*In the frame, a poster for the campaign to abolish current account fees, being run by the Israel Consumer Council, under the slogan "The Banks are Milking Us".
Consumer Council CEO: How can one claim that the abolition of checking account fees, which are less than two percent of the banks’ revenues, would endanger the stability of the banks?
In a special session of the Knesset’s Economics Committee, held on Wednesday, March 21, 2102, at which the Supervisor of Banks reported on the banks’ checking account fees, Prof. Stanley Fisher, Governor of the Bank of Israel, addressed public criticism of the cost of banking services, and claimed that it was “populist, and could endanger the banks’ stability".
The Consumer Council blames the Bank of Israel, in its role as regulator of the banking industry, for having forgotten the welfare of consumers.[1] CEO of the Consumer Council, Adv. Ehud Peleg, says that “the Bank of Israel can be compared to a two-eyed watchman: one eye watches the stability of the banks, while the other is supposed to watch out for the welfare of consumers. Today it seems that the watchman’s vision in one eye is significantly weakened.” The Council’s CEO says that it is populism to simply repeat slogans that are not based on reality. The Governor’s claim, that the abolition of checking account fees would be akin to receiving banking services for free, ignores reality:
1. The banks profit a number of times from checking accounts: from fees, from interest on overdrafts, and from using the funds in deposit accounts and credit balances that it holds.
2. The banks collect fees, even when they provide no service: the minimum fee is, in effect, a fee for doing nothing.
3. The Director of the Israel Antitrust Authority, Ronit Kan, revealed, in her report, that the banks illegally pass information on checking account fees among themselves, that the banks often have no costings on which to base the checking account fees they charge and, according to a seized Bank Hapoalim document, they collect fees in line with the principle, “When in doubt – charge for it.
” Adv. Peleg also rejects the Governor’s claim of concern over the banks’ stability, should the fees be abolished, and reminds him that the checking account fees paid by the household sector amount to only about two percent of the banks’ overall revenues. Bank stability is also a consumer interest, and no one intends to endanger it. It is unfortunate that the Governor had chosen to pass responsibility for the costs of banking services to the consumers themselves, on the one hand calling on them to exercise the habits of intelligent consumerism, while on the other thwarting the possibility of presenting information in a way that would give consumers the ability to make comparisons.
A survey by the Consumer Council demonstrates that consumer’s problem is their inability to compare the costs of maintaining a checking account between the various banks, because of the mix of interest rates (in percent) and fees (in shekels): 70% of consumers failed in this task.
65% of respondents say that, if the comparison were simplified, by eliminating the account fee component, they would begin making comparisons between banks. Only by dealing with the problem of checking account fees – says the Council – will consumers be able to see the interest gap, which would allow them to compare banks, and then exercise intelligent consumer behavior.
A proposed law, prompted by the Consumer Council, and currently being advanced by 21 Knesset members, among them six committee chairmen led by the chairman of the Economics Committee, is a balanced compromise proposal between the demand to totally abolish checking account fees, and recognition of the bank’s right to charge for services.
The proposed law states that a bank will not charge fees, if it profits from the checking account by charging interest on overdrafts or making use of the credit balances, and that it will be the Supervisor of Banks who will determine the minimum credit and debit balances that will exempt bank customers from paying fees.
Such a balanced proposal ought to be adopted by the Bank of Israel. To portray it as receiving services for free is totally unrealistic, says the Council, which adds: “It is particularly serious that the Governor of the Bank of Israel labels a bill, promoted by experienced Knesset members, as populism, while rejecting out of hand the findings of the Knesset’s own research center.” In 2011, the Consumer Council proposed that the Bank of Israel join with it in examining the problem of current account fees. In response, the Bank of Israel claimed that it saw no problem with the fees, and so was not willing to look into the matter.
Traditionally, the Bank of Israel has refrained from addressing the questions raised by the Consumer Council and submitted to the Bank prior to its half-yearly report to the Economics Committee. Thus, information is withheld from the public which would allow it to understand the problems faced by households in the banking sphere.
This problem was recognized by the G20 which, following an approach from international consumer group Consumers International, adopted a resolution requiring governments to strengthen consumer protection in the area of financial services. The Consumer Council expressed its amazement that the Supervisor of Banks was appointed to head a public community to examine the banking market, after having previously refused to look into the problem of checking account fees, and given that he already has the powers to deal with a problem that he refuses to recognize. Surprisingly, the Consumer Council was not given the opportunity of being represented on that committee.
Ehud Peleg, CEO of the Consumer Council: “If one were to summarize the Council’s demands – to allow consumers of banking services to make proper comparisons – using the quote ‘Do not place an obstacle before the blind,’ then the Council’s position regarding the Bank of Israel may be summarized as ‘There is none so blind as he who refuses to see.’”
[1] The Trajtenberg Committee stated that the regulators gave little, if any, weight to the welfare of consumers.
