Commercial banks in Jamaica have imposed high interest rates and charge astonishingly heavy service fees while at the same time offering depositors disgracefully low interest rates. The banks argue that the increases in interest rates and service fees are necessary because they had to give up a lot of money as a result of the introduction of the Jamaica Debt Exchange which saved government from sinking further into financial morass. The exchange saw some 350 high-priced bonds being replaced with 24 new issues priced at an average of 12.5 per cent. The result is that government saved $700 billion in interest payments.

The truth is that commercial banks and some financial institutions which make billions of profit each year do not want to make any sacrifice in the new financial dispensation. Any sacrifice must come from investors and individuals.

The people most affected are pensioners who have had interest on their savings, some their only source of income, slashed by more than 50 per cent.

Unbelievably, base interest lending rates by the banks range from 21.5 per cent to 16.95 per cent and what they are prepared to give as interest on fixed deposits range from 3.25 per cent to 2.75 per cent. At one bank unsecured loan attracted an increase of up to 33.57 per cent.

The increase on credit card rates ranged from 49 per cent to 42 per cent.

There have always been complaints by depositors that the spread is too wide and inequitable. This led to former top banker and now financial consultant, Aubyn Hill, calling on the banks to reduce their interest rates. “The spread between what they pay depositors and what they charge borrowers is too big,” he says.

A survey of bank rates and fees and charges carried out by the Consumer Affairs Commission is rather revealing. The survey examined 68 separate fees and charges by banks and found increases of up to 78 per cent. The balance inquiry fees by one bank was increased by a staggering 400 per cent and withdrawal fee from the same bank went up by 144 per cent. Fees on personal service, including withdrawals and deposit in savings account and minimum balance violation went up to as high as 127 per cent. At First Global, the increase in balance inquiry fee was 400 per cent. These are only a few of the whopping increases showed up by the survey.

Finance Minister Audley Shaw was quite right in advocating for more banks to enter the system. Hopefully, with more competition, this would shock existing banks into their senses and we could see charges and reduction of fees. I am willing to bet that next year the profits of the banks will grow to more than they were before the JDX was introduced. Free enterprise will not work as it should, if all the players do not act fairly. The survey was part of the Commission’s Promotion of Consumer Protect Caribbean Project which is funded by the Inter-American Development Bank and Consumer International.

Regional seminar looks at banking and credit

An in-depth look on banking and credit in the Caribbean Community was taken at a seminar held in Barbados on September 20 -21. The seminar was sponsored by the Inter-American Development Bank and Consumer International and co-ordinated by Candice Ramessar, Caribbean project co-ordinator in the Project Implementation Unit at the Consumer Affairs Commission. Jamaica was represented by David Miller, executive director of the Fair Trading Commission and Dennis Chung, a technocrat.

The seminar was of tremendous importance to consumers in the region. A background paper at the seminar says within the context of strengthening consumer organisations, banking and credit have emerged as a critical area for the Caribbean. Currently, consumers are not always aware of their rights and obligations with respect to the financial services sector. Furthermore, predatory practices such as exorbitant interest rates and hidden bank charges are exacerbated in an environment characterised by lack of information. At the regional level, there is no code or practice or ethics that could help to govern

the relationship between financial services providers in general, and banks in particular and their consumers. (The strengthening of consumer organisations is critical to Jamaica. The Jamaica Consumers League seems to be sleeping. I have not heard a word from it for a long time.) The objectives of the seminar were to increase the technical capacity of Caribbean consumer organisations in the area of banking and credit, thereby ensuring targeted and sustained lobbying for change within the banking and

credit sector; allow for increased sharing of experiences in the banking and credit areas across the participating countries; provide a forum that will serve as the basis for a harmonised approach to the issues facing the region within the banking and credit sector; provide a forum for the discussion on the

development of a banking policy in the participating countries.

Some of the proposals for the code of ethics which is to be developed are of critical importance to Jamaica. They include:

*Guaranteed standards of customer care; the need for standards should be stated in law, queuing times should be reduced by appropriate staffing level.

(In Jamaica considerable time is spent in queues and is a weakness in banking.)

*Customer care practices should be set out in clear and understandable form in the code and consistently applied.

* Right for clients to review contracts before committing to take out agreement and right to consult.

* Consumers should have the right to review the report on his or her credit card and the right to contest specific elements as well as overall scores. Loans should only be enforceable if accompanied by such procedures.

* Banks must publish charges three months before they take effect to allow consumers to take action.

* Fees and charges must be clearly stated in information given to consumers and should be clear on customers’ statement.

* Consumers should have recourse to alternative dispute resolution within the bank or to an ombudsman or both. There should be clear time for dispute resolution and publication of findings.