The battlefield of the real banking war has shifted to the corridors of Parliament. Howard Barrell reports
The major banks, stung by perceptions that they don’t care about customers and charge as much as they can get away with for their services, begin hawking a new draft banking code of conduct around consumer groups this month.
The banks say the intention is to make the new code easier for customers to understand, enabling them to push harder for “fair and just” treatment.
“It will spell out the responsibilities of both bank and client more clearly. The Banking Council, together with the ombudsman, has already negotiated a number of major concessions from the banks,” according to Bob Tucker, CEO of the Banking Council. He did not spell out what these concessions might be.
The revised draft, based largely on a banking code introduced in Britain in 1997, is part of a counter-offensive by the banks against a rising clamour of dissatisfaction among consumers and within the government over the charges they impose and the quality of the services they provide.
The banks will, however, oppose any attempt to make the new code legally binding. “This would be a serious mistake, as the code of conduct is an aspirational document that reflects the intention of the banks to do better than the law prescribes,” Tucker told a special hearing held by Parliament’s trade and industry committee this week into the banks, their charges and the difference between the rates at which they borrowed and lent. Consumer dissatisfaction was the major theme of the hearings.
Bruce Cameron, a personal finance editor, told the hearings that, in the course of an investigation into bank charges, he had come to the conclusion that “some banks had the policy of virtually charging to the extent of the pain a customer would take”. His investigation has led to him and his paper “being subjected to a shocking campaign of vilification and intimidation”, he added.
Tucker acknowledged that there had been an increase in bank charges “in certain segments of the market” in recent years. A simultaneous “revision of services” had led to “perceptions of a decline in the quality of some services”.
He said South African banks had been forced to raise charges on customers’ accounts because these had been allowed to lag behind increases in costs, notably of moving and storing cash and of computer equipment.
Tucker said that, for commercial reasons, in recent years South African banks also had to shift the burden of bank charges from their richer customers to their poorer customers.
Previously, banks had been using the profits on the accounts of those of their customers able to save to subsidise the accounts of customers who had low balances and conducted a lot of transactions.
“They had been using the profits made in the high-value segments of their market to subsidise the low-value segments,” he said.
But, over the past few years, “newly established South African and foreign banks began competing for the high-value business of the four major banks. These banks were left with no alternative but to match the competition and stop the cross-subsidisation. “The transactors would in future have to pay the full cost of the banking services they used,” he said.
Tucker, however, denied that South African banks were making big profits on the backs of the poor. He described the allegation as “dangerous”. He said he was concerned that banks “are not liked”.
Alistair Ruiters, chief director of business regulation at the Department of Trade and Industry, said the banks were using high charges to force lower earners out of the mainstream of the economy.
“This shift away from provision of services to the lower-income segments is achieved primarily by discouraging clients through closing branches, increasing over-the-counter fees in particular and service fees in general, and by imposing onerous requirements for opening accounts and accessing credit,” Ruiters said.
This had forced the poor to throw themselves on the mercy of unscrupulous moneylenders. “Individuals accessing this emerging market for financial services have become the victims of an industry which is free to pursue notorious and damaging practices which leave consumers heavily indebted and robbed of consumer rights,” he added.
Tucker said Ruiters was making “dangerous generalisations”.
Tucker told the hearings that the system of bank charges operated by South Africa’s main banks was so complicated that even a consultant hired for the purpose had been unable to compare the charge structures and packages being offered by them.
But it had been possible to average these costs out to compare banking charges in South Africa against those in some other countries. This comparison showed that banking in South Africa was nearly twice as expensive as in Britain, though only about half as expensive as in the United States.