Saturday, January 27, 2007

NDP Calls for End to ATM Fees

  
National Post, John Turley-Ewart, 27 January 2007

It's "time for fairness," thunders the NDP's Thursday press release demanding an end to service charges for using the banks' Automatic Teller Machines (ATMs). Jack Layton, the NDP leader, took to Toronto's frigid streets to say "hard-working Canadians should not be charged by banks when they deposit, withdraw or transfer their own money using an ATM."

Mr. Layton's impassioned fight on behalf of the little guy made for impressive political optics -- so impressive that even Jim Flaherty, Canada's Conservative Finance Minister, was moved to action, asking banks to explain themselves on ATM charges. "The issue is that the practice by some banks in other countries is not to charge," Mr. Flaherty told reporters. "Is there a justification or a rationale for that being particularly different in Canada than in other places?"

The NDP's research team even trotted out some numbers. Canada's banks "posted profits just over $19-billion" in 2006, party officials noted. At the same time, Canadians were being forced to "cough up an estimated $420-million" each year to use ATMs.

Yet a closer look at the numbers explains why few in Canada should trust an NDP government to manage our economy. Apparently, Mr. Layton and his researchers don't know the difference between revenues and profits, nor are they able to distinguish between American and Canadian consumers. In fact, Mr. Layton has little in the way of relevant data to support his demands that banks be legislatively prohibited from charging fees for ATM use.

Take, for example, the "estimated $420-million" the NDP says Canadians pay to use banks' ATMs. The source for this figure is a 2006 Associated Press story about the U.S. ATM market -- one that relied on a Florida Web site that "surveys approximately 4,800 financial institutions in all 50 states." The site, Bankrate.com, does not provide research on Canadian financial services or ATMs; indeed, its only claim to expertise is tracking U.S. financial services. By its estimate, Americans pay approximately US$4.2-billion in ATM fees annually. The NDP arrived at their figure of $420-million for Canada by dividing the Bankrate-reported U.S. figure by 10.

According to an NDP press secretary, this statistical manipulation was justified because "Canadian and U.S. ATM fee schedules are similar." But this is untrue. Price Waterhouse Coopers demonstrated in a 2003 study that the average bank-owned-ATM fee in Canada was $0.58, whereas in the United States it was $1.35, more than twice the Canadian amount.

Mr. Layton also claims that service charges account for only 5% of bank revenues, and so his plan to cut ATM fees would not affect banks' "bottom line." But an NDP press secretary later admitted that in 2006, that 5% portion of revenues would equal $6.2-billion, or 32% of profits. Taking away that 5% would therefore be disastrous for banks, their shareholders and the economy as a whole.

If Mr. Flaherty wants to know why Canadian banks charge fees for using their ATMS, he should not be taking his cues from the NDP, which is clearly suffering from innumeracy. He would do better to consider the facts, which show our banks have adopted a user-fee system that lets Canadians pay for the services they use. This allows for cheaper banking throughout the entire system.

Consider:

- A 2003 survey by the left-leaning Public Interest Advocacy Centre showed that 53% of Canadians paid $10 or less per month for banking services, and that 24% paid nothing;

- Data from Statistics Canada and the Office for the Superintendent for Financial Services show that cost-per-transaction for banking services has declined since 1996;

- In the World Economic Forum's Global Competitiveness Report covering 1997 to 2005, Canadian banks are surpassed only by Japan and the Netherlands out of 14 industrialized countries for offering low-cost bank-service fees and loans.

Ironically, for all the media attention, ATMs are old news. Consumers in Canada are rapidly turning to direct payment, which is even more convenient than buying items with cash. This explains the continual decline in bank ATM transactions since 2000, as tracked by the Canadian Bankers Association.

In other words, for all its populist posturing and statistical distortions, the NDP has hitched its wagon to yesterday's issue. Mr. Flaherty shouldn't make the same mistake.
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The Globe and Mail, Unnati Gandhi, 27 January 2007

Canadians have become used to paying the $6.95 monthly system-access fee for their cellphones. They'll still fork over $10 for a doctor's note. And dispensing fees at pharmacies? Not a problem.

But when it comes to paying $1.50 for using another financial institution's automated banking machine, Canadians still go a little, er, loonie.

"It's a funny kind of thinking that we have in Canada that things, including banks, should be a free good, a kind of public service," says Jim Hatch, a professor of finance at the Richard Ivey School of Business in London, Ont.

"Because banks have always been so big and they've always been there, we almost treat them as government, in some respects. So if somebody charges us for having an account in the bank, we say to ourselves, 'Jeez, we're giving them our money, so why are they charging us extra for that?' "

New Democratic Party Leader Jack Layton voiced that concern on Thursday, saying that charging consumers to use ABMs from a bank other than their own is price-gouging and should be outlawed.

In Ottawa, Finance Minister Jim Flaherty said he asked the banks about the fees in December and is waiting for a response.

But being able to withdraw cash from an ABM is a convenience offered by a business, not a necessity, Prof. Hatch says.

"If you only have a dollar in your account and you write a cheque for 10 cents once every week, that costs the bank a whole lot of money just to keep track of you," he said. "That's not a profitable account for them, so they charge you a fee for that, partially to discourage you from that kind of behaviour."

But despite persistent grousing about ABM fees, Canadians have shown an increasing willingness to shell out extra cash for the convenience of using white-label machines -- ones that aren't operated by the major banks and credit-card companies.

In 1998, there were a little more than 8,000 independently owned ABMs, compared with about 15,500 run by the banks. Today, there are more than 35,000 white labels, accounting for almost 70 per cent of the total ABMs in Canada. Many of these have sprung up in gas stations and restaurants, catering to consumers who would rather absorb a few dollars worth of charges rather than make a trip to their own bank machine.

Banking industry officials insist the use of white labels is no different than paying more for a box of cereal at a corner store: in the end, people will pay for convenience.

Caroline Hubberstey, a spokeswoman for the Canadian Bankers Association, said the current model is more transparent for consumers, since they can see the costs they are incurring to withdraw cash.

"You either do it on a user basis, or you subsidize it through other products and services," she said.

In other words, banks could simply increase fees in other areas if they are forced to operate their ABMs for free. British banks essentially offer free machine transactions, and absorb the costs if their customers use a rival bank-owned machine.

Even there, however, the rise of fee-charging white-label machines has been swift, and now account for about 44 per cent of all British machines.

In Australia, Westpac, the fourth-largest bank in the country, began charging non-customers $2 (Australian), even though all the other banks charge $1.50. And in the United States, fees for using another bank's machine range from $2 (U.S.) to $6.

Nadia Massoud, a professor of finance at the University of Alberta who has written a paper on ABM fees, said that by restricting banks from charging these fees, it will only force the institutions to take them out of commission. "This will not only add inconvenience, but it will provoke [independent ABM operators] to fill in the gap in the market," Dr. Massoud said.

Bruce Cran, president of the Consumers' Association of Canada, said that as long as consumers still have the option of walking into their bank's branch and making the same transaction without being charged a fee, it shouldn't call for the amendments to the Bank Act, currently under review, that Mr. Layton is proposing.

"To put it fairly, it's quite a convenient system and I find it well worth my while to go and draw my miserable $100 or $200 out here and there rather than risk a problem carrying a lot of money around."

Customers normally don't pay ABM fees when using their own bank's machines. But when they use machines that are owned by a rival bank, this fee varies, but can be as high as $1.90. A convenience fee can be as high as $3 for white-label operators.
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Financial Post, Duncan Mavin, 25 January 2007

NDP Leader Jack Layton is calling on Canada's banks to stop charging their customers a fee for using automated bank machines. "Ordinary Canadians have seen an explosion of punishing fees at a time when Canadian banks are basking in record profits," said Mr. Layton yesterday. Canada's banks achieved record combined profits of about $19-billion last year. "The NDP believes hard-working Canadians should not be charged by their banks when they deposit, withdraw or transfer their own money using an ATM," said Mr. Layton. The NDP chief will hold a conference in downtown Toronto today to demand the banks "stop punishing ordinary Canadians." There are about 16,000 ATMs across Canada that process more than a billion transactions per year. The banks typically charge customers a fee for using one anothers' ATMs of about $1 to $2 per transaction. Banks in some other countries, such as the United Kingdom, do not charge for ATM transactions.
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