Top banks dismiss challenge over fees
Penalties for unpaid debit orders irk union
SOUTH African banks continue to hit consumers with heavy penalties for unsuccessful debit orders — though they do not have to.
Standard Bank’s head of personal markets, Sugendhree Reddy, said the charge is because of the complexity and risk associated with the process for declining debit orders.
But she also said that the charge serves to discourage customers from this behaviour.
This does not fly with the research arm of trade union Solidarity. In its fourth report on bank charges, it said there was
[We want] clients to honour their payment commitments
“no logical explanation” for this type of fee, which was one of the standout findings of the research.
Overall, Solidary found that Capitec’s Gold One account was the country’s cheapest bank account by quite a margin. Standard Bank provides the most expensive account.
Bank charges remained virtually unchanged among the country’s top five banks, except for Standard Bank, which closed its most competitive mainstream account for new clients after just one year.
The high debit-order penalty remains a sticking point — more than five years after a panel set up by the Competition Commission recommended reducing this penalty dramatically.
In 2008, the panel recommended capping penalty fees on unpaid debit orders at R5, but the banks largely ignored that recommendation, except for their lowest-income accounts.
Solidarity’s senior researcher Paul Joubert said this week that a person who has an account with six debit orders at one of the “big four” banks could be “penalised”.
Extra charges can range from R258 to R828 in a single month if there are insufficient funds in the client’s account.
“The notion that this fee is a type of penalty for breach of contract does not hold true either because the debit order contract is not between the account holder and the bank, but between the account holder and the third party who is the beneficiary of the debit order,” he said in the report.
Joubert said consumers needed to consider these penalty fees carefully when choosing a bank because it could create a financial risk for them.
But Solidarity’s report has irked the banks — they all leapt to defend their decisions to levy these fees, particularly on highly indebted poorer consumers.
Standard Bank’s explanation is that the banks have established a “sophisticated infras- tructure” to enable consumers to transfer money and make payments easily and efficiently.
“In return for providing this value-adding service to our customers, we charge fees for transactions processed to cover the cost of the investment in this infrastructure, the ongoing processing costs and to provide a fair return to our shareholders,” Reddy said.
Reddy said that when a debit order was declined, there was an additional process that had to take place to reverse the settlement of the debit order.
She said that this process involved extra costs for the bank, and exposed it to risk because of the time lag between the initial settlement and subsequent reversal.
“We believe that customers have a duty to manage their financial affairs responsibly and to avoid making commitments that they cannot meet.”
Jo-Anne du Plessis, head of pricing at First National Bank, said the penalty fee for an unpaid cheque or debit order on a cheque account was higher because of the larger value items typically being processed through these accounts.
Moira Sharp, senior manager for transactional products pricing at Nedbank, avoided the question.
Sharp said that her bank wanted its clients to honour their payment commitments rather than incur fees.
FNB also side-stepped the question, saying clients who held its low-cost accounts such as EasyPlan Mzansi and Smart Transmission paid only R5 per unpaid item, and this cost had “remained unchanged since 2010”.
Solidarity’s report does reveal that the “big four” banks cut these penalty fees on accounts aimed at people with low income about five years ago, and Absa’s Transact account currently does not levy such a penalty fee at all.
Even so, said Joubert, “these fees remain high in respect of the mainstream accounts” such as cheque accounts.
The report compared the bank charges of different personal bank accounts of the five large commercial banks, Absa, FNB, Standard Bank, Nedbank and Capitec.