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Fixing fees for profit

bank_feesBy Arthur Hall, Senior News Editor, From Jamaica Gleaner

NOTE: The dollar amounts mentioned in this story are Jamaican Dollars (1 Jamaican Dollar equals 0.0091 US Dollar)

Banks increase earnings from transaction charges -CaPRI

A just-concluded study by the local think tank, Caribbean Policy Research Institute (CaPRI), has found that the income earned by banks from fees and commissions has increased significantly in many Western economies since the early 1990s.

According to CaPRI, its study provides some preliminary support for the conjecture that Jamaican banks increased fees in a bid to maintain profit levels amid declining interest revenues.

“The trends suggest that decreasing net interest income and net fees and commissions caused profits to fall in 2006. The banks responded to the declining profits by increasing both net interest income and net fees and commissions in 2007.”

debitcardssignCaPRI noted that the net fees and commissions decreased slightly between 2008 and 2009 when the increases in net interest income were sufficient to maintain the trend of increasing profits, but rose significantly between 2009 and 2011 to compensate for the decline in net interest income in 2009.

similar findings from CAC study

The CaPRI findings are in line with a study by the Consumer Affairs Commission (CAC) which has reported that an analysis of data it gathered on the rates and fees charged by commercial banks in Jamaica for 2009 to 2013 revealed that since 2009, with respect to savings accounts, both the withdrawal and deposit fees at the Bank of Nova Scotia have experienced a 115 per cent increase, moving from $100 to $215.

It said for the National Commercial Bank, withdrawal fees were also increased by 115 per cent, moving from $100 to $215.

The commission said the cost of withdrawing funds from savings accounts at RBC Royal Bank has moved from free in 2009 to $175 in 2013, while the charge for withdrawing from savings accounts at CIBC FirstCaribbean Bank increased 129 per cent, from $70 in 2009 to $160 in 2013.

consumers against fees

According to the commission, data from its Complaint Management Database revealed that the main issues consumers had were automated banking machine fees, overdraft fees, penalty fees, dormant account fees, as well as interest charges on outstanding balances, credit card accounts and settlement-of-loan accounts.

That has been confirmed by CaPRI, which found that in Jamaica, as it is internationally, the tendency towards higher bank fees reflects customers’ demands for increasingly sophisticated financial services.

With the study concluding that there is not much the government or regulators can do to ensure lower fees, CaPRI argued that consumer power could force the banks to change.

“The results suggest that lobbying efforts by powerful persons and groups in society can yield some fruit in countries where such groups are highly regarded, as can increased assertiveness by local consumers.

“Ultimately, however, increased competition in the banking sector is needed if fees are to be lowered on a sustained basis,” said CaPRI.

The Jamaica Bankers’ Association has already rejected claims that the increased fees were to compensate for a loss in revenue because of the reduction in interest rates triggered by the Jamaica Debt Exchange Programme in 2010 and the related National Debt Exchange in 2013.

The bankers argue that, “Banks usually charge fees in order to recover some of the operational costs associated with providing their services, which include staff, location, security, technology and back-office processing. Fees are also used by banks to discourage customers from using services which are relatively more expensive for the bank to provide than alternatives available.”

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See related story:

As Fewer People Overdraft, Banks Are Raising Overdraft Fees

By Chris Morran From Consumerist

PHOTO: (James Callan)

If you’re still opted-in to overdraft “protection” — which protects you by slapping huge fees on every purchase you make beyond the available funds in your account — you should probably opt out, as the costs associated with this lucrative system are on the rise.

Since 2010, debit card overdraft protection has been opt-in only, meaning checking account customers have to actively join the program.

While banks have done their best to hide this fact or provide misinformation — like “overdraft protection protects you from bounced-check fees” — to consumers, many have just said no to it, and some folks have just become more conscious of what money they have so they don’t have to worry about overdrafting.

What that means, alas, is that the banks are making slightly fewer billions every year from overdraft fees than they were before. So what’s a bank to do? That’s right — raise the fees to balance things out.

The Wall Street Journal reports that while the average yearly number of overdrafts per account has dropped from 9.8 in 2009 to 7.1 in 2012, the median overdraft fee per transaction has increased during that time from $26 to its current record-high of $30, with some banks charging upwards of $50 per transaction beyond the overdraft line.

Additionally, some banks are selling slightly less-expensive alternatives to standard overdraft protection. Like the Wells Fargo service that allows a Wells customer to link two accounts at the bank so that if one is overdrawn, the money can be transferred out of the other. For this, the bank charges a fee that is only about one-third of its usual $35/transaction overdraft fee.

In defense of overdraft protection, one attorney in Arkansas tells the Journal that he is fine with being hit with more than a dozen $17.50 charges per year for his overdrafting, saying he’d rather pay the fees and know that his bills are getting paid.

But wouldn’t it make more sense for him to put those purchases on a credit card? We’re assuming that he means he generally has the money to pay his bills but that sometimes things get screwy and he overdrafts. If that’s the case, then putting them on a credit card that is paid off in full every month would save him hundreds of dollars a year. Just a thought.

The Consumer Financial Protection Bureau has been looking into overdraft fees since last year. It estimates that some 60% of banks’ fee-based revenue comes from overdrafts.

In an effort to see whether fees charged by banks are in line with the actual costs for providing services, the CFPB has asked larger financial institutions to provide detailed breakdowns of where their fees come from. However, the larger banks are putting up a fight because the current CFPB proposal exempts banks with less than $1 billion in revenue from the reporting requirement.

The bigger banks say that’s unfair because it’s the smaller, mom-and-pop banks that are more reliant on fees for their total yearly revenue. Meanwhile, medium-sized banks are putting up a fuss claiming that the exemption threshold should be at $10 billion, allowing them to get out of disclosing this information.

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