Sucheta Dalal :Reality bites: Bank charges and the consumer (20 Oct 2003)
Sucheta Dalal

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Reality bites: Bank charges and the consumer (20 Oct 2003)  

Reality begins to bite. After a decade of economic liberalisation, when Indian consumers got used to being pampered by new private banks, they are realising that syrupy talk, fancy technology and glitzy ambience comes with an increasingly heavy price tag.

Until recently, stiff competition and the need for market penetration protected consumers from being bludgeoned by high user charges. Bankers will still offer you coffee and credit cards with the same swift and smiling service, but they will also lop off hefty user charges to cover the cost of technology, ambience and their fat pay packets.

So, wake up to a new reality; that of a comfortable cartel of high service charges that falls into place when the intense battle for market share settles down. For instance, all private banks will tell you that consumers must pay for the convenience of ATMs (Automatic Teller Machines) forgetting the fact that ATMs were originally supposed to cut costs for banks by eliminating expensive personal interface for basic services. All new banks have also begun to charge fat fees for services that one took for granted. Whereas you routinely got your savings bank passbook updated at every bank visit, you now pay Rs 800 per year for monthly account statements (the free one comes only once a quarter) and Rs 100 for each duplicate statement.

That’s because consumer activism has not kept pace with liberalisation. We have been so busy basking in better services that we failed to anticipate high service charges. Over the last year, I have witnessed (via email) angry battles between customers and banks over usurious debits in the customer accounts slapped without clear information or permission. The most common complaints are about unwanted credit and debit cards that are charged after ostensibly being mailed ‘free’ to depositors; also about the sly increase in tariffs without proper information in their promotional literature.

For instance Hong Kong Bank asks you to look up service charges on its website, while HDFC Bank has announced new charges such as Rs 25 each for balance enquiry, cheque status verification, and Rs 50 each for signature verification, address confirmation and photograph verification. Simultaneously it announced a punitive service charge increases for consumers who didn’t maintain a minimum average balance of Rs 5,000 per quarter (over and above the charge of Rs 750). More importantly, the new charges were printed on the back of the October account statement and were effective retrospectively from July 2003. This is unheard of. In the retail sector, consumer protection laws ensure that Maximum Retail Prices (MRPs) are properly printed on products and no tariff hikes can be with retrospective effect.

Ashok Gopal, an angry private bank customer asks us to shut down our accounts with private banks and move to less expensive nationalised banks. But that is not a solution. Nationalised banks may hike up their charges, and, as Gopal realises, sometimes it is not easy to close an account. Most private bank customers use the Electronic Clearing System (ECS) to pay phone and electricity bills, to receive dividends and interest payments or they have issued post-dated cheques from the account against personal loans. To unwind these services by changing the bank account details is a tedious and expensive job. Sometimes is it simply not possible. For instance, when Pune-based Stephen D’Souza tried to change the bank account for crediting interest through ECS for his client, the LIC Varishta Bima Yojana officials said that there was no provision for changing bank details.

What then is the remedy against usurious new service charges? Unless, the Reserve Bank of India sets up a cell to examine and resolve consumer complaints, especially about new fees and tariffs dreamed up by private banks, there is no easy remedy. The alternative is to fight individual battles in consumer courts. But that too is no solution. Consumer courts are ill-equipped, do not decide cases in the stipulated three months and are notoriously reluctant to hand out exemplary damages that would make the battles worthwhile for consumers and act as a deterrent to business.

The need of the hour is more broad-based consumer action. In the United States, organisations such as Consumers Union, Ralph Nader and others are fighting to create legislation that will ‘‘help protect vulnerable consumers from price gouging on checking accounts’’. These are the very same issues that are bound to confront Indian consumers when banks implement their threat to charge for ATM facilities and other services. American Consumer groups are against, what they call is the ‘‘trap of never-ending bank fees that is impossible to escape’’. They are demanding ‘lifeline banking’ legislation, which will give consumers access to basic banking services and protect them from exorbitant fees and surcharges for providing information such as signature and photograph verification. Several American States have indeed implemented legislation for minimum no-frills services. Some States prohibit ATM surcharges, California has a law prohibiting prepayment penalties to house owners who sell their home to pay off existing mortgage. And in New York State, well-known Attorney General Eliot Spitzer now going after Wall Street, has a prominent Internet posting under his signature that discloses lifeline-banking charges under a 1994 enactment. It states that depositors need only a one-penny deposit as minimum balance to keep their account open. And there will be no restrictions or penalties on the ‘‘minimum number of deposits you make per month’’. Also, banks cannot charge more than $3 per month to maintain a Lifeline account and depositors will be allowed at least eight withdrawals per month at no charge. Many banks are fighting such legislation on the ground that eliminating these charges will increase operating costs — the very arguments that Indian banks are using to hike service charges. Consumer activists counter that banks are making hefty profits and the argument about high costs for basic services does not wash. They correctly argue that the cost issue has to be defined in terms of the consumer and not the banking lobby. Over the next few years, several government benefits in India too will be electronically credited to bank savings accounts. These would include income tax refunds, pensions and dividends on National Savings Certificates and post office accounts. Unless the RBI looks at international trends today and mandates a basic no-frills service, high bank charges may well negate the convenience of automation and technology.

-- Sucheta Dalal