Lip Service

Sydney Morning Herald

Wednesday April 18, 2001

Anne Lampe

Consumer frustration over the major banks' magical ability to steadily raise fees has manifest itself in a political campaign for change, writes Anne Lampe.

It has taken the banks a long time but recently their representative body, the Australian Bankers Association, acknowledged that the banks do have a responsibility to the community that is wider than their shareholder base.

Until now, shareholders have taken first, second and third position. Customers came fourth and the position has been that the banks have no social obligation.

But we are in an election year and the Federal Opposition is breathing down the banks' necks, saying that if it wins government at the end of the year it intends to put a brake on escalating bank fees, make the banks more accountable to the community at large, as well as customers, and impose a longer notice period on the closure of bank branches.

So what is the banking landscape likely to look like? Bank consumers have been regaled with a raft of changes announced in the past month. These include:

* That the Reserve Bank will investigate the fees banks charge each other when their customers use other banks' ATMs and eftpos facilities;

* That the 10 biggest banks will provide basic ``safety net" accounts that offer no account-keeping fees to about 5 million of Australia's poorest customers and pensioners;

* That more notice will be provided to customers and bush communities about intended branch closures and that more attention will be given to providing face-to-face services in rural and remote areas.

The measures sound good, but are they? There are many in the community who say the spin doctors have spun their yarns well, but under the glitz bank customers are really no better off.

While advances in technology have given us night-and-day access to our cash from thousands of ATM locations as well as the ability to conduct transactions via the telephone, an eftpos machine or on the Internet, the net result is we are being increasingly deterred from banking in a branch and are paying more for every transaction. And those who prefer face-to-face banking are being treated as the great unwashed. In short, we are paying to process our own transactions.

A survey conducted by the Reserve Bank in June 1999 reported that between 1995 and 1999 monthly account-servicing fees doubled, from $2 to $4; an ATM transaction, using the customer's own bank, increased from 40 to 60; the cost of using another bank's ATM soared from 40 to $1.30; and an over-the-counter withdrawal more than doubled, from $1 to $2.15 (see table).

Fees have continued to rise since then.

At the same time the average number of free transactions allowed each month fell from 11 to eight and the balance range required to waive account-keeping fees changed from between $300 and $500 in 1995 to between $0 and $1,000 in 1999.

In Naked Among Cannibals (Allen & Unwin, $29.95), a recently released book about the history of the State Bank of NSW (more recently Colonial and now absorbed by the Commonwealth Bank), author and former assistant treasurer of the bank, Graeme Hand, notes that the bank was the first to introduce over-the-counter transaction fees, starting at 50.

Hand writes that State's competitors soon adopted its initiative as a way to develop a revenue stream away from loan margins, which were rapidly shrinking as non-bank financial institutions tackled what was until then an oligopoly on home loans.

The banks' fee income now typically brings in just less than half their revenue. Since 1993 the big four banks' combined profit after tax has climbed from $1.3 billion to more than $8 billion.

In a more general fee comparison study carried out last year in the UK, the account fees of 100 banks in the US, Canada, France, Germany and Australia were surveyed. It was concluded that Australia and Canada have the most expensive personal current accounts.

In France, cheques are free by law and all cardholders have unlimited free eftpos and ATM usage. Australia has the highest ATM charges.

It is no surprise there is such uniformity among the Australian banks' fees. In his book, Hand refers to the way the banks communicate fee changes to and leapfrog one another, taking it in turns to introduce a charge which is then adopted by other banks over the next few months.

With credit card fees and interchange fees, the collusion between the banks and credit card companies appears to be more direct.

In documents filed in the Federal Court in an action that the Australian Competition and Consumer Commission (ACCC) is taking against the National Australia Bank, Visa, MasterCard and Bankcard, dates and details are given of meetings between officials of all four major banks and the credit card companies at the headquarters of the Commonwealth Bank and the NAB. It was at these meetings, the ACCC is claiming, that fees were set at 1.2 per cent of transaction values for credit card transactions and 0.8 per cent for electronic transactions.

The ACCC is claiming that these fees were hidden from the public and are quite separate from credit card fees and interest rates.

Last week the Reserve Bank announced it will ``designate" new standards for the credit card system aimed at boosting efficiency and competition. But consumer groups fear those standards may lead to surcharges on credit card use and encourage banks to lift other service fees.

But what of the recent announcements released with such flourish by the ABA?

``We're extremely disappointed with what is actually on offer and that the ABA appears to be suggesting it is a full response to community concerns," says Louise Petschler, the finance policy officer at the Australian Consumers' Association.

``Six free transactions a month, with three over the counter, is ungenerous almost scrooge-like in terms of the safety net [banks] are offering the most vulnerable groups in the community. It doesn't significantly advance the industry from where they already are with their basic accounts," Petschler says.

``The ABA's own figures [show] that, on average, Australians have between 10 and 20 transactions a month and at the very least that is where we expected [the banks'] free transactional limits to go. And to go with six, with three over the counter, is the very barest of the minimum standard you can put out there."

But more importantly, the ACA says there is no provision in the ABA's announcement for the fees that will apply on the basic account once consumers use their six free monthly transactions. If they are charged, say, $2.50 for each additional transaction, they may end up paying $10 a month on the basic account.

``Clearly it is not fee-free banking. That is misleading. They should have represented it for what it is, which is a very bare minimum standard. If we look at what happens in other countries with so-called basic bank accounts, in the UK it is really fee-free banking and consumers can make as many transactions as they want without incurring any transaction or account keeping fees," Petschler says.

In Canada it looks as though the industry will offer between eight and 15 free transactions on no-frills accounts and in the US there is legislation that a minimum of eight free transactions are provided.

The ABA defends its position. David Bell, executive director of the ABA, says: ``Let's make no bones about it, this is a basic bank account." Bell says that while six is the number of transactions that are free, they are withdrawal transactions deposits and automatic debit transactions are free. Including those increases, the number of free transactions is about 10.

``The other thing is that the figure we gave to the banking committee is [the] average [figure]; this is the basic bank account," Bell says.

But accelerating fees in general are what concern consumer groups. ``The other thing we want to address is that all transaction [account-holders] are paying too much in fees. Except high-value customers, who in general won't pay any fees," Petschler says.

``And there is no commitment to enter into any review of existing transaction fees, [put a] cap on the fees or a moratorium on new fee increases."

Customers are now aware of high bank dishonour fees (up to $35), duplicate statement fees, safe custody fees, access to safe custody fees and the fees charged to transfer funds to other banks. A decade ago all of these were non-existent.

And banks keep finding new ways of charging.

Recently, NAB shortened by 13 days the payment period of Bankcard instalments. It has not raised the interest rate but is likely to earn more interest from its customers because they no longer have as many interest-free days on their account.

And ANZ has introduced a new fixed fee of $1.50 for each cash advance on its credit cards as well as a percentage fee on the cash withdrawal, on top of the annual interest charge.

Chris Connolly, director of the Financial Services Consumer Policy Centre, says that as soon as the Government focuses on one area of fees, there is pressure on another sort.

``At the moment there is pressure on credit card fees, interchange fees and transaction fees," he says. ``In the meantime the bank will make up fees elsewhere. Unless you get a co-ordinated approach to fees and charges, there is no way of ensuring that the banks don't make up the shortfall elsewhere."

Transaction and account-keeping fees aside, consumer groups are not happy with the closure of rural and remote branch protocol because it does not extend to regional and urban branches.

``The small print in the package is that [the banks] are not doing anything more than they are required to do today and it is only three months' notice," Connolly says. ``The Labor Party is promising six months' notice and a commitment to face-to-face banking, even if it might require a levy on banks or a post office service.

``In Canada, which has the same sort of problems as here as well as having big rural communities ... there is legislation that three months' notice must be given for towns and four months for rural areas."

Bell says the banks have an ongoing commitment to rural and remote face-to-face banking and that the ABA is listening to the community about urban and regional branches.

Meanwhile, Bendigo Bank is capitalising on the rural and urban disaffection over branch closures and is stepping into the breach. It has opened 37 community branches so far and expects to open about 15 more by the end of the year.

It is processing 1,500 enquiries on further branch openings. The tide is turning for the major banks, and it is not in their favour.

How bank fees have escalated

 Fee category           1991            1995            1999            %change

 Account servicing (m)  0               2               4               100*
 Transaction fees
 Own bank ATM           30c             40c             60c             100
 Other banks ATM                30c             40c             $1.30
333
 Counter withdrawal     50c             $1.00           $2.15           330
 Free transactions              11              11              8
-27
 Range of minimum
 balances to waive account      $0-500          $300-500                $0-1,000
                $0-500
 keeping fees

© 2001 Sydney Morning Herald

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