Sunday, February 25, 2007

Ottawa to Grill Banks Over Fees

The Globe and Mail, Sinclair Stewart & Steven Chase, 25 February 2007

A high-profile Parliamentary committee is calling Canadian bankers on the carpet to justify the automated banking machine fees they charge consumers, adding further pressure on industry executives in advance of a private meeting with Finance Minister Jim Flaherty in Toronto next week.

The banks, which are preoccupied with annual meetings and posting quarterly results over the next several days, seem to have been taken off-guard by how quickly ABM fees have spiralled into a political issue.

The banks have yet to reach a consensus on how to respond.

Some bankers appear to believe that they will have to extend an olive branch to Mr. Flaherty, and they are preparing options for reducing the cost of electronic cash withdrawals.

Others, however, are dubious of this course, and insist it would be a mistake to craft policy simply in response to politicking.

While no one in the industry exactly welcomes the idea of going before a committee, they seemed to agree that public hearings on the fee debate could prove more useful than backroom conversations with the Finance Minister, since it would allow the banks to state their rationale for user fees to a larger audience.

“The hearings, I think, are a better route because it's a more fulsome, thoughtful discussion of the issue,” said an official with one of the Big Five banks, echoing similar sentiments within the sector.

The Commons finance committee voted to approve an NDP motion to probe ABM fees last Thursday, although the hearings aren't likely to begin until after the federal budget is tabled March 19. The House of Commons adjourns on Friday for a two-week break, and only resumes sitting the day the budget is delivered. Parliamentary committees usually do not meet when the Commons is not sitting. NDP finance critic Judy Wasylycia-Leis, the author of the motion, said MPs want the chief executive officers of Canada's major banks to show up at the hearings, and would like to build momentum to reduce or even abolish bank fees.

“I expect that when the CEOs are called, they will show up,” she said. “That they won't send PR people from their banks instead. That they'll be there in full force explaining why they need to charge such fees when they are, in fact, so profitable. Canadians deserve an answer. More than that, they deserve a break.”

The industry has argued that banking fees as a whole in Canada are relatively low, and that the cost of maintaining and expanding an ABM network requires them to charge. Furthermore, they argue that consumers can mostly avoid fees by withdrawing money from ABMs operated by their own banks, rather than using machines of rival banks.

David Moorcroft, a spokesman for Royal Bank of Canada, said the country's largest bank will co-operate with Ottawa if it is asked to attend the hearings. “I hope it will be an open, unbiased, fair evaluation of the facts, and not a witch hunt.” .

Frank Switzer, a spokesman for Bank of Nova Scotia, said the bank is always willing to engage in a “constructive dialogue with MPs” and would participate in the hearings if it is asked.

Mr. Flaherty wrote a letter to the banks in December, asking them to explain why they charge for ABM usage while banks in some other countries, such as Britain, run the network for free.

The banks responded through their lobbying arm, but the explanation failed to satisfy Ottawa. The Finance Minister wrote a letter to the bank CEOs 1½ weeks ago, saying he had heard a number of concerns about ABM fees, and inquiring what options they might have for reducing the burden of these charges on students and seniors.

One bank official suggested it's possible that a bank could act pre-emptively, and float a possible compromise before the hearings.

“I think people are more focused right now on the meeting with the minister,” rather than the hearings, the official said. “I think the question is still, what can you do? It's whether you move on your own, or whether you move as a group.”

One of the groups that will be conspicuously absent from the hearings is the cadre of so-called “white-label” operators whose independent ABMs have become fixtures in restaurants, gas stations, and convenience stores. These unregulated machines are typically far more expensive than banks, and have surged in popularity, accounting for more than two-thirds of the ABMs in Canada, according to the Canadian Bankers Association.

“If you really want to do something for consumers, you should regulate white labels as you do banks,” one banker groused.

Currently, however, these generic ABMs are regulated provincially under consumer protection law, meaning they won't be part of the hearings, Ms. Wasylycia-Leis said.

She added her party is willing to look for ways to help Ottawa assume more supervisory control over white-label machines, but is focusing on banks first. “It appears to be a joint responsibility with the provinces and it falls between the cracks — it's one of those areas that has been allowed to explode and nobody seems to be taking charge,” she said. “And Canadians and consumers are paying the price.”