then we learn to limit peoples’ access to our buttons, so that people don’t just push them to manipulate and control us.  But that doesn’t mean our buttons are weaknesses or that pushing our buttons is wrong.

The glue to any negotiation between people, whether it’s an agreement to finish a worksheet before the bell rings or an agreement to repay a million-dollar loan over thirty years, is to communicate clearly and directly.

Herb Cohen’s You Can Negotiate Anything describes the process of communicating effectively when trying to construct an agreement with someone else.  Stephen Covey’s 7 Habits of Highly Effective People describes the painstaking process of uncovering a person’s true desires and motivations, or more accurately positioning yourself so they feel safe enough to reveal those desires to you.  Both authors are concerned with generating the most mutual success from any interaction.  And in both books, finding the path of greatest benefit comes from carefully understanding each other’s goals and motivations and balancing them with equal weight against our own.  Finding ways to make accommodations rather than concessions.

 

I’m in the process of slowly piecing together a chart that shows all the leverage between borrower, lender, myself and my bank for my AutoPay service.  Being able to clearly communicate the ways that the risk is controlled, mitigated, overseen and monitored for every payment that runs through my AutoPay service is an important step in ensuring the payment system is able to run effectively.  Illustrating all the buttons that a borrower can press on the lender, a lender can press on the borrower, the lender and borrower can press on me, and I can press back.  Even the buttons my bank is exposing by making this arrangement and my buttons that can be pressed by the bank.  All of these complex relationships require trust and disclosure to work well.  And also to account for the fact that sometimes people are going to be in a difficult situation, and will make some choices that don’t take into account the best interest of other affected parties.  It’s critical that the right set of buttons and levers are exposed so that someone making a bad decision doesn’t have the chance to create great harm to anyone else.

 

So where am I going with all this?  It comes down to the buttons and levers that we spell out in our agreements with our customers, borrowers, tenants… everyone we interact with from day to day.  In our loan contracts, we spell out which levers will be pulled and which buttons will be pressed under what circumstances. 

Banks make standard mortgages that have a well-defined set of button presses and lever pulls.  Many of Moneylender’s customers are making loans that are not required to follow the same terms.  It is often the case that a deal is struck between lender and borrower as the result of discussion about the unique situation to be financed and finding creative ways to put buttons and levers in the deal where the lender can use them to protect their capital.

 

The buttons and levers must be used with balance, and that balance must be integral to the agreement between borrower and lender.  Virtually every author I’ve read believes in the idea of cooperation, mutual benefit, collaboration, synergy.  The best victory is not where there’s a winner and a loser.  The best victory is where everyone wins.  Not through compromise, but through a deep mutual understanding of each other’s values and needs.

 

The practical application of this point is to communicate the essence of every button and lever with the borrower when exploring and formalizing the deal. 

If the borrower can’t pay right now, here’s how the lender will address that deviation from the ideal path.  Perhaps the missed payment can be overlooked.  Perhaps a fee is charged or interest is capitalized.  Perhaps the lender will immediately take possession of property or assume responsibilities from the borrower.  Is it more desirable for the borrower to bounce a payment or simply not make a payment?  Does the lender want the borrower to reach out by phone or email when a payment is going to be missed, or is there no desire for communication? 

If the borrower can’t pay for a long time, how will both parties address the situation.  Will collateral be collected?  Property taken over or sold?  How desirable or undesirable is a certain outcome to the lender?  Is the lender quite comfortable selling the borrowers house to cover the debt?  Does the borrower know that?  Rather than dragging out a bad situation for a long time, the borrower might have chosen to surrender property if they knew the lender really wouldn’t mind that outcome.  Conversely, the borrower might put more effort into avoiding an outcome if the lender has been clear that selling a house would be a major inconvenience.

What if the collateral doesn’t cover the balance of the loan?  How will borrower and lender handle that situation?  Are both parties in a kind of partnership where a failed deal doesn’t mean there won’t be future deals, or does a failure mean that lender will never work with borrower again?

And for the borrower, how risky does the borrower really think this deal is going to be?  Is there a strong chance the deal might lose money, and the borrower expects the lender to take some of the risk of failure?  Can the lender share in the benefits if a deal is better than the borrower expects?  Does the borrower have instability in their job or income sources that might affect their ability to make consistent payments?  Would it be better if the lender could expect more sporadic payments?

How devastating would a property surrender be to the borrower?  Would giving up a house or a car be traumatic, or does the borrower have only minor attachment to the collateral property?  Will the borrower happily do the legwork to liquidate the property for the lender if the lender deems it necessary?

These lines of inquisition, tailored to the nature of your deal with a borrower, can uncover the real motivations and values for borrower and lender, and help identify unexpected options and opportunities.

 

Communication is so important to any relationship, when business of personal.  Take the time to understand and be understood beforehand.  Reveal your buttons when you’ve established mutual trust.  I suspect you’ll be pleasantly surprised with the outcome.

 

Happy lending!

Josh Whitman, CEO
Whitman Technological Corporation

Moneylender Professional - Loan Servicing Software
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