FTC recommends more banking information to consumers

KEN CHAPLIN

Tuesday, November 02, 2010

DAVID Miller, executive director of the Fair Trading Commission, says there is little doubt that the proper functioning of a financial system is critically important to the prosperity of any economy. The need for a study of the Jamaican commercial banking sector was evident because, for at least the past two years, the Jamaican public has been vociferously venting their disquiet with the conduct of the commercial banks. Specifically, there is concern about the coordinated manner in which banks have been introducing fees for services which were traditionally offered free of charge and increasing fees for services which traditionally attracted fees.

Consumers are complaining that banks are now charging for services which were once considered a part of their core function or the basic purpose for which they were set up. For example, the banks now have direct charges for deposits made and withdrawals from savings accounts from which they earn “significant” income, says Miller.

He points out that with commercial banks making triple-digit profit margins on these services, the public’s perception is that fees charged have resulted in consumers getting less than their fair share of the benefits generated by the market, and by extension there is serious concern regarding the extent to which banks are competing with each other.

Miller explains that for the most part, the public is aware of the duties of suppliers to the competitive process as is explicitly outlined in competitive legislation enacted across the Caricom region. This legislation prohibits suppliers, either individually or collectively, from engaging in conduct that would impede competition. Consumers have the duty to arm themselves with information that would allow them to compare similar services offered by the various suppliers.

He says the orderly dissemination of information is of critical importance to the smooth functioning of the market. When information is disseminated systematically, in the sense of being released at predictable intervals — and of course not necessarily by the banks — then the cost of keeping informed would be lower to consumers. The informed consumer facilitates competition among rivals who may not have the incentive to provide complete information to the consumers. He notes that the acquisition of relevant information can be burdensome for individual consumers. Banks can and do change their fee structure at varying times in a year and sometimes without notice. This makes it potentially difficult for comparative shopping and it is somewhat bothersome for consumers. Miller asks whether there should be an oversight body that, among other things, ensures that the relevant information is placed in the public domain and reviews contract terms and conditions that could be considered as being unfair.

Miller’s recommendations at this time relate to mandatory (or voluntary) provision of information by banks to consumers and their customers, and effective and continuous consumer education programmes. Specifically, for all services offered by banks, the price must be stated before the service is provided so that consumers can decide whether or not to proceed with the transaction. Also for all penalties and charges, for example, minimum balance violation fee, information should be provided as to how consumers may avoid such a charge, where possible.

He adds that it is generally accepted that for competition to take hold in any market, consumers need to be informed and therefore an important element in the competitiveness for any industry is the reaction of consumers to changes in prices. Therefore, if banks are to have the proper incentives to offer their services under reasonable terms, then it is necessary for consumers to be adequately informed about the services and terms under which they are being offered.

Miller was speaking at the Regional Seminar on Banking and Credit Financial Services and Consumer Protection in the Caribbean: Towards a Regulatory Policy Framework, sponsored by Consumers International and the Inter-American Development Bank a held in Barbados September 20-21.

Consumers International wants protection group

Meantime, Consumers International (CI) has called on the G20 leaders to remember the needs of everyday consumers of financial services. Justin Macmullan, CI’s head of campaigns, explains that the communiqué from the G20 finance ministers and central bank governors last week acknowledged the high interdependence among G20 countries in the global financial system.

The communiqué also notes that uncoordinated responses will lead to worse outcomes for everyone, and yet there is hardly a mention of a unified approach to the needs of the real people who consume financial services daily.

He said that CI, together with its 220 member organisations, urgently wants to see the establishment of an Experts Group on Consumer Financial Protection which would help to ensure that consumers everywhere would have access to stable, fair and competitive services.

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FTC recommends more banking information to consumers