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Consumer Commission Challenge To Central Bank On Fee Regulation

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Consumer Protection Commission (CPC) has contradicted the Central Bank over the regulation of commercial bank fees, arguing that it was “maybe time” that they be controlled.

Jerome Gomez, the Commission’s chairman, also urged the Central Bank to compare the nature and level of fees levied by the Canadian-owned banks to what they charged in their home country, arguing that it was impossible for them to assess there what they imposed in the Bahamas.

He was responding to the Central Bank’s refusal to intervene directly on commercial bank fees via price controls, on the grounds that this would only create “distortions” that negatively impact Bahamian consumers.

This was despite the findings of the Central Bank’s survey of commercial bank fees for the six months to end-June 2016, which found there had been increases as high as 43 per cent “on a significant number of fees”.

Mr Gomez told Tribune Business: “We have seen an increase in banking fees, and it all appears to be in an effort to supplement their profits.

“As loans default and the loan income decreases, they appear to be making it up in fees to clients, charging fees on almost everything they do, and then increasing those fees over time with little or no notice to consumers.”

Mr Gomez added: “The amount of fees they charge, they couldn’t possibly charge in their home countries. We would like the Central Bank to look at this matter and see what they are able to do in their home countries, and the level of fees in the home country, and do a comparison of that and advise the public.

“Maybe it’s time for bank fees to be regulated. It’s a business, but we cannot allow banks to continually seek to get their income versus trying to grow their business through better loans and other investment opportunities.”

Mr Gomez’s comments will further fuel suspicions among many Bahamians that the foreign-owned commercial banks are able to do in the Bahamas what they cannot do in their home countries, and that they are being ‘gouged’ by the introduction of new and increased charges.

The Central Bank, in its survey, conceded that the higher growth rate for fee income over the past decade “coincides with the significant increase in non-performing loans as a percentage of total loans”.

It added: “An analysis of data compiled over the last six years showed that banks have raised fees on a significant number of the services charged and, in some cases, introduced new categories of fees on existing facilities.

“However, there have been a few instances where fees have been adjusted downwards, particularly for those which are considered high volume services.”

The Central Bank said it was not responsible for regulating bank fees, while the industry body, the Clearing Banks Association (CBA), did “not determine or influence charges”.

It admitted that the only protection Bahamian consumers have is the Banks and Trust Companies Regulation Act and the CBA’s Code of Conduct, yet these only stipulate that institutions inform customers in advance of fee changes.

“While fee setting is driven by profitability targets, they also reflect the banks’ focus on compensating for other structural gaps in their revenue streams,” the Central Bank survey acknowledged.

“Given the concerns raised by several segments of the public regarding the commercial banks’ fees, in an environment where banks operating costs as a percentage of total assets have been relatively stable, with a few exceptions, the Central Bank’s upcoming work programme on bank fees will target consumer protection and financial literacy, in terms of best practices which banks should follow on client relationships,” the survey said.

“The Bank will also advocate for structural reforms in the domestic credit market to improve the quality of lending decisions and reduce resulting costs from borrower defaults.”

The survey acknowledged that “key” to this latter initiative is the long-heralded creation of a Credit Bureau, adding: “Realisation of the domestic Credit Bureau will also have benefits for improved lending decisions that reduce banks’ exposure to losses from loan defaults, and permit more transparent and tailored setting of charges on credit facilities according to the risk posed by each customer.

“Continued progress on payment systems’ reforms is also a priority to provide more residents with lower cost electronic alternatives to cheque writing/cashing and cash withdrawals. Recommended intervention to address other structural constraints which impact costs will also remain high on the Central Bank’s work agenda.

“The Central Bank will also review, where recommended, taxation policy reforms which can be identified to optimise the Government’s intended revenue targets for the domestic financial sector, while minimising downstream impacts on services pricing.”

Comments

Economist 1 year, 10 months ago

In the US and the UK the banks took large losses for the bad loans that they made. Today the banks have changed their policy evidencing that they realised that they had a problem, not the consumer. The Central Bank should, indeed it is their duty, to step in and say to the banks that the banks can't make the consumer pay for the banks mistakes.

Because the banks are saying "We messed up, but the Bahamian public is going to compensate us for our bad management", and the Central Bank and the government are doing nothing.

This, along with the BOB debacle is clear evidence that we can fire those in the "Banks Supervision Dept" as they do nothing. I don't know how many are working there, but Fire them all, we won't even know they have gone.

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