The Regulation of Banking Fees and Customer Service

It was reported in a February 2, 2017 article that 90% of the 974 respondents to a Jamaica Observer poll agreed with the proposal for the government to regulate banking fees. This poll was initiated in response to the tabling of a draft Bill before the House of Representatives by Opposition M.P., Fitz Jackson, to amend the 2014 Banking Services Act (“the Act”). The stated purpose of the bill (“the Bill”) is to increase customer protection via the regulation of fees and charges, provision of information and a mandatory service package to customers. Music to the ears of many financially frustrated Jamaicans but a less melodious tune for the deposit taking institutions. In this article, we have considered the present provisions of the Act, some of the proposals set out in the Bill as well as what pertains in other territories.

The Act already contains provisions, in section 132 (4) (b), that stipulate that the Supervisor (who under the Act is the Governor of the Bank of Jamaica) may issue a code of conduct on consumer related matters. The code may provide for matters such as the obligation to provide customers with reasonable notice of fees and charges, customer access to information at a reasonable cost, require interest rates to be expressed as annual rate calculated in a standard manner across the industry, impose an obligation to keep the language in contracts with customers simple and clear and that key terms are brought to the customer’s attention and require licensees to establish effective methods to deal with customer complaints. A contravention by a licensee of the provisions of the code could result in the issuing of directions by the Supervisor. The failure of a licensee to comply with those directions will constitute an offence but would not invalidate any transaction.

On October 21, 2016 The Banking Services (Deposit Taking Institutions) (Customer Related Matters) Code of Conduct (the “Code”) came into effect. The Code essentially addressed the matters outlined above.
Now the Bill seeks to repeal section 132 (4) (b) and replace same with a new section, 132 A. This new section would retain almost all of the present provisions of section 132 (4) (b) with the addition of the following:

1. The enactment of the code by the Supervisor would be mandatory as opposed to discretionary; 
2. The code must  provide for a mandatory minimum service package;
3. It must impose an obligation to provide 45days  prior notice before any changes to fees, charges, terms and other relevant information. (Note that a similar provision is included in the present Code) and such notice is to set out  how the customer can either accept or dispute the changes or close his/her account free of cost or penalty; 
4. Customers are to be given access to their information at reasonable cost (which is already addressed in the present Code), by inclusion in the “minimum service package”; 
5. The code is to impose an obligation of fairness and reasonableness of terms, bearing in mind, what the parties to the agreement ought to have reasonably known or contemplated at the time of the agreement; 

In addition to providing that non-compliance with the code is an offence, the Bill states that contravention may invalidate a transaction where the customer was unfairly disadvantaged on a balance of probabilities.

The provisions of the mandatory service package are set out in the Bill and if enacted would form the Twelfth Schedule to the Act. Its provisions are applicable to any account, credit facility or financial instrument between a licensee and a customer. It includes provisions that mandate:

1. No charges for customer inquiries of any sort, by any medium on any transaction.
2. A minimum of 120 free transactions by any medium, per annum, per account.
3. No charges for statements.
4. Free cheque (or similar instrument) cashing and changing.
5. A licensee can freeze an inactive account with a credit balance and classify it as dormant or close a zero balance inactive account. However, in each instance, this can only be done where the customer has been given notice ninety (90) days prior, and the notice had set out when the account would be classified as dormant, how to respond to the notice, and consequence of failing to respond. The notice should also include the current statement of account and the whether a dormant account can be reactivated, and in the case of a zero balance account, whether this can be revived before closure. Also, where the dormant account has a credit balance, no transactions are to be made to the account, benefits shall continue to accrue, there is to be no maintenance fee and electronic statements are to be published.
6. No modification of terms and conditions which would place the customer in an adverse position, or which differ materially from the initial agreement.
7. No increase in interest rate, annual fees, other fees and no charges or other change unless at least 45 days written notice has been provided to the client explaining that they can opt out of the changes and propose changes. The notice should state when the change will be effective, how the customer is to respond to the notice and the consequences of failing to respond.
8. Disclosure of all fees and charges for ABM, automated tellers or any other medium for processing transactions, prior to the completion of the transaction, and providing the option for the customer to either continue the transaction, or cancel it free of all fines, charges or penalty.
9. 72 hours cooling off period after the execution of an agreement, where the licensee has stated how the agreement can be terminated, free of all charges.
10. Provision to customers of a “key contractual terms” fact sheet

It is not difficult to see why a bank would be concerned by the provisions of the Bill and of the minimum service package. The mandatory removal of such a lengthy list of fees would likely have an adverse impact on a bank’s bottom line. Of note, the very notion of the proposed obligation of fairness and reasonableness of terms, bearing in mind, what the parties to the agreement ought to have reasonably known or contemplated at the time of the agreement could impact on the interpretation of many banking contracts and agreements. Though the Consumer Protection Act has long since contained provisions regarding unfair contract terms and a requirement for reasonableness in relation to contract terms, this provision would bring the requirement to specifically bear on all deposit taking institutions and may cause them to have to amend some of the provisions of their loan agreements, mortgages and other security documents. It is also likely that the banks will strongly object to the imposition of a restriction preventing them from implementing any change to its terms and conditions that would adversely affect a customer.

Different jurisdictions have taken varying approaches to bank fee and customer service regulation. In Barbados, the Central Bank of Barbados has instituted guidelines governing the fees which can be charged by commercial banks. These guidelines stipulate that the percentage charged for application/negotiation fees should not exceed 0.5% of the loan amount, the percentage used to calculate commitment/standby fees should not exceed 1.0% of the loan amount and charges for transfers via the Real Time Gross Settlement (RTGS) should not exceed $15 Barbadian Dollars. Additionally, there is to be no charge for cheque cashing, for transferring money between customer accounts at the customer’s bank’s ATM, third party withdrawals in respect of pensioners or for making account inquiries at the customer’s bank’s ATM. Notification is also to be given within thirty days of the effective date of new charges, there is a maximum $10 Barbadian Dollar p.a. dormant account notification charge which is reversible on acknowledgement of account holder and the minimum balance on which interest is to be paid should not exceed $300.00 Barbadian Dollars.

In Trinidad and Tobago, the concern has been expressed that banks are charging exorbitant fees for their services. Finance Minister Colm Imbert, was recently quoted as stating that the matter of whether “to regulate all fees charged by commercial banks…is a matter that is being carefully studied at this time”.

It was reported by the Jamaica Observer on March 10, 2017 that the Government intends to introduce a new financial services consumer protection agency to protect commercial bank customers from exorbitant bank fees. Having regard to the provisions of the Bill, this will hopefully not result in overregulation regarding these issues. The Minister of Finance and Public Service, Audley Shaw told the House of Representatives that banks currently hold $45 Billion in dormant accounts, which are subject to regular bank charges. It is these dormant account fees that appear to be of particular concern. Minister Shaw however noted that in the meantime the Government would depend on the banks complying with the current Bank of Jamaica Code of Conduct. Since then, it has been reported that National Commercial Bank Jamaica Limited (“NCB”) has announced that it has indefinitely suspended dormant account charges.

With Jamaica National Bank joining the commercial banking fold and promising “low and no fees” and pre-emptive moves such as that announced by NCB, competition may well motivate others to tackle this issue. Time will however tell whether the Government opts to take a more stringent approach to bank customer service and fee regulation.

Simone Bowie Jones is a Partner at Myers, Fletcher & Gordon. She may be contacted at simone.bowie@mfg.com.jm or www.myersfletcher.com This article is for general information purposes only and does not constitute legal advice.