Friday, April 20, 2007

Back Off on ABM Legislation, Banks Warns MPs

The Globe and Mail, 20 April 2007

Even as a standoff between big banks and federal Finance Minister Jim Flaherty over cash machine fees subsided yesterday, bankers made sure to leave a parliamentary committee with a warning: Regulate our machines at your peril.

Canadian bankers cautioned MPs probing their user fees against any future notions about legislating what automated banking machine levies they charge, saying they'd pull the plug on some ABMs if that happened.

"It is unlikely that we would be able to continue to maintain a network of 4,000-plus [ABMs]," Jim Westlake, head of Royal Bank of Canada's Canadian banking division, told parliamentary hearings set up to probe bank fees.

"Access would suffer, and costs to consumers would rise," Mr. Westlake said. "Increase regulation and you will be reducing choices -- for students, seniors, people with disabilities and all Canadians."

The parliamentary hearings were set up after Mr. Flaherty made fees a national issue by questioning banks' rationale for charging a special levy when other institutions' customers use their ABMs.

However, bank worries about possible interference abated yesterday afternoon when Mr. Flaherty made it clear he won't support legislation meddling with bank fees.

Mr. Flaherty rejected a new NDP bill tabled yesterday by New Democrat finance critic Judy Wasylycia-Leis that would ban bank fees, saying it's not Ottawa's role to dictate such things to firms.

"Am I going to direct the banks about what they should be charging for a particular item? That's not the role of the Minister of Finance," Mr. Flaherty told reporters.

Liberal MPs from Canada's Official Opposition said their party is unlikely to back the NDP bill either.

The lack of Liberal support likely means the bill will not be able to garner enough votes to pass the Commons and make it into law.

At hearings yesterday, banks repeatedly refused MPs' requests that they divulge how much money they reap from ABM transactions, saying such disclosures would be giving any commercial secrets to rivals.

Separately, Mr. Flaherty signalled his public goading of the banks over fees appears to be drawing to an end, saying he's happy with measures five have taken in recent weeks to boost access to cash machines. "I'm pleased with the direction it's going," he told reporters.

Toronto-Dominion Bank has said it will add 50 ABMs to college and university campuses, Royal Bank has rejigged one of its banking service packages to decrease ABM fees and Bank of Montreal has extended the fee waiver on its free banking plans for seniors and students for three years.

While Mr. Flaherty has cheered this news, none of the banks has agreed to any straightforward reduction or scrapping of fees.

Ever vigilant against criticism of their banking machines, financial institutions defended the levies before MPs yesterday, saying they were needed to defray the costs of their ABM networks.

They said it would make no sense to allow customers of other banks free access to their own machines.

"It would be like being a member of a gym and having non-members of the gym using it for free. It goes against common business practices," said Tim Hockey, co-chairman of TD Canada Trust.

Banks suggested they weren't really the appropriate target of political ire, citing statistics that only 30 per cent of the ABMs in Canada are actually owned and operated by them, while the rest are "white-label" cash machines run by non-bank businesses.

Yesterday, one Big Six bank lobbyist complained privately that organizations such as universities are restricting access to ABMs based on which company, including white-label operators, will pay them the most fees.

"Some universities are making money on the backs of their own tuition-paying students," he said.

"While some of this only involves campus pub locations, on some campuses you can only withdraw funds from a white-label machine."

Financial Post, Paul Vieira, 20 April 2007

The chartered banks warned MPs yesterday of higher lending rates on personal loans, fewer ATMs and steeper charges on basic services should Ottawa move to regulate fees on ATM transactions.

Senior executives from the Big Six banks made their case before the House of Commons finance committee, as the all-party group of MPs probes fees charged by banks at automated teller machines. The testimony may have marked an end to the ATM fee debate, as Jim Flaherty, the Minister of Finance, said yesterday he was "pleased" with the direction banks are heading on ATM fees.

Just prior to the bankers' appearance, the NDP had announced its finance critic, Judy Wasylycia-Leis, was set to table a private member's bill that would ban ATM fees. Mr. Flaherty -- as well as the Liberals -- suggested he has no interest in regulating the day-to-day fees banks charge.

"That's not our role, quite frankly," he said. "Am I going to direct the banks about what they should be charging for a particular item? That's not the role of the Minister of Finance."

Bank executives were unapologetic about the fees they charged their clients for withdrawing cash from ATMs that they don't own. For the most part, they got a sympathetic audience from Conservative and Liberal MPs, who make up threequarters of the committee.

"We run our ATM network for the benefit of our clients. We put the machines out there for all of our clients -- and 80% of them pay zero for that access," Jim Westlake, head of the Canadian banking group at Royal Bank of Canada, told reporters. "This is not about us putting machines out in the marketplace to make money on fees. It is about providing a service to our clients."

"Our customers, if they are not satisfied, can move somewhere else. They can vote with their feet," added Christopher Hodgson, Bank of Nova Scotia's executive vice-president of personal banking.

Bank customers use ATMs for more than a billion transactions each year, and the bank executives said roughly 75% to 90% of those transactions don't face levies. Customers are charged for some of those transactions -- typically $1 to $2 -- for withdrawing cash from a machine owned by a bank at which the customer does not have an account.

Asked by Liberal MP John Mc- Kay what would unfold should the government back the NDP proposal and ban ATM fees, the executives chimed in with tales of steeper charges on banking service such as cancelled cheques; fewer investments in expanding and improving the ATM network; and higher interest rates on personal loans and lines of credit.

Moreover, the number of nonbank- owned ATMs, or white machines, would likely shrink if fees were banned because that is the sole source of revenue for the machines' owners.

"I guess we are in the category of, 'Be careful of what you wish for,' " Mr. McKay said, in reference to Ms. Wasylycia-Leis's proposed bill.

Outside of Ms. Wasylycia-Leis, none of the other MPs on the committee indicated support for the NDP proposal.

Nevertheless, the NDP was successful in getting ATM fees in the headlines. Mr. Flaherty agreed to take up the cause, at the behest of the party. And most of the banks have responded. Royal Bank, for instance, launched a new line of account that it says will lower ATM fees, while other banks have pledged to place more of their ATMs near university campuses, which generally are home to white-label machines.

The NDP and Bloc Quebecois, though, pressed the banks to disclose the cost of ATM transactions to justify the fees charged. The bank executives refused, citing corporate confidentiality.

"You say you are transparent, but you won't provide the cost structure. That is very strange," said Thierry St-Cyr, a Bloc MP.

The Toronto Star, Richard Brennan, 20 April 2007

Canada's major banks were accused of being arrogant yesterday for refusing to tell Canadians the cost of providing automated teller machines or their profit margins on controversial ATM fees.

"It is a very disappointing response," Judy Wasylyela-Leis, the New Democratic MP for Winnipeg North, said in an interview. "The arrogance of the banks just boggles the mind. With all their (bank) charter responsibility, you would think they would be a little more willing to be accountable to Canadians."

Almost every time the Commons finance committee members, who are probing ATM fees, tried to peer inside the world of banking yesterday, they were met with blank expressions."We won't comment on that," said Jim Westlake, the Royal Bank of Canada's group head of Canadian banking, when he was asked about profit margins for the ATM fees.

Canada has more ATMs per capita than any other country in the world and Canadians are among the heaviest users of these automated machines.

Representatives for RBC, the Canadian Imperial Bank of Commerce, the Toronto Dominion Bank, the Bank of Nova Scotia, the Bank of Montreal and even the central agency for credit unions objected strongly to suggestions the government should regulate bank charges that hit poor people particularly hard.

"We do not want to change ATM fees," Westlake said, emphasizing that it is a user-pay system that doesn't have to be regulated.

Wasylyela-Leis has introduced a private member's bill amending the Bank Act to prohibit banks from charging for the electronic transfer of funds or account information through automated banking machines.

Finance Minister Jim Flaherty has made it clear he expects some or all of the major banks will reduce or scrap automated teller machine fees for lower-income Canadians.

Flaherty told reporters after the Commons question period yesterday that when he first raised his concern over ATM fees, he got a "dismissive" letter back from the Canadian Bankers Association.

Since then, five of the banks "have been responsive with various issues that I raised with them including access for persons with disabilities to the machines, making sure that students on our campuses, both colleges and universities, have good access to the machines as well, and also seniors.

"But am I going to direct the banks about what they should be charging for a particular item? That's not the role of the minister of finance," he said. "We believe in competition and choice."

At the centre of the controversy are the sometimes hefty fees charged when a consumer uses an ATM not owned by the bank they normally deal with.

In many cases, that means paying a $1.50 fee to the company that owns the machine plus another $1.50 to their own bank, ostensibly for the convenience of using the ATM.

With so-called white labels, some of which are owned by banks, the charge for withdrawing money can be as high as $6.

But the banks told the committee that most of their clients – anywhere from 75 to 90 per cent – pay no fees.

Any attempt to reduce or eliminate these charges would result in a lower level of service and probably fees added elsewhere.

At least one said no one is forcing consumers to pay fees and that they always have the option of "voting with their feet."

All the bank representatives talked about their particular institutions spending tens of millions of dollars on improving the ATM service by adding more machines across the country, among other things.

Other countries, including Britain, the Netherlands and Ireland, allow free withdrawals of clients' money from their own banks, but the Canadian bankers told the committee that banks there don't provide the same level of service and tack on the charges in other areas.

Record bank profits in Canada have only exacerbated public criticism of the bank machine fees. The Royal Bank, for example, reported a sharp climb in quarterly earnings in February, which exceeded analysts' expectations as net income leaped to a record $1.5 billion.

Richard Taylor, a deputy commissioner with the federal competition bureau, said high prices, whether it be the banks or another business, do not violate the Competition Act, unless it is the result of anti-competitive conduct.

Bloc Québécois Leader Gilles Duceppe said later the banks are rich enough they should be able to absorb the cost of getting rid of ATM charges.

"I think they're too high. I think we have to limit that. Having said that, I think the banks have enough money to face that reality," Duceppe said.