MAKING NEWS

Sun, 25 May 2008
Borrowers dig deep as banks pile on the fees
HOUSEHOLDS and businesses paid more than $10 billion in bank fees and penalties last year, the Reserve Bank has revealed amid concerns that the proposed merger of Westpac and St George could further tighten banks' grip on consumers.

A separate report by the banking industry showed households paid an annual average of $220 in bank fees and duties, excluding charges on home loans. The top 20 per cent of income earners shelled out $415.

Reserve figures published yesterday show the proportion of fees paid by households, for example in credit card or mortgage charges, hasrisen steadily compared with the share forked out by businesses.

The Reserve Bank said banks appeared to be imposing more charges rather than lifting existing ones, including imposing more fees for late credit card payments, currency conversions and exceeded credit limits.

"Over the past five years fee income from credit cards has grown by 170 per cent," the Reserve's market snapshot said.

The average fee on late credit card payments is $31, while the average penalty on exceeding a card's limit is $30.

"We've argued that both those fees are intrinsically unfair," said Elissa Freeman, a senior policy officer at the consumer advocate Choice. "With late payment fees the bank already has the benefit of the interest payments that consumers have to continue to pay. The fees should reflect their cost to the bank."

Fees charged on home loans increased 8 per cent last year, compared with average annual growth of 11 per cent between 2001 and 2006. Credit card fees rose 12 per cent, against 25 per cent annual growth over the earlier period.

The Australian Bankers Association said the increasing supply of no-frills cards was evidence that banks were listening to community concerns about fees. The association's chief executive, David Bell, said the volume of banking business had outstripped the fees banks had charged.

The focus on fees comes as banks tighten their grip on the mortgage market, thanks to the crippling of smaller lenders by the financial crisis.

The country's biggest mortgage lender, Commonwealth Bank, yesterday signalled it had benefited from a "flight to quality" as non-bank and smaller lenders had closed or reduced business.

Commonwealth's chief executive, Ralph Norris, also said there could be more bank-driven rate rises to come. "The fact of the matter is over time interest rates being charged will increase unless we see significant drops in rates internationally and locally," he said in a market update.

Consumer advocates have warned that competition in the banking sector would be weakened by the planned merger between Westpac and St George, giving banks more muscle to extract higher fees.

The strong retail presence of both banks in NSW is expected to be a sticking point for the competition regulator.

Ms Freeman said the high fees pointed to a weakness in competition, with a "potential for even lesser competition if the merger goes ahead".

Bank fees could come under the microscope if the Government adopts a recent Productivity Commission recommendation for new laws that would enable customers to challenge the legitimacy of "unfair" fees and contracts.

TOP 5's BILLIONS

Latest half-year profits for the top five banks, which in 2007 turned in almost $18 billion between them.

Commonwealth $2.3 billion

NAB $2.2 billion

ANZ $1.96 billion

Westpac $1.84 billion

St George $603 million

SOURCE: Jacob Saulwick - Sydney Morning Herald

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