Extortion by Commercial Banks

Fri May 30, 2014

Editor: I found the revelations about the imposition of withdrawal fees by certain commercial banks in this country to be quite troubling. To my mind, this amounts to extortion and perhaps even a violation of our right to private property. The banks seem to have appropriated unto themselves the kind of responsibility which is normally associated with criminal courts, in that they have imposed what is in effect a penalty or a fine on the use of personal resources. We are punished because we want to draw on our hard-earned savings whenever we see fit. That is our crime.{{more}}

The fees have been described by bank agents as a “deterrent.” But what gives them the moral authority to deter anyone from using his or her own money? Why do commercial banks seem so pre-occupied with devising and implementing arbitrary charges that have dubious justification and which redound to their exclusive financial benefit?

The ironic thing is that the financial institutions have imposed the withdrawal fees in the name of promoting thrift, even though they know fully well that the fees are unlikely to lead to any significant change in behaviour. In fact, the banks plan to cash in on precisely this fact to increase their net income beyond its already high and counter-productive levels. I am not persuaded that these institutions are more interested in the public good as opposed to private profits. They are quite simply on a profit seeking rampage and are trying to disguise it in noble intentions, but this naked attempt to make easy money is hard to conceal.

Why don’t these banks tell us how much revenue they expect to earn from the new fees? Have they adequately considered the detrimental impact that their actions would have on Vincentians in general and low-income Vincentians in particular? To the extent that the fees encourage bank clients to prefer an ATM over a human being, that may be part of the grand design to get rid of bank workers down the road. Is the plan to reduce the reliance on tellers and then use that as an excuse to make them redundant a few years (or maybe just a couple months) from now? Would that make the Vincentian economy and society better off? Certainly not. On the contrary, it will result in a loss of jobs and at the same time allow the banks to add to their already huge stock of idle funds, which are not being put to sensible economic use.

Why is it that holders of regular savings accounts that perform teller-withdrawals were hit the hardest? Why exactly is there such a disparity in fees? Is there any inherent discrimination against small account holders in favour of wealthy corporate clients? Is this desirable and in the best social and economic interest of St Vincent and the Grenadines? Would these fees force individuals to keep larger sums of money in their possession at high personal risk of theft? Should a teller withdrawal cost up to five times as much as an ATM withdrawal? What’s behind this hard sell of ATM banking? If these banks merely want us to practise less reliance on the tellers, why don’t they also charge fees when we make teller-deposits?

I take very strong objection to the suggestion that banks are doing us a favour by accepting our deposits. It’s the other way around. They use our money to provide loans and other services from which they generate a profit. On average, they earn 9.41 per cent interest on loans and only pay us about 2.63 per cent interest on our deposits (see http://www.eccb-centralbank.org/Statistics/index.asp#monstats). Obviously, the interest earned on deposits is negligible compared to the interest banks receive from loans. The withdrawal fees lower the effective rate of interest on savings. An individual, depending on his or her frequency of withdrawal, may very well end up with a negative rate of return on his or her deposits. The banks want to get us to a place where we are paying them to hold our money and not the other way around. This cannot stand.

The fees were first implemented by Scotiabank and we could use that commercial institution as a case in point. The difference between Scotia’s interest income and interest expenses for the financial year which ended on October 31, 2013 was $19.8 million (see page 6 of The Vincentian newspaper of February 28, 2014). The bank also had other income to the tune of $8.4 million and a net profit of $8.3 million. Without depositors these earnings would be impossible. Who’s doing whom a favour?

The cost of ATM services and teller services are normal administrative costs that a bank could more than pay from their net interest income. There certainly is nothing wrong with trying to increase profitability, but the banks should try to do so by offering innovative financial products that add value to the lives of Vincentians and simultaneously help the financial institution to boost their revenues and profit margins. They should not resort to “ganging-up” against depositors to impose counterproductive measures in a simplistic and uncreative attempt to improve their bottom line. The new measures are absolutely unwarranted. The public should resist them. These withdrawal fees should be rescinded now!

R. T. Luke V. Browne

lukebrowne@yahoo.com