The CEO Who Turns Customers Away

Sept. 18, 2007 — -- If Arkadi Kuhlmann had his way, cigarettes and liquor wouldn't be the only products with warnings. He would also put them at the end of all those warm and fuzzy bank commercials, a skull and crossbones on most mortgage applications and a big, fat caution sticker on the front of every credit card in your wallet.

"We're pushing them on college kids. We're pushing people over the edge, and we're basically giving them only half the story," Kuhlmann said. "There should be a warning sign on there that says 'this could cause death.'"

As CEO of the financial institution ING Direct, Kuhlmann is the rarest of bankers: He refuses to deal in customer-tempting mortgages and credit cards. He finds it immoral to make 21 percent interest on your next trip to the mall, and if you can't afford it, he doesn't want you to go to the mall at all. The only way to save this country, he says, is to save our money.

"I know you think you'll feel better if you buy a new shirt, buy a new blouse or go get your hair done because you're feeling down a bit, life's gotten to you," Kuhlmann said.

"But, the truth is, if you have $500 in your savings account, then you've got self-esteem, because that's the one thing you have control over. Buying a huge mountain of stuff, and then enslaving yourself to payments for it, and putting all of your relationships and everything at risk, is not a good formula."

Those are old-fashioned values for a CEO who rides a purple-and-orange Harley to the office, plays the video game "Guitar Hero" in one of the conference rooms and performs a bit of palm reading to break the ice with a new hire.

Kuhlmann's grandmother taught him that palm-reading trick, when he was an Eagle Scout with a paper route, saving every penny.

Before he quit teaching college economics and got into banking for the purest of reasons, "All these girls I was dating were like, 'You don't have any money. How are you going to take me out on a date?'"

A Bank Without Branches

But, even Grandma couldn't have foreseen the fortunes of Kuhlmann's current venture. In 2000, ING Direct was little more than a business plan on a napkin. The idea was to build a bank without branches and deal with customers only by mail, phone or the Internet.

Kuhlmann set out to build a fast-food model for banking by stripping away all the confusing frills and fees and passing the savings back to the customer.

Seven years later, ING Direct is the nation's largest Internet bank with $75 billion in assets and 100,000 new customers a month.

The numbers could be higher, but Kuhlmann actually turns away potential customers who demand personal attention.

He also won't work with those who want to go into debt for no good reason.

When it comes to finances, Kuhlmann says most Americans are completely clueless and most banks count on it.

"It's like a gambling casino, man, I mean the house is stacked against you. And I think that you're not really equipped to play this game, and all you're hearing from banks like we have in society is, '$299 a month, sign the loan, take the car, enjoy yourself, no problem,' and this is not much different than smoking or doing drugs or doing anything else."

He blames fast-and-loose lenders and our borrow-and-spend culture for the current subprime mortgage crisis.

In recent years, millions of home buyers were lured into no-money-down "teaser-rate" mortgages — exotic loans designed to entice with a low monthly payment up front, but one that balloons drastically after a few years.

Many of these loans were ultimately bundled together and sold to Wall Street. Because the lenders had no intention of holding the promissory note for more than a few months, they gave loans to anyone with a pulse. Now, tens of thousands of those so-called subprime borrowers can't pay — and it has sent the financial sector reeling

Kuhlmann says he doesn't sell his mortgages to Wall Street speculators, and after granting 70,000 home loans worth about $50 billion, only four have been foreclosed.

"I'm not going to give someone a house because they've got a paycheck. What does it make sense to anybody that you can get a $400,000 house to live in, just because you've got a paycheck? You've got no equity," Kuhlmann said.

"When you have hairdressers one day becoming mortgage brokers the next day, did anybody think that was going to be a good deal?"

'Pay Down Your Equity'

In Kuhlmann's opinion, adjustable-rate mortgages aren't the root of the problem. They can be the smartest tool available if a home buyer has the discipline to budget, save and pay down the principal. And he tries to steer those types of home buyers away from 30-year fixed-rate mortgages.

"Why, if the average American moves every five years, do you want a 30-year locked down mortgage that you can't take with you, anyway?" Kuhlmann asked. "My attitude is, pay the lower rate, take that 1 percent and save it. Pay down your equity."

Kuhlmann says the research ING Direct has done shows that Americans emphasize the rich. "When you get 20 young people in a room and say, 'How are you going to do well?' and everyone is looking for the score: 'I'm going to get that high-paying job. I'm going to get that great basketball contract. I'm going to get that great soccer contract,' and so, we really don't celebrate, you know, middle class — what we celebrate is, basically, the star."

When asked by ABC News how his peers in the banking business regard him, Kuhlmann said, "Probably not very well. I put a good face on when they asked me to be innovator of the year last year — which I think was trying to get me over to the dark side. I see this as 'Star Wars.' I am basically Luke Skywalker in an orange jumpsuit, and those guys are the Darth Vadars somewhere."

But, Kuhlmann does have plenty of fans among his troops. In a recent independent survey, 93 percent of ING Direct employees said they are proud to work at a company with fair pay, great benefits and mandatory community service.

"I'm not going to live in a bigger house. I can only ride one motorcycle at a time. I can only wear one pair of pants at a time, right?"

Even so, Kuhlmann isn't hurting for money.

"I'm a capitalist. … You don't see me in sandals and robe on, right? I'm not Gandhi, and I don't pretend to be, but I think we all feel pretty good here."