Forcing banks to change
Finance Minister Pravin Gordhan wants banks to lower some of the fees they charge. He formalised this plea at a media briefing in Pretoria earlier this week. “Fees charged must be lower than they are, whether for low-income or high-income accounts,” said Gordhan, who met with the chief executives and chairmen of South Africa’s major retail banks on Monday. He also wanted simpler processes for debit order cancellations, transparency and education on ATM charges, and for banks to make it easier to switch accounts from one bank to another.
Gordhan will soon learn that squeezing fee concessions from the country’s leading banks is more difficult than balancing the national accounts through recession. The Competition Commission, which recently completed a study into uncompetitive fee practices in the domestic banking environment and produced a 590-page report with its findings, is powerless to act. It’s hardly surprising then that banks chose largely to ignore the Commission’s recommendations. If we recall correctly, the uproar following the report’s release centred on efforts – fortunately unsuccessful – to ‘hide’ certain sections of the report from the public rather than on the excessive fees foisted on them!
Forcing change
Most of the censored comments were admissions by banks that their fee-practices were excessive. Banks admitted, for example, that cost savings due to technological advances and increasing numbers of transactions weren’t necessarily passed on to the end user. Banks went as far as admitting their charges for rejected debit orders (and other rejected payments) were unreasonable! Their position is understandable. Banks exist to generate the maximum possible return for their shareholders. And their complex transaction-fee structures are designed to make it difficult for consumers to compare one product offering with another.
The lack of change following the Competition Commission investigation is because there’s no political (regulatory) will to force banks’ hands on fees. Gordhan said the banking regulator was one avenue that might be pursued in future, but added that civil society (and more active consumer lobbying) would have to play a part. In other words, if you want fees lowered, you’re going to have to take the fight to your bank. We’ve tried the minister’s suggestion on a numerous occasions, with rather disappointing results. It’s clear the banks’ ‘take it or leave it’ attitude is entrenched at every point of customer contact.
Using regulation to hike fees
If you want examples of excessive fees you need only scan your bank and mortgage statements. A couple of years ago my bank started charging me a monthly ledger fee (now R23) for the privilege of an overdraft facility. This fee is over and above the ridiculous interest already charged for ‘borrowing’ money. It doesn’t sound like much, until you multiply the amount across thousands of accounts. Banks have used mortgage facilities to squeeze massive fees from their books too. After charging an initiation fee and an inspection fee at loan inception, banks feel it’s necessary to charge a monthly administration fee too, linking the fee to the bond amount despite the ‘service’ being exactly the same. Banks then generate huge fee increases by moving these limits. To illustrate, the monthly ‘service’ charge on one of my mortgages rocketed from R5.70 to R37.50 recently.
And then there are those niggling fees we shouldn’t even know about. My favourite example of ‘price increase by stealth’ is the 85c (previously 60c) my bank charges me for each SMS payment confirmation I send. I don’t know about you; but I can buy an SMS bundle at 30c per SMS. The bank’s slightly lower charge for an email confirmation galls too, because email is virtually free!
Cut executive pay
While banks fleece customers on one end, they reward their executives handsomely on the other. Although banks claim they have to pay executives as much as they do to retain skills, there is increasing global pressure for such remuneration to be reined in. “We think that banks need to be sensitive and we will be governed by what forums such as the G20 agree on that point,” observed Gordhan, as South Africa became the latest economy to question excessive pay to top bank executives.
Shareholders are growing impatient too. A case in point is the recent R7.5m ‘golden handshake’ paid to outgoing Standard Bank group chairman, Derek Cooper. When the payment was put to the vote, only 57.5% of shareholders voted for the bonus, with 40% against and the rest abstaining. This is one of the ‘closest’ remuneration votes in recent times.
Editor’s thoughts: South Africa has engaged its banks around the fees issue on numerous occasions. Each time the banks have taken a conciliatory stance, engaging ministers and commissions of enquiry, and promising to make changes. But nothing ever happens. Should government introduce legislation to force banks to change their fee structures? Add your comments below, or send them to gareth@fanews.co.za
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