Sat | Jan 20, 2018

Letter of the Day | CaPRI lost the plot on bank fees

Published:Saturday | June 17, 2017 | 12:07 AM


I take issue with the assertions and conclusions of a recent study conducted by the Caribbean Policy Research Institute (CaPRI). The major conclusions of the report were reported in The Gleaner on June 12.

According to the report, CAPRI believes it would be a bad idea for the Government to regulate bank fees. The report indicates that CaPRI holds the view that if bank fees were regulated and kept within certain limits, the bank would simply seek to pass on the cost (loss) in those areas by raising interest rates. In short, according to CAPRI, the best regulator of fees is competition, and by leaving fees to market forces, fees could go down. The current fees, CaPRI contends, are in line with international rates.

The conclusions of this study are consistent with the neo-liberal views of my colleague, Dr Damien King, and given his association with CaPRI, I am not surprised by the positions articulated but find the positions unhelpful and in fact harmful to the interests of the consumer.

The notion that if Government were to regulate fees, the banks would make up for the losses by increasing interest rates, failing to take account of the fact that even in the absence of regulation, the banks have been regularly increasing interest rates and widening the list of activities for which they charge fees.

Thus, the so-called competition, which neo-liberal economists claim will regulate the market, is a theoretical construct that does not apply in this case, as the banking sector is an oligopoly. In an oligopoly, there are few players who are able to collude to fix prices and thereby limit real competition.

But even in the absence of collusion, the fact that there are so few players means that each oligopolist bank is likely to be aware of the actions of the others and, therefore, the decisions of one bank influence, and are influenced by, the decisions of others. The recent rollback of fees on dormant accounts is a perfect example, as Ralston Hyman repeatedly sought to explain. It was only after NCB, the dominant player, removed those fees that others did the same. It is noteworthy, however, that the fact that small financial entities do not charge fees on certain transactions did not stop the dominant players, like NCB and BNS, from continuing to charge fees on those transactions.

In short, CAPRI's argument that competition will lead to lower bank fees is not supported by Jamaica's reality, as there can be no real competition in an oligopoly.




The existence of oligopolists means that consumers are at a disadvantage, and the only mechanism for protecting consumers is government action through regulation. Elected representatives have a duty to protect the vulnerable consumer, and in the same way taxi fares are controlled in Jamaica, banking fees can be controlled and certain minimum service standards must be insisted upon.

It is imperative that the Government establish mechanisms for holding banks accountable. In the same way utility companies are required to show cause for price increases in some areas, banks should be similarly treated and should be mandated to subject their operations to greater regulatory scrutiny.

In the absence of regulatory scrutiny, banks can pass on the costs of their inefficiency to consumers. This was the case with Cable & Wireless (then Telecommunications of Jamaica), which had a guaranteed return.

The subjugation of the society to the banks, which the CaPRI study seems to recommend, is inimical to the interests of the vulnerable poor. It is most disheartening that the CAPRI study offers no relief from the long-standing oppression that consumers have faced at the hands of banks.