__________________________________________________________
The Toronto Star, Sharda Prahshad, 17 March 2007
Federal Finance Minister Jim Flaherty talked tough to the banks, but we're still paying the fees.
Political observers were surprised when Flaherty championed an issue first raised by the NDP – that banks are gouging Canadians with fees for withdrawing money from bank machines where they are not customers.
Even Prime Minister Stephen Harper joined the debate this month. "I can say that, like every other Canadian, when I do get them from time to time, they annoy me," he said.
The high-profile showdown is more about perception than policy, say some political experts.
"The objective of this is to make them look caring. It's optics," said Nelson Wiseman, political science professor at the University of Toronto.
"It's not the inclination of this government," Wiseman said of Flaherty's call for lower fees.
The key issue is whether customers should pay to use automated teller machines at banks where they don't hold an account – those pesky $1.50 charges.
In the fractured political landscape of a minority government likely heading into an election, it is one of the few issues where the NDP, the Liberals and the Conservatives are on the same page – more or less.
The issue of high fees at ATMs has rumbled across the country in recent weeks, moving from the business pages to the front of local and national newspapers.
Sizzling bank profits are adding fuel to the fire of those opposed to the fees. Combined, Canada's six-largest banks turned out a record $19 billion in profits last year, up from $6 billion in 2002.
"The profits can be viewed as bad news," said Ian Nakamoto, financial services analyst at MacDougall, MacDougall & MacTier. "They can be viewed as a red flag for those who want to make political hay with some of the financial institutions."
In January, federal NDP Leader Jack Layton launched an offensive on banks when he said: "Average Canadians are getting nickel and dimed by the big, chartered banks."
He said his party would table an amendment to the Bank Act that would eliminate fees.
Liberals backed up the NDP but have since asked for a thorough investigation of all automated tell machines, and not just those owned by the banks.
Finance committee hearings looking into the fees are expected to start Thursday.
With Parliament in recess, Flaherty earlier this month made the trek to Toronto to meet bankers on their turf and make his plea.
Over a 90-minute lunch at the Fairmont Royal York Hotel, Flaherty and two of his staff presented their case. The banks didn't shy away, with five of Canada's six biggest sending their chief executives. Present were Royal Bank's Gord Nixon, TD's Ed Clark, CIBC's Gerald McCaughey, BMO's Bill Downe and National Bank's Real Raymond. Scotiabank was represented by its head of domestic personal banking Chris Hodgson, since chief Rick Waugh was in Halifax preparing for Scotia's annual shareholders' meeting the next day.
There was a noticeable change in Flaherty's tone after he emerged from the meeting.
The bluster turned to diplomacy and demands turned to wishes. "I would like to see some specific consideration given to persons who are lower income," he told reporters.
He said he had a frank and direct conversation with the bankers, and expected them to address the issues he raised.
But the bankers held their ground. "If people use banking services one way or another, people pay for banking services they use," said Scotiabank's Waugh the next day.
"That's the way we have to run a very profitable, very safe and very efficient bank. That's why Canadian banks are successful. I think that's a good thing."
A spokesperson for Flaherty yesterday said the minister is awaiting a response from the banks on the fee issue. Flaherty wasn't available for comment.
With the banks appearing to dig in, it's not clear if the Conservatives have scored any points among voters.
"It's a good issue for them (the Conservatives) to resolve for the electorate," said David Drache, a political science professor at York University. "They're often perceived, as they drift to the right, of giving the corporate agenda a leg up. They need issues that have a more direct impact on individuals and families."
If ATM fees were eliminated, customers would be subsidizing the customers of other banks who use their machines, argues the Canadian Bankers Association. If people want to forego the convenience fee, they should use their own bank's machine.
The banks argue government intervention would lead to less service for Canadians.
"ATMs provide liquidity and liquidity has a cost," says Nadia Massoud, finance professor at the University of Alberta.
But banks don't seem to have convinced either the broader public or their political masters why a fee is necessary.
John Lawford is one lawyer eager to argue against the banks in upcoming finance committee hearings.
"There is no need for fees at all," says Lawford, who represents about 4,000 Canadians through the Public Interest Advocacy Centre. Banks collect an estimated $154 million annually in convenience fees, based on figures supplied by the Canadian Bankers Association – a tiny sliver of their overall profits. But it's an issue that gets Canadians' blood boiling.
Flaherty has two options: change the Bank Act or try to use public opinion to put pressure on banks.
He could eliminate the convenience fees by following Layton's suggestion and amend the Bank Act.
The Bank Act will be reviewed next month – as it is every five years – and now would be as good a time as any to rule against the convenience fees. But few think that will happen.
"There's not a lot of precedence for regulating price, it's not the way our economy works," says Peter Hamilton, corporate lawyer at Stikeman Elliott LLP.
Industries that are regulated often have a flaw that makes them unable to compete under regular market conditions.
"Automatic bank machines are not a candidate for industry regulation," says Laurence Booth, University of Toronto finance professor. There are five large banks in Canada, there's plenty of competition and convenience fees are not critical to the economy, he says.
Should the government choose not to use regulatory red tape, that doesn't mean it is powerless to abolish convenience fees.
If the Bank Act remains intact, there is another way to get change – moral suasion.
"The government has significant influence over the banks," says Robert Elliott, lawyer and partner at Fasken Martineau DuMoulin LLP.
"They will put pressure on the banks to change despite there not being a legislative basis to lower fees."
That could be done during tougher executive meetings with the banks.
But if the government were successful at getting the banks to eliminate fees, it might not solve consumers' pocket-book problem.
Banks might just shift the fees to another service, says U of T's Booth. Previously, banks raised service fees to recoup losses on 1970s loans to foreign countries such as Brazil, Argentina and Mexico, he says.
The United Kingdom might have no convenience fees, argues the Canadian Bankers Association, but U.K. customers pay more for other services.
In addition to shifting fees, the banks could use court action.
In 1999 Santa Monica and San Francisco banned ATM fees, arguing the charges were unfair to the elderly and the disabled. But in 2003, the U.S. Supreme Court refused to hear an appeal of lower court rulings that overturned the citywide bans.
Academics, analysts and bank executives say the issue has become politicized.
Perhaps if it weren't a minority government the issue wouldn't have snowballed and caused a media maelstrom – or caught the attention of Flaherty.
Will the issue be resolved by an election expected before the summer?
It's not an easy call.
"(The Conservatives), of course, have their ideas of deregulation and privatization and a hands-off government," says York professor Drache.
"But I think their ideology is less important than their hunger for votes. We don't know if this government has the political courage to say no to the banks and slap them on the wrist."
Federal Finance Minister Jim Flaherty talked tough to the banks, but we're still paying the fees.
Political observers were surprised when Flaherty championed an issue first raised by the NDP – that banks are gouging Canadians with fees for withdrawing money from bank machines where they are not customers.
Even Prime Minister Stephen Harper joined the debate this month. "I can say that, like every other Canadian, when I do get them from time to time, they annoy me," he said.
The high-profile showdown is more about perception than policy, say some political experts.
"The objective of this is to make them look caring. It's optics," said Nelson Wiseman, political science professor at the University of Toronto.
"It's not the inclination of this government," Wiseman said of Flaherty's call for lower fees.
The key issue is whether customers should pay to use automated teller machines at banks where they don't hold an account – those pesky $1.50 charges.
In the fractured political landscape of a minority government likely heading into an election, it is one of the few issues where the NDP, the Liberals and the Conservatives are on the same page – more or less.
The issue of high fees at ATMs has rumbled across the country in recent weeks, moving from the business pages to the front of local and national newspapers.
Sizzling bank profits are adding fuel to the fire of those opposed to the fees. Combined, Canada's six-largest banks turned out a record $19 billion in profits last year, up from $6 billion in 2002.
"The profits can be viewed as bad news," said Ian Nakamoto, financial services analyst at MacDougall, MacDougall & MacTier. "They can be viewed as a red flag for those who want to make political hay with some of the financial institutions."
In January, federal NDP Leader Jack Layton launched an offensive on banks when he said: "Average Canadians are getting nickel and dimed by the big, chartered banks."
He said his party would table an amendment to the Bank Act that would eliminate fees.
Liberals backed up the NDP but have since asked for a thorough investigation of all automated tell machines, and not just those owned by the banks.
Finance committee hearings looking into the fees are expected to start Thursday.
With Parliament in recess, Flaherty earlier this month made the trek to Toronto to meet bankers on their turf and make his plea.
Over a 90-minute lunch at the Fairmont Royal York Hotel, Flaherty and two of his staff presented their case. The banks didn't shy away, with five of Canada's six biggest sending their chief executives. Present were Royal Bank's Gord Nixon, TD's Ed Clark, CIBC's Gerald McCaughey, BMO's Bill Downe and National Bank's Real Raymond. Scotiabank was represented by its head of domestic personal banking Chris Hodgson, since chief Rick Waugh was in Halifax preparing for Scotia's annual shareholders' meeting the next day.
There was a noticeable change in Flaherty's tone after he emerged from the meeting.
The bluster turned to diplomacy and demands turned to wishes. "I would like to see some specific consideration given to persons who are lower income," he told reporters.
He said he had a frank and direct conversation with the bankers, and expected them to address the issues he raised.
But the bankers held their ground. "If people use banking services one way or another, people pay for banking services they use," said Scotiabank's Waugh the next day.
"That's the way we have to run a very profitable, very safe and very efficient bank. That's why Canadian banks are successful. I think that's a good thing."
A spokesperson for Flaherty yesterday said the minister is awaiting a response from the banks on the fee issue. Flaherty wasn't available for comment.
With the banks appearing to dig in, it's not clear if the Conservatives have scored any points among voters.
"It's a good issue for them (the Conservatives) to resolve for the electorate," said David Drache, a political science professor at York University. "They're often perceived, as they drift to the right, of giving the corporate agenda a leg up. They need issues that have a more direct impact on individuals and families."
If ATM fees were eliminated, customers would be subsidizing the customers of other banks who use their machines, argues the Canadian Bankers Association. If people want to forego the convenience fee, they should use their own bank's machine.
The banks argue government intervention would lead to less service for Canadians.
"ATMs provide liquidity and liquidity has a cost," says Nadia Massoud, finance professor at the University of Alberta.
But banks don't seem to have convinced either the broader public or their political masters why a fee is necessary.
John Lawford is one lawyer eager to argue against the banks in upcoming finance committee hearings.
"There is no need for fees at all," says Lawford, who represents about 4,000 Canadians through the Public Interest Advocacy Centre. Banks collect an estimated $154 million annually in convenience fees, based on figures supplied by the Canadian Bankers Association – a tiny sliver of their overall profits. But it's an issue that gets Canadians' blood boiling.
Flaherty has two options: change the Bank Act or try to use public opinion to put pressure on banks.
He could eliminate the convenience fees by following Layton's suggestion and amend the Bank Act.
The Bank Act will be reviewed next month – as it is every five years – and now would be as good a time as any to rule against the convenience fees. But few think that will happen.
"There's not a lot of precedence for regulating price, it's not the way our economy works," says Peter Hamilton, corporate lawyer at Stikeman Elliott LLP.
Industries that are regulated often have a flaw that makes them unable to compete under regular market conditions.
"Automatic bank machines are not a candidate for industry regulation," says Laurence Booth, University of Toronto finance professor. There are five large banks in Canada, there's plenty of competition and convenience fees are not critical to the economy, he says.
Should the government choose not to use regulatory red tape, that doesn't mean it is powerless to abolish convenience fees.
If the Bank Act remains intact, there is another way to get change – moral suasion.
"The government has significant influence over the banks," says Robert Elliott, lawyer and partner at Fasken Martineau DuMoulin LLP.
"They will put pressure on the banks to change despite there not being a legislative basis to lower fees."
That could be done during tougher executive meetings with the banks.
But if the government were successful at getting the banks to eliminate fees, it might not solve consumers' pocket-book problem.
Banks might just shift the fees to another service, says U of T's Booth. Previously, banks raised service fees to recoup losses on 1970s loans to foreign countries such as Brazil, Argentina and Mexico, he says.
The United Kingdom might have no convenience fees, argues the Canadian Bankers Association, but U.K. customers pay more for other services.
In addition to shifting fees, the banks could use court action.
In 1999 Santa Monica and San Francisco banned ATM fees, arguing the charges were unfair to the elderly and the disabled. But in 2003, the U.S. Supreme Court refused to hear an appeal of lower court rulings that overturned the citywide bans.
Academics, analysts and bank executives say the issue has become politicized.
Perhaps if it weren't a minority government the issue wouldn't have snowballed and caused a media maelstrom – or caught the attention of Flaherty.
Will the issue be resolved by an election expected before the summer?
It's not an easy call.
"(The Conservatives), of course, have their ideas of deregulation and privatization and a hands-off government," says York professor Drache.
"But I think their ideology is less important than their hunger for votes. We don't know if this government has the political courage to say no to the banks and slap them on the wrist."
__________________________________________________________
The Toronto Star, Ellen Roseman, 17 March 2007
The Commons finance committee plans to take a closer look at ATM fees.
Hearings are set to begin shortly after the fedetral budget is tabled on Monday. "We'll have a chance to thoroughly review the issue and put pressure on the banks," NDP MP Judy Wasylycia-Leis said after the committee endorsed her resolution to look at the fees, which she wants to end.
"We think it's quite doable to do away with the fees for using not only your own bank's ATM but, of course, a competitor's ATM," she said.
John Lawford, lawyer and counsel for the Public Interest Advocacy Centre, also wants to see an end to fees charged for using automatic teller machines.
When the Interac-shared cash-dispensing network started in the mid-1980s, it was paid for by bank customers in the cost of their accounts.
Bank customers still pay a $1.50 Interac fee as part of their account packages, he points out.
Depending on the type of account, customers may also pay a $1 fee for each ATM transaction if they exceed a monthly limit. Then, starting in 2000, customers began paying a $1.50 fee each time they used another bank's machine to withdraw cash.
"To me, that looks like triple dipping," Lawford says.
Interac has no central computer, he adds, and simply provides shared marketing and security services.
Each bank handles its own ATM transactions. So, what are the extra costs that consumers have to subsidize?
"Why won't the banks open their books and tell us what it costs to process ATM transactions?" he asks.
"I can't believe it costs that much to put cash into the machines, bolt them to the wall and run their own computer systems."
Interac fees have always been built into the cost of a customer's account, says Duff Conacher, chair of the Canadian Community Reinvestment Coalition.
The Interac fee started at $1 and rose to $1.50 about a decade ago. When the banks added an extra $1.50 fee for non-clients using their ATMs, they doubled the fee to $3.
Conacher says the banks have never explained why they needed to charge such high Interac fees.
"Where's the cost breakdown? The banks have never proved these fees were reasonable or justifiable. We need an independent audit by the Auditor-General of Canada to prevent gouging."
In his view, banking is an essential service – similar to local telephone, cable TV, electricity and gas for home heating.
He'd like to see banks regulated in the same way as utility providers. They'd have to apply for each rate increase they wanted to impose and explain why they needed the money.
Banks are not an extension of government, responds Caroline Hubberstey, a spokeswoman for the Canadian Bankers Association. They're efficient, well-performing businesses, she says.
"Banks paid $6 billion in taxes in 2005 and employed 250,000 Canadians. The shares are widely held by investors. Bank stocks account for 13 per cent of the Canadian equity holdings of the Canada Pension Plan Investment Board."
Critics argue that banks are already regulated by the federal government. They have to meet capital requirements, protect customers' privacy and prevent money laundering.
The government has told banks they can't merge with each other. And it has required them to offer low-cost accounts for low-income clients, hoping to stop the spread of high-cost payday loan outlets.
Hubberstey says the $1.50 fee charged to non-clients at bank-owned ATMs is comparable to other jurisdictions. In the U.S., the fee is $1.88 (Canadian). In the European Union, it's $1.74.
She likes to use a fitness club analogy, saying that gym members don't want to to see non-members use their facilities for free. In the same way, banks don't want to subsidize non-clients and let them use a network of cash machines built for their own clients' use.
"I still remember the days when you couldn't go to another branch to do your banking. You couldn't bank on evenings or weekends.
"Today, banks have opened a service delivery channel to get cash. That convenience comes with a nominal fee for non-clients."
Lawford and Conacher say banks have closed many of their branches in the past few years and eliminated the cash machines located in branches.
Bruce Cran, president of the Consumers Association of Canada, is not as critical of ATM fees as Lawford and Conacher.
"Do you have an option? Yes, you can go to your own bank's ATMs and not pay a fee," Vran says. "If you manage your affairs well and plan ahead, you can avoid the fees quite easily.
"We're in favour of marketplace forces. The proliferation of cash machines shows they have an accepted place for consumers."
But most consumer advocates would be delighted if the Commons finance committee succeeds in getting an ATM cost breakdown from the banks.
They want to know if Canadians are paying too much for using their own and rivals' bank machines.
ATM use across the country
Canadian banks operated 16,160 ATMs in 2004. That dropped to15,960 in 2005, but rose to 16,190 last year.
The ATM network in Canada (including non-bank or "white label" machines) has expanded substantially. The total was 51,097 in 2005, up from 42,773 in 2000.
ATM cash withdrawals fell to 691.8 million in 2005 from 875.1 million in 2000, a decline of about 20 per cent.
Fewer ATM withdrawals are partly due to consumers using cash-back features at retail point-of-sale terminals, bankers say. Surveys show 65 per cent of people who used debit cards for purchases have asked for cash back, from 54 per cent in 2000.
The Commons finance committee plans to take a closer look at ATM fees.
Hearings are set to begin shortly after the fedetral budget is tabled on Monday. "We'll have a chance to thoroughly review the issue and put pressure on the banks," NDP MP Judy Wasylycia-Leis said after the committee endorsed her resolution to look at the fees, which she wants to end.
"We think it's quite doable to do away with the fees for using not only your own bank's ATM but, of course, a competitor's ATM," she said.
John Lawford, lawyer and counsel for the Public Interest Advocacy Centre, also wants to see an end to fees charged for using automatic teller machines.
When the Interac-shared cash-dispensing network started in the mid-1980s, it was paid for by bank customers in the cost of their accounts.
Bank customers still pay a $1.50 Interac fee as part of their account packages, he points out.
Depending on the type of account, customers may also pay a $1 fee for each ATM transaction if they exceed a monthly limit. Then, starting in 2000, customers began paying a $1.50 fee each time they used another bank's machine to withdraw cash.
"To me, that looks like triple dipping," Lawford says.
Interac has no central computer, he adds, and simply provides shared marketing and security services.
Each bank handles its own ATM transactions. So, what are the extra costs that consumers have to subsidize?
"Why won't the banks open their books and tell us what it costs to process ATM transactions?" he asks.
"I can't believe it costs that much to put cash into the machines, bolt them to the wall and run their own computer systems."
Interac fees have always been built into the cost of a customer's account, says Duff Conacher, chair of the Canadian Community Reinvestment Coalition.
The Interac fee started at $1 and rose to $1.50 about a decade ago. When the banks added an extra $1.50 fee for non-clients using their ATMs, they doubled the fee to $3.
Conacher says the banks have never explained why they needed to charge such high Interac fees.
"Where's the cost breakdown? The banks have never proved these fees were reasonable or justifiable. We need an independent audit by the Auditor-General of Canada to prevent gouging."
In his view, banking is an essential service – similar to local telephone, cable TV, electricity and gas for home heating.
He'd like to see banks regulated in the same way as utility providers. They'd have to apply for each rate increase they wanted to impose and explain why they needed the money.
Banks are not an extension of government, responds Caroline Hubberstey, a spokeswoman for the Canadian Bankers Association. They're efficient, well-performing businesses, she says.
"Banks paid $6 billion in taxes in 2005 and employed 250,000 Canadians. The shares are widely held by investors. Bank stocks account for 13 per cent of the Canadian equity holdings of the Canada Pension Plan Investment Board."
Critics argue that banks are already regulated by the federal government. They have to meet capital requirements, protect customers' privacy and prevent money laundering.
The government has told banks they can't merge with each other. And it has required them to offer low-cost accounts for low-income clients, hoping to stop the spread of high-cost payday loan outlets.
Hubberstey says the $1.50 fee charged to non-clients at bank-owned ATMs is comparable to other jurisdictions. In the U.S., the fee is $1.88 (Canadian). In the European Union, it's $1.74.
She likes to use a fitness club analogy, saying that gym members don't want to to see non-members use their facilities for free. In the same way, banks don't want to subsidize non-clients and let them use a network of cash machines built for their own clients' use.
"I still remember the days when you couldn't go to another branch to do your banking. You couldn't bank on evenings or weekends.
"Today, banks have opened a service delivery channel to get cash. That convenience comes with a nominal fee for non-clients."
Lawford and Conacher say banks have closed many of their branches in the past few years and eliminated the cash machines located in branches.
Bruce Cran, president of the Consumers Association of Canada, is not as critical of ATM fees as Lawford and Conacher.
"Do you have an option? Yes, you can go to your own bank's ATMs and not pay a fee," Vran says. "If you manage your affairs well and plan ahead, you can avoid the fees quite easily.
"We're in favour of marketplace forces. The proliferation of cash machines shows they have an accepted place for consumers."
But most consumer advocates would be delighted if the Commons finance committee succeeds in getting an ATM cost breakdown from the banks.
They want to know if Canadians are paying too much for using their own and rivals' bank machines.
ATM use across the country
Canadian banks operated 16,160 ATMs in 2004. That dropped to15,960 in 2005, but rose to 16,190 last year.
The ATM network in Canada (including non-bank or "white label" machines) has expanded substantially. The total was 51,097 in 2005, up from 42,773 in 2000.
ATM cash withdrawals fell to 691.8 million in 2005 from 875.1 million in 2000, a decline of about 20 per cent.
Fewer ATM withdrawals are partly due to consumers using cash-back features at retail point-of-sale terminals, bankers say. Surveys show 65 per cent of people who used debit cards for purchases have asked for cash back, from 54 per cent in 2000.
__________________________________________________________
Bloomberg, Theophilos Argitis, 15 March 2007
Canadian lawmakers will begin hearings next week on automated-teller machine fees after Finance Minister Jim Flaherty urged the country's banks to reduce the levies for seniors and students.
The House of Commons finance committee will hold its first hearing on March 22 as it prepares a report on the issue, New Democratic Party lawmaker Judy Wasylycia-Leis said in a telephone interview today. Wasylycia-Leis, a member of the committee, said she's hoping to hear testimony from the chief executive officers of the nation's biggest banks.
Flaherty met bank executives in Toronto last week after the New Democrats called on him to amend banking laws to eliminate the fees. After the meeting, he said he expects individual responses from the banks on the issue.
In a letter to the chief executives of the five biggest lenders last month, Flaherty said he's received a number of complaints about the fees and asked what ``options'' are available for cutting some of the charges.
Bank customers typically pay fees of at least C$1.50 ($1.28) to use the machines if they don't have an account at that bank.
;
Canadian lawmakers will begin hearings next week on automated-teller machine fees after Finance Minister Jim Flaherty urged the country's banks to reduce the levies for seniors and students.
The House of Commons finance committee will hold its first hearing on March 22 as it prepares a report on the issue, New Democratic Party lawmaker Judy Wasylycia-Leis said in a telephone interview today. Wasylycia-Leis, a member of the committee, said she's hoping to hear testimony from the chief executive officers of the nation's biggest banks.
Flaherty met bank executives in Toronto last week after the New Democrats called on him to amend banking laws to eliminate the fees. After the meeting, he said he expects individual responses from the banks on the issue.
In a letter to the chief executives of the five biggest lenders last month, Flaherty said he's received a number of complaints about the fees and asked what ``options'' are available for cutting some of the charges.
Bank customers typically pay fees of at least C$1.50 ($1.28) to use the machines if they don't have an account at that bank.
