Banks, which have been exposed in a major report as apparently benefiting from stratospheric fees, can expect to soon be tackled by an independent adjudicator.
The banking industry can expect the same kind of shake-up that independent Pension Funds Adjudicator Vuyani Ngalwana has brought to the life industry, where inter alia the industry has collectively agreed to pay back R3-billion to short-changed clients.
A report, released last week, by lead author Penny Hawkins for the Competition Commission, highlights the absence of an independent banking adjudicator as a key failing in the present structure.
“The lack of a transparent (and unbundled) price guide for consumers and the lack of an independent banking adjudicator to which consumer complaints can be directed has contributed to the apparent consumer resistance to high banking fees.”
The report says the absence of a market regulator for the banks is a long-raised concern by commentators. Market conduct by banks falls outside the remit of the registrar of banks and is also not covered as part of the self-regulation of the national payment system.
Manager of the enforcement division at the Competition Commission, Thulani Kunene, says at present there is no independent adjudicator for the banking industry.
“The banking adjudicator is not an independently funded person. He is employed by the banks. We think this needs to be looked at.
“You need an independent person. The moment you have an independent person, changes happen.”
The report, The National Payment System and Competition in the Banking Sector, found that South Africa’s four major banks may be making profits of R10-billion annually from transaction-related fees, which they earn from the national payments system, key parts of which they control and self-regulate.
It cites a 2004 report by Deloitte that estimated that South African banking fees are the highest in the world, with about 2% of an individual’s income going to pay bank charges.
Kunene says banking costs look high at present. “I don’t want to say they are excessive. We want to find out how much of a charge is cost recovery and how much is profit.
“In 2004 banks made R30-billion from fees from the national payment system. How much is profit? How much is cost?”
The Ombudsman for Banking Services (OBS), Neville Melville, who is appointed by a board, but is paid by the banking industry, described suggestions that he is not independent as “insulting”.
He says R16,2-million was paid to bank customers as a result of the intervention by the OBS last year and “53% of complaints were resolved in favour of complainants”.
Melville says the OSB also highlights problem practices in the banking industry. “We have publicly commented on various shortcomings over the years.
“None of this is consistent with us being in the pockets of the banks, as seems to be implied by Dr Hawkins’s report.”
He concedes, though, in line with international practice, that the OBS normally does not probe fees and charges. “In keeping with the rules of financial ombudsman schemes internationally, the OBS may not consider a complaint or dispute that relates to a practice or policy of a bank (for example, a bank’s general interest rate policy or fees and charges policy), unless it relates to a fee or charge being incorrectly applied by the bank having regard to any scale of charges generally applied by that bank.
“Fees and charges are regulatory issues. The statutory regulators in South Africa that have a say over the banks and their conduct are the Reserve Bank, the Financial Services Board and, to a lesser extent, the Department of Trade and Industry.”
Melville says the OBS “has been and continues to be approached by bank customers who wish to complain about bank fees or penalties in particular.
“A large percentage of consumers who participated in a competition currently being run by the OBS, have commented on the need for fees and charges to be addressed.
“The OBS is exploring the possibility of expanding its mandate to cover policy issues and charges.”
The Hawkins report also recommends that the regulator or adjudicator be made a key participant in the national payments system.
It says private ownership of the (payment) switch does not appear to be the primary cause of high banking fees — the switch fees appear in most cases to be insignificant cost items relative to bank revenue.
Ownership directives to alter the present structure, which is all but completely dominated by the big four banks, may have no more than short-term success, it says.
Rather, board expansion (with voting rights) should be extended beyond the banks to include the regulator or banking adjudicator.
Kunene says a public inquiry will follow the Hawkins report where the banks will be called to explain their fees in a public forum. The commission is requesting public participation in this process. “No bank customer is happy with the charges they are paying.”
He says Section 21 of the Competition Act allows the commission to hold an inquiry to create market transparency. The intention is for the next stage of the inquiry to be on a voluntary basis, but depending on how this progresses the commission is prepared to use its powers of subpoena, if needs be, to get the information it requires.
Kunene says the commission has been in discussion with authorities in other parts of the world, which are engaged in similar inquiries including in the United Kingdom, which is undertaking a four-year reform programme.
“We will not go that long. We expect to take not even half that time.”
Recent international developments cited by Kunene include a decision by Australia to regulate national payment system-related charges and the dispute declared two weeks back by the European Union with Visa and Mastercard.
The Banking Association has welcomed the Hawkins report. It says it cooperated fully with the commission in developing the report and “looks forward to engaging with the commission in unpacking the detail of the report.”
Kroes’d
The European Union is taking action against banks and credit card companies for high card fees charged to consumers and small businesses — fees comparable to those charged in South Africa.
Neelie Kroes, Competition Commissioner for the EU, unveiled a report on April 12 attacking banks and payment card companies for charging uncompetitive rates to cardholders. Kroes gave the industry 10 weeks to come forward with plans to redress these problems
The payment card industry in Europe is closed and dominated by a few players, mainly Visa and MasterCard, according to the report. The Financial Times reported that Kroes called the industry a “closed shop” and accused card companies of making “outrageous” profits.
In the EU, credit card fees ranged from roughly â,¬5 to â,¬65 per annum, or about R30 to R390, according to the commission’s report. The average credit card fee across the 23 countries surveyed was â,¬24, or about R144, according to the report.
South African banks charge fees comparable or higher for their credit cards. Absa, which issues both Visa and MasterCard, charges R76 a year for its silver cards and R147 per annum for its gold cards.
First National Bank, which only issues Visa, annual credit card fees range from R77 to R225. Fees for credit cards from Standard Bank, which also issues both cards, range from R120 to R400.
But the charge of “collusion” is an unfair one, said Gys Woest, chief financial officer of FNB card issuing.
While he acknowledges that card fees are high in South Africa, a number of different factors are behind this. The credit card infrastructure handles fewer consumers, driving up costs.
And South African banks forgo other fees, like card acceptance fees or “administrative” fees, that don’t get factored into annual card fees elsewhere, says Woest.
Rob Clark, senior vice-president general manager for Visa sub-Saharan Africa, says the cost of banking in South Africa is higher than places like Western Europe. As a whole, card fees are not higher than would be expected, he said.
MasterCard did not reply to multiple e-mails asking for comment and the press phone number listed on its Website was incorrect.
A report commissioned by the Competition Commission into the national payment system says 95,8-million credit-card transactions valued at R53-billion were processed for the year ending June 2005, representing annual growth of 19% on the previous year. — Dan Strumpf
Complain here
The Ombudsman for Banking Services (OBS) says it exists to provide individual and small business bank customers with a fair, quick and effective dispute resolution process, free of charge.
“It provides an informal, easily accessible alternative to other remedies, such as court proceedings.
“It deals with complaints in which bank customers have suffered some significant monetary loss, distress or inconvenience as a result of maladministration.”
The OBS last year had 17 165 help desk inquiries and opened 4 092 cases, 29% involving Absa, 28% Standard Bank, 19% Nedbank and 19% FNB.
Cases included unfair treatment (23%), maladministration (22%), fraud (21%) and negligence (12%).
In 1 717 cases (46%) the complaint was not upheld, in 795 cases (21%) the complainant’s claim was fully upheld and the full amount claimed was awarded, in 643 cases (17%) no award was made but assistance in the form of information was provided, and in 527 cases (14%) a portion of the claim was upheld.
The report highlights mortgage finance, lost cheques, bogus cheques, suretyships and ATM losses as the key issues for banks to address. — Kevin Davie