Attacking service fees

THERESA TEDESCO June 20 1988

Attacking service fees

THERESA TEDESCO June 20 1988

Attacking service fees

BUSINESS/ECONOMY

For irate bank customers, it was a moment of sweet vindication. In a scathing 34-page report last week, the House of Commons standing committee on finance and economic affairs criticized chartered banks and similar institutions for their array of service charges that committee members said were too high, too numerous and too complex. Chaired by Tory backbencher Donald Blenkarn, the group has been studying the servicecharge issue since last fall. Its far-reaching recommendations pleased consumers but stunned the banks. Among other conclusions, the report declared that the government should change the Bank Act to include unprecedented curbs on bank service fees.

The committee said that the existing Bank Act contains little protection for consumers. And to underscore that resolve, the same proposals were contained in a private member’s bill, which another Tory committee member, MP Paul McCrossan, tabled in the Commons last week. According to the report, Canada’s banks levied about $750 million in service charges on consumers last year. According to a background paper prepared for the committee, they include an average service charge of $14 for writing a bad cheque, a $1 fee for paying a utility bill and a $1 monthly charge for accounts whose balances fall below a minimum amount.

To remedy that situation, the committee proposed that banks establish free basic bank accounts. As well, the banks would have to announce any changes in service fees at least 30 days in advance. Under current law, banks must notify customers of service charges, but there are few rules defining when and how the notice must be given.

The banking community reacted quickly and with anger. Although most bankers agreed with the committee’s recommendations about extended notice periods for new charges and disclosure of changes in existing charges, they soundly rejected the MPs’ interventionist approach on fee levels. The suggestion that some basic services be offered free of charge evidently rankled most of all. Said Robert Korthals, president of the Toronto-Dominion Bank: “The big worry we have with the bill is that it gets into market mechanisms for pricing at a bad time for our industry.”

Bank income from service charges has increased by an average of 18.6 per cent a year since 1982. But, in their own defence, bank officials say that

the cost of providing banking services is on the increase. And Robert Macintosh, president of the Canadian Bankers’ Association, was more adamant in his disapproval. Macintosh dismissed the report, calling it political manoeuvring “to satisfy some politicians who are having trouble holding their seats.”

Pledging to fight the bill, Macintosh referred to a study prepared for his organization by a Toronto consulting firm which showed that the service fees charged by the country’s big banks were generally in line or lower than those of the major trust companies, credit unions and U.S. banks.

Although Blenkarn said that he had read the bankers’ association study, he denied allegations that the banks have been singled out. He said that the term “bank” loosely refers to all deposit-taking financial institutions. And because 77 per cent of

Canada’s trust companies and credit unions are federally regulated, Blenkarn said that the new rules would be applied to their operations as well.

Thomas Hockin, minister of state for finance, is reviewing the committee’s recommendations and will likely introduce his own bank legislation by July. But the banks are unlikely to feel the full impact of the Blenkarn report. One government official said that the legislation would probably only contain provisions regarding notification of service fee changes and an ombudsman to handle customer complaints. There would be no direct regulation of fee levels. Said the of^ ficial: “It is not the Tory o government’s place to ; wander into the area of z telling banks what ser| vices to offer and for

0 how much.” That nonin-

1 terventionist philosophy should ease the banks’ fears, but for consumers bank charges will likely remain as inevitable as death and taxes.

THERESA TEDESCO