Thursday, March 22, 2007

CBA Head Says Let Market Decide ABM Fees

National Post, Paul Vieira, 22 March 2007

Canadians have a bevy of choices in terms of withdrawing cash from an ATM — from paying nothing at a bank-owned machine to agreeing to a “much higher fee” for an automated teller at a strip club, the head of the Canadian Bankers Association told MPs on Thursday.

Raymond Protti, speaking on behalf of the country’s big chartered banks, disputed claims of how much money banks earn from ATM fees, and cited statistics suggesting most Canadians don’t pay fees on their ATM transactions.

Thursday's appearance before the House of Commons finance committee was the kickoff of hearings the MPs plan to hold regarding bank fees related to using automated teller machines, or ATMs. The issue has gained prominence since late mid-February when the Finance Minister, Jim Flaherty, demanded answers from the bank chief executives.

The Minister, who said he was acting at the behest of the NDP, wanted to know why Canadians were forced to pay a fee of $1 to $2 for withdrawing cash from a machine owned by a bank at which the customer does not have an account. The NDP is making ATM fees a cornerstone of its economic agenda.

Mr. Protti -- in one of his last acts as CBA president before retirement -- was under attack for most of the one-hour session, with MPs demanding to know why banks have closed branches, and criticizing the lack of ATMs in rural Canada and lower-income pockets in urban centres.

Liberal MP Robert Thibault pressed Mr. Protti on whether there was collusion among the banks regarding ATM fees, given most banks charge Canadians $1.50 per withdrawal from an ATM operated by a bank other than their own.

“If there is no collusion, why are the prices so similar,” Mr. Thibault asked.

Mr. Protti said banks are competitive for ATM business, and the fees charged vary -- much like the cost of a loaf of bread from grocer to grocer, or a price of a subcompact vehicle from dealer to dealer.

For instance, he cited the Desjardins network in Quebec, which increased its ATM fees for non-customers to $2 from $1.50. Also, white-label machines -- those not owned by a financial institution -- generally charge $3 to $4 per transaction, although it can be “much, much higher” if the generic ATM is located at an adult entertainment club. (Mr. Protti, however, said he wasn’t sure how high it was because he does not frequent such venues.)

Overall, Mr. Protti said an estimated 75% of transactions at bank-owned ATMs are fee-free, suggesting Canadians tend to use machines owned by their bank. The NDP has said banks pull in roughly more than $400-million in profit from ATM fees. Mr. Protti said that figure was incorrect, and was close to $153-million, or roughly a fraction of 1% of total profit from the country’s banks.
The Globe and Mail, Simon Tuck, 20 March 2007

The federal government has no place regulating bank machine fees, the head of the Canadian Bankers Association said Thursday in Ottawa on the first day of a House of Commons review of the issue.

Raymond Protti said Canadians are well-served by the “explosion” of automated bank machines and a vast array of banking options, including accounts that offer reduced transaction charges.

“We really believe the market place is an ideal way to settle these issues,” Mr. Protti said following an appearance before the House of Commons finance committee.

The committee voted last month to review ABM fees and hopes to call the bank chief executives on the carpet to account for the lucrative profits they make from those transactions.

In his first public comments since the question of ABM fees started spiralling into a political issue earlier this year, Mr. Protti told the committee that Canadians are getting a good deal on their banking services, compared to other countries. He also said the machines are expensive to run and that the country's six largest banks have spent about $33-billion on ABMs and various other technology systems in the last decade.

Some MPs, however, are keen to return some of the banks' massive profits to constituents, by reducing or even eliminating ABM fees.

NDP MP Judy Wasylycia-Leis, the author of the motion that led to the review, disputed Mr. Protti's claim that Canadians enjoy excellent bank services, saying the country's largest financial institutions have replaced numerous branches with ABMs in recent years and then sold the machines to so-called white label operators.

Those operators, whose machines are often located in bars, restaurants and variety stores, charge as much as $5 for a single transaction.

Lewis Johnson, a finance professor at Queen's University in Kingston, Ont., told the committee that he thinks those fees are acceptable because consumers are choosing to pay for convenience, but that that's not true with all bank machine fees.

Inter-bank fees, the extra charges levied on consumers who use a machine owned by a bank other than their own, for example, are “egregious,” he said.

The total fee for an inter-bank ABM transaction is often $2.10, he said, and many consumers are captive to those machines.

“Access to financial services is a need and a right,” Prof. Johnson said.

The banks haven't yet decided how they will respond to the pressure to lower bank fees.

Some bankers appear to believe that they will have to extend an olive branch to the federal government, and they are preparing options for reducing the cost of electronic cash withdrawals. Others, however, say it would be a mistake to make a move in response to what appears to be pre-election politicking.
The Globe and Mail, Tara Perkins, 22 March 2007

The term bank bashing, which was so popular in the late 1990s, has made its way back into the news lately as the Finance Minister publicly called on the big bank chiefs to justify ABM fees.

Is it a sign of a crumbling relationship between Ottawa and those who inhabit downtown Toronto's skyscrapers?

Bank officials in government relations say it's not, but they do rail against the difficulty of dealing with a minority government.

“One can't expect this relationship to always be peaches and cream,” said one banker involved in the situation.

Minority governments mean “constantly doing tradeoffs,” and that makes relationships challenging.

Krista Pawley, a spokeswoman for Bank of Nova Scotia, said that “while we don't always agree on all issues, we feel we have a relationship that is open and honest.”

Privately, some bank officials grumbled that they had not been invited to a press conference Finance Minister Jim Flaherty called after his meeting with bank CEOs on ABM fees.

And Royal Bank of Canada CEO Gordon Nixon complained that the issue had become “regrettably politicized.”

“Watching governments and banks some days is like watching a dysfunctional family try and get along,” said one person with ties to both sides. Each side is worsening the situation by a lack of understanding.

When Jack Layton made his “attack on the fees” and Mr. Flaherty stood up and said he'd ask the banks about it, “he didn't take a side,” this person said.

“In a minority parliament, [you can't] expect the minister to stand up and say, ‘What a silly thing you're saying, Jack Layton.'”

The banks “didn't understand why the minister reacted the way he reacted,” this person said.

“In the public policy arena, politics trumps policy concerns some times. The impression that one is left with is that [the banks] were irked at that, and did not respond in a way that was helpful to the government in a fast enough fashion.”

Retiring president of the Canadian Bankers Association, Ray Protti, says “managing your relationships with the federal government tend to be easier in a majority government,” and the current situation intensifies the workload and amount of “reaching out” on the industry's part.

But he praised Mr. Flaherty's semi-regular meetings with the banks' CEOs, and said the important part is that the channels of communication are open.

Paul Deegan, a spokesman for Bank of Montreal, made a similar point, saying the government “is certainly open to dialogue with various stakeholders, including the business community.”

He noted that Mr. Flaherty made time for the bank's board members on a recent trip to China.

The relationship is one that needs to be protected, said Janet Ecker, executive director of the Toronto Financial Services Alliance. “There's too much at stake for our economy to allow political disagreements to get in the way of a strong and effective working relationship.”