May 7, 2017 Jwala Rambarran 4Comment

Less than a month after the airline he runs dragged an elderly passenger off one of its flight in a brutal manner, the CEO of United Airlines was hauled before a committee of the US Congress to explain the many shortcomings customers are forced to put up with from the airline industry.

United Airlines under his watch had done wrong and as the CEO he was called to account for his company’s actions at a Congressional hearing. The CEOs of four other airlines were there as well. The matter was serious enough that US lawmakers wanted to get answers directly from the persons who are charged with managing an industry that has stirred feelings of disgust and resentment from its own customers.

I imagine members of our Parliament’s Joint Select Committee (JSC) on Finance and Legal Affairs started their probe into bank fees for similar reasons as US lawmakers summoning airline executives to Capitol Hill – they wanted those directly responsible for managing banks to account for the seemingly random, anger-inducing fees they charge customers for their services.

Signaling its intention to conduct a meaningful probe into the controversial national issue of bank fees, the JSC had summoned the Central Bank Governor to its first hearing, and the Bankers Association of Trinidad and Tobago (BATT) to its second hearing. BATT was represented by its President, Ms. Anya Schnoor.

But it’s here that similarities between the JSC in Port of Spain and the US Congressional hearing in Washington DC ended.

US lawmakers on Capitol Hill had taken a relentless approach as they grilled United’s CEO on the airline industry, seeking answers on the public’s behalf. The CEO of United Airlines owned up, apologized and vowed to do better to improve service for the flying public.

Regrettably, this would not happen in Port of Spain. Unlike the first session of the bank fees probe two months ago, when members of the JSC set the bar high for the way they were going to investigate this matter, the second time around was disappointing as they let the bankers off easy.

In fact, if this were a game of Monopoly, I would say the JSC gave the bankers a “Get Out of Jail Free” card.

I find it absolutely disgraceful that the CEOs of three banks – First Citizens Bank, Scotiabank and Republic Bank – were present at the JSC’s second hearing, but instead of taking direct responsibility to explain and account to the public for their own bank’s policies on fees, they cowardly hid behind their association as BATT representatives.

These bank CEOs used the excuse that since BATT is not involved in the business decisions of its member banks they couldn’t comment on any questions with respect to setting of fees by individual banks. In this current battle between secrecy and transparency, secrecy is winning.

This is unacceptable. We bank with a commercial bank, not with BATT. The terms of reference of the JSC is quite clear: to inquire into bank fees and charges imposed by commercial banks, not by BATT. As Ms. Schnoor herself admitted, “charges and bank fees are determined by individual pricing considerations”, not BATT.

So hiding behind BATT does not explain why Scotiabank has the highest incidence of personal banking fees. Hiding behind BATT does not explain why Republic Bank offers the most number of free banking services.

Most importantly, hiding behind BATT does not explain why the observed pricing behavior of the four largest banks raises suspicions about the potential for them to collude in setting fees in some parts of the personal banking market.

Ms. Schnoor’s curt and dismissive attitude to the claims of collusion and price-fixing among banks without offering irrefutable evidence on this serious matter is simply not good enough. It demonstrates a worrying indifference to public opinion on whether there’s some sort of agreement among banks to limit open competition, an act which is illegal.

I’m sure many citizens would welcome a candid explanation as to why the four largest banks – Republic Bank, First Citizens, RBC Royal Bank and Scotiabank – show little variation in their fees for 24 personal banking services.

Two months ago, after its first hearing, I had called on the JSC to “give further consideration to the possibility that the four largest banks are abusing their dominant market position”. Today, I reiterate that call.

Ms. Schnoor and other bank CEOs have inflicted reputational damage on the banking industry. Their “we are above all” attitude worsens this damage. In Washington DC, there was acknowledgement and contrition from the CEO of an airline company. In Port of Spain, there certainly was no contrition from bank CEOs.

Then again why would bank CEOs be humble, as far as they are concerned, they’ve done nothing wrong. Their fees are justifiable; banks are noble businesses contributing to our economy which from the way they make it sound might collapse should they leave. However, bank CEOs do have reason to apologise to us.

Let me cite an excerpt from my article, “Bank Fees…the Good, the Bad and the Very Ugly”.

About a decade ago, banks used earnings derived from their main revenue stream, interest income, to meet their overhead costs. Interest income essentially reflects the spread between the interest rates charged by banks on loans to borrowers and interest rates paid by banks to depositors. Bank fees and service charges were moderate.

Today, very low interest rates and weak loan demand have put significant pressure on interest income while leaving banks with still high operating costs to meet the needs and convenience of their customers. In these circumstances, banks have turned to income from non-interest sources, especially fee income and foreign exchange trading, to support their operations and profits.

This is what citizens need to remember, a bank’s core business is not about earning revenue from fees, but from loans. Banks, however, have failed to generate new lending streams despite the prevalence of numerous under-funded economic sectors like agriculture, creative industries, and small and medium enterprises. Instead of exploiting these new avenues of business, banks prefer to extract as much as they can from their guaranteed captive pool of customers.

Fees and service charges are not meant to prop up a bank’s profits. If they do, as is currently the case, then banks are not fulfilling their core purpose to the country, a purpose which in the words of Ms. Schnoor is, “channelling funds from depositors to borrowers, thereby increasing economic efficiency”.

That’s why I say banks need to change their position, and stop trying to defend their fees.

Bank CEOs, however, are clearly not ready to humble themselves neither before the JSC, nor their customers. During the hearing Ms. Schnoor used data from BATT’s “independent research” to make themselves appear less villain and more victim, but this failed.

Government Senator Michael Coppin citing my article on “Bank Fees…the Good, the Bad and the Very Ugly”, said, “Service charges now comprise the single largest source of fee income for commercial banks in Trinidad and Tobago. In 2015, banks earned $835 million in service fees, or about 70% of their total fee income. A decade ago, banks collected $330 million in service charges which represented just over half of their total fee income.”

When questioned by Senator Coppin on whether this statement was accurate, Ms. Schnoor replied it was incorrect, effectively seeking to discredit my work. Ms. Schnoor instead sought to “pull wool” over the eyes of JSC members, comparing bank fees to the widest possible base of total operating income.

This wide base not only comprises fee income but also includes interest income, foreign exchange income, and other income. She, therefore, deceptively produced a smaller, more palatably acceptable “headline” number where bank fees account for between 7-11% of total operating income.

What Ms. Schnoor deliberately failed to inform the JSC is that whether one uses my narrow and more relevant base or BATT’s wider base, it does not refute the main contentious argument: banks rely heavily on fees and service charges to support their revenue position.

My research was thorough and accurate. I stand by the integrity of my research.

In her attempt to further play victim, Ms. Schnoor also made the utterly ridiculous statement that banks face fierce competition from credit unions and the Unit Trust Corporation (UTC).

Really!!! I guess the haze we see over Trinidad these days is snow, not Sahara dust.

Banks dominate our financial services landscape. They hold almost 45% of total assets of the financial system. Credit unions, on the other hand, hold less than 5% of total system assets. So where’s the competition?

Let’s look at the UTC. The UTC holds around one-tenth of total assets of the financial system, substantially far less than banks. The UTC does not accept deposits from the public. Banks do. The UTC does not grant loans to the public. Banks do. The UTC does compete with banks but in the area of investments and wealth management, where the real fight is for surplus funds of high net worth individuals, not the man in the street. So where’s the competition?

I look forward to the next session on bank fees. I humbly suggest the Chairman of the JSC invite the bank CEOs, the exact same three executives who appeared before them on Friday and include the CEO of RBC Royal Bank to its next hearing, so the public can hear from these leaders their views on this burning national issue.

The JSC should treat with them as bank CEOs and not as members of BATT. It’s the only way the JSC’s mandate can be successfully achieved and citizens can get answers to the questions the JSC is asking on their behalf.

By holding those responsible for the practices of their business, US lawmakers on Capitol Hill are now set to slowly change an entire airline industry for the benefit of the public.

The JSC should remember, isn’t change in the public’s interest the point of all of this?

4 thoughts on “Bank Fees Reloaded…For a Few Dollars More

  1. Great article. Banks have technological devices and people are responding by using Mobile Internet and atms for transactions. Therefore the costs and charges should be reduced. Look forward to reading your next article.

  2. Excellent article…One must ask the question, who are the directors of these banks? Secondly, do these directors have ties with the current PNM government? But don’t worry, we Trinidadians continue to be abused and used by this government with no real action….

  3. Banks fail to realize the power their customers hold: what do you think would happen if everyone is making a run for their money and demand to cash out…. Banks would be in some deep trouble as they don’t have all of it…

  4. Try the truth if you can from an Outlier…
    Banks are heading for the graveyard, well some or large parts of their operations are slow and yet over-manned as they are executed with poor speed. They will not survive single years, ten at the most, in their present service delivery. This is not how banking operates elsewhere in the modern world. In the background we have the secure blockchain transaction systems, that are now well analysed and in design and execution stages with many large banks. Here lies the revolution and they will not be telling you about this until they are ready – so prepare your careers accordingly.

    The second highly probable revolution is cell phones becoming the banking infrastructure, together with the Internet. Even in Kenya, non-smart cell phones are the new banks and 43% of the nation’s commerce is transacted on these non-smart phones by 83% of the adult population. They do all their retail banking, loans and savings through a network of retailers happy to oblige…!

    Yet in Trinidad we are so muddled that we have the two date formats of North America and the version used by the rest of the world. In some cases we do not know if a date is the 1st of December or the 12 of January (1-12-2017 versus 12-01-2017), so why do we have an office that supposedly provides us with Standards yet we do not even have an operating ‘Sell-by Date’…please! This makes us a laughing stock for foreigners looking to do business with us as the world noted in October 2011 we received notice from the OECD Development Assistance Committee (DAC), that T&T now holds Developed Country Status. Really…!

    Why would I say these things? Well, tell me I am wrong and these facts are more figments of imagination. I spent the eighties automating the UK’s banks and was involved in the revolution that set off the first online bank in 1984 in Nottingham, UK. Prior to moving to Trinidad in 2006 I had not visited my bank for the previous 15-years and have not used a chequebook. Car loans and mortgages or, changes were all arranged by electronic remote forms, with near-instant loan sanction or, with a telephone clerk to enter the transaction directly. Car insurance is all online for the last 30-years and setting up a company within 5 to 8 minutes is how long in takes, including my Debit Card transaction process completed.

    Loans were granted within minutes as algorithms largely made these calculations. Yet in T&T we have two North American banks still operating as if their systems were three decades older (that is little electronic connection between the front office and the back office) and not much more. Automation was meant to make banking easier and quicker – well that was what the operational directors told me in all the major retail banks all those many years ago. The directors of banks had one primary concern then: ‘reduce the queues, reduce the queues’…. Software did just that but not here in Trinidad where queues really are an excruciating 2-hour shuffle…or more I do regret to say.

    Hey Central Bank how would you like a new Foreign Exchange source?
    Come on Trinidad you have a national engineer extraordinaire I know who has five national awards in inventions. He is an MIT engineer and is an extraordinary fellow who has designed a proven working device that can turn 30% of all the worlds used vehicle batteries into a brand new battery – this has never been truly achieved before. This machine is connected to the Internet of Things and could…really could produce more Foreign Exchange (FX) than our measly (by historical comparison) present 15% tax-take from energy by our treasury (This varies around 20% to 60%). If you care to do the numbers we go through 300,000 batteries each year for 1.3 million population. Our wealth is staring us in the face…go and do it and stop analysing and puffing and huffing at meetings and sounding and looking as if you have arrived. By talking and not doing we have lost 80% of our university graduates in the last ten years – what a waste of grants and talent.

    Who in government monitored education ROI…? Do you al share my sincere and deep frustration because I know we could surpass others and become a new nation of hope by changing our attitude to doing everything right from now, this moment. All of you in government, banking, importing and reselling (that is not marketing). Companies like Massey should be investing in producing their own food through hydroponic and aquaponics technologies – it works and you do not need to break your back doing it as it enjoys the use of technology. We do not even make our own lamp bases or lampshades – geez…that’s plain lazy of us all…

    …Is any one listening because when I attend meetings the light is on but no one seems to be in … perhaps we use the wrong type of light…

Leave a Reply

Your email address will not be published. Required fields are marked *