Fees for everything: are our banks ripping us off?

By SIMON COLLINS

Bank fees, says Gerry Houlihan, are "like diabetes: it creeps up on you - you are completely unaware of it."

When there is plenty of money in the bank, you can afford to ignore fees. Mr Houlihan, a former British seafarer, used to do just that when he walked off a ship after four months at sea with sterling 3000 in his pocket.

"I'd take people out to dinner and buy motorbikes and cars."

His life changed when he was made redundant 14 years ago. He is now a volunteer advocate with the Mangere People's Centre. His wife, Celia, is a volunteer at the local kindergarten. Total household income for them and their two daughters is $470 a week - just $270 after paying the rent on their state house in Mt Wellington.

"When I was first made redundant I had two automatic payments. I kept them up," Mr Houlihan says. "If I was going to the movies, I'd take $20 out of the bank.

"I found out only this year that banks charge you $15 if you run over on an automatic payment. And if you take out money from a machine which is not your bank's, it can cost you $5."

The Houlihans have learned to minimise these fees by staying away from banks. They get cash from an Eftpos machine when they do the weekly shopping, and use it for everything - even paying phone and power bills at a Post Shop. They have no overdraft, no credit cards, no debts.

But in his work at the People's Centre, Mr Houlihan sees many others on low incomes who have no idea what banks take.

"Most of my clients are unaware of these charges. When they do become aware, they take steps to reduce them."

Yet across town in Mt Eden, Alastair Russell and Helen Wilkinson, each earning around $47,000 a year, usually pay no bank fees at all. They are exempted from the first $20 in fees because they have a $150,000 mortgage with their bank, the ASB.

"The most we pay is $2 to $3 a month," Mr Russell says.

Bank fees have crept up on us suddenly. Retired banker Ross McRobie says charges for bank accounts and transactions have come in only since he left in 1995 - "Accounts were basically all free."

Account "maintenance" fees were among the first - now $3 a month at the ANZ, ASB and WestpacTrust, and $3.50 at the BNZ and National Bank.

Then there were transaction charges - between 50c (ASB, National) and $1 (BNZ) to withdraw cash over the counter, or 25c to 50c through a money machine.

Last year the ANZ and BNZ introduced a $15 "honour fee" if they "honour" any payment which pushes you beyond your overdraft limit.

WestpacTrust and the ANZ have introduced an extra 50c charge to withdraw money from money machines other than their own. ANZ customers using ASB machines pay $5.

But public tolerance may have reached its limits. In April, protests forced WestpacTrust to drop a plan to charge people $2 for paying off their credit cards on time.

In Britain, the Halifax Building Society last week abandoned a proposed sterling 1 charge for customers using non-Halifax money machines.

In New Zealand, bank charges have been the dominant theme of public reaction since the Weekend Herald invited feedback on banks last week. For example:

* Browns Bay mother Joanne Turner says she never got the chance to cash a sterling 5 cheque sent from overseas for her daughter's birthday because of National Bank fees totalling $27 - a telephone inquiry fee, a withdrawal fee, a monthly account fee and others.

* Public relations consultant John May was charged $8.30 for the first month of a new ANZ account - a $3 monthly fee, $4.50 for six cheques and 80c for two direct debits. "It works out at $1 a transaction, which is ridiculous."

* A Bucklands Beach couple reinvested money on the day, a Friday, that a previous investment was maturing at the BNZ, only to be charged a $15 honour fee because the bank would not pay out the investment until the Sunday night. The couple had to fight to get the fee reversed and interest paid for the extra weekend the bank held on to their money.

* Another couple was charged $20 for late payment of an ANZ credit card debt owing on Saturday, May 20, even though they actually paid the debt by phone that day. The ANZ claimed they should have paid by the Friday because of the weekend, but refunded the fee when challenged.

With five foreign-owned banks - ANZ, ASB, BNZ, National and WestpacTrust - controlling 90 per cent of our banking assets, there is no question that the banks have the power to charge what they like.

The big five boosted their net profit after tax by 37 per cent last year to a record $1.6 billion. In the past three years, they have averaged returns on net New Zealand assets of 24.4 per cent, compared with 16.1 per cent in Australia.

An official British report on Competition in UK Banking (March 2000) found that returns for British banks of 25 to 27 per cent since 1994 meant the public was paying sterling 3 billion to sterling 5 billion too much for banking services annually.

However, the director of Massey University's Centre for Banking Studies, David Tripe, does not see much evidence that New Zealand banks are "profiteering."

"It's certainly an oligopolistic market [controlled by a few]," he says. "It's oligopolistic, but not necessarily inherently bad for consumers because the market participants are striving for competitive advantage."

He says returns on net assets are not the best measure of profitability because most banks keep less than the usual capital here, knowing they can call on offshore capital if needed.

Their return on total loans and other assets - a fairer measure - was slightly under the international benchmark of 1 per cent through most of the past decade and 1.1 per cent last year - exactly the same as in Australia.

Their net interest margin - net interest earnings as a proportion of interest-earning assets - slid from 3.1 per cent in 1995 to 2.4 per cent last year. In Australia and the United States, the comparable figure last year was still 3.1 per cent, and in Britain 2.6 - although in Canada it was only 1.8 per cent.

New Zealand banks have cut costs from 70 per cent of operating income in 1994 to 57 per cent. Further cost-cutting is expected.

Fees have been hiked. But the graph shows that fees paid by an average household each year are still lower than in Australia or Canada, though much higher than in Britain or the United States.

BNZ retail banking manager Chris Black says New Zealand banks are still charging less than the real cost of $2.50-$3 for each over-the-counter transaction - "It's a loss leader."

Massey's Mr Tripe believes there is only one area where New Zealanders as a whole are being "ripped off" - credit cards. In the card business there are fewer competitors, and interest rates are sky-high (standard rates are 17.75 to 19.4 per cent).

But to Mr Houlihan and other budget advisers, the key point is that while those with assets or mortgages can avoid bank fees, the poor cannot.

Says North Shore adviser Sue Deason: "It's a problem for the average client because many of them are feeding their families and paying the household bills on $100 a week. Once a month that is reduced to $80 because of bank fees."

A briefing paper to the incoming Government last year from the Ministry of Consumer Affairs said bank fees for low-income groups needed to be tackled because the Government requires benefits to be paid into bank accounts.

The Coalition has taken up this challenge with proposals for a "people's bank" and making provision for low-income people a requirement of the Government's own banking contract with WestpacTrust.

The banks - a Herald series

* Next week: Policy options

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