Dionisio D'Aguilar blasted Bahamian commercial banks for imposing "astronomical and outrageous" hidden fees... Calls for greater government and regulatory oversight of the banks... and described the Central Bank of the Bahamas as "useless"

'Outrageous' bank fees slammed


By NEIL HARTNELL
Tribune Business Editor


A FORMER Chamber of Commerce president yesterday blasted Bahamian commercial banks for imposing "astronomical and outrageous" hidden fees that he took four months to pick up on, and urged the Government and regulators to implement greater oversight of an industry he described as "a cartel".

Dionisio D'Aguilar, president of the Superwash laundromat chain, told Tribune Business that he was "outraged" by the 2 per cent 'excess penalty fee' CIBC FirstCaribbean International Bank (Bahamas) had begun imposing on clients who went into overdraft - even for one day a month - and had established no such facilities with the bank.

This fee, Mr D'Aguilar said, was on top of the normal 17 per cent that he as a businessman had to pay on an overdraft, and amounted to an effective annual rate of 730 per cent per year if funds were borrowed for one day. He questioned whether its CIBC parent had such fees in Canada.

Calling for greater government and regulatory oversight of commercial banks, Mr D'Aguilar described the Central Bank of the Bahamas as "useless" when it came to supervising the fees they charged.

He called on the Government to create a new regulatory agency, if necessary, and ensure there was "some sort of approval process" for commercial bank fee increases - focusing on whether they were fair and reasonable.

"The banks, having taken a killing on their bad loans, are implementing outrageous and astronomical fees to try and recoup some of the losses they've incurred on those loans," Mr D'Aguilar charged.

"For example, CIBC FirstCaribbean have decided to impose a 2 per cent fee on a one-day loan. If you happen to go into overdraft, and let's say you go into overdraft for $30,000 for one day, they will charge you $600 for that one day. That equates to an annualised rate of 730 per cent.

"They don't call it interest, and on top of that they charge you the 17 per cent interest they normally charge you for an overdraft if you don't have an overdraft facility fee in place. This is when they impose this fee. Why would you charge such an outrageous fee."

Mr D'Aguilar said that while CIBC FirstCaribbean ultimately reversed the 'excess penalty fees' it had levied on Superwash, totalling $955 during one month, this only happened after he vehemently complained about it.

"I'm a large and reputable customer, and I'm not sure they're doing it for everyone," he added. "I had to complain, and now they're trying to drive me to set up an overdraft facility with them.

"My concern is that I don't know whether they've contacted all their customers about this, and if people know they're being charged these fees. It took me four months to pick this up."

The former Chamber president said that by charging the 2 per cent in the form of a 'fee', and FirstCaribbean applying it in the manner it was, there was no link with the traditional determinants of interest - perceived risk, plus duration and size of the loan.

He explained that if a client without an overdraft fee went into this position for more than one day in a given month, FirstCaribbean would levy the 2 per cent 'excess penalty fee' based on the maximum overdraft amount on the account statement.

"What they do, in the course of a month, is they look at the highest negative balance you have and multiply it by 2 per cent," charged Mr D'Aguilar. "They pick the highest negative number, and multiply it by 2 per cent for the month. I think that's absolutely outrageous."

Mr D'Aguilar said he was charged $955 in 'excess penalty fees' for July as a result of two different accounts going into overdraft for two and three days respectively.

In a letter to FirstCaribbean executives, he wrote: "The excess penalty charge is 2 per cent per day, which equates to an effective annual rate of 730 per cent per year if you borrow money for one day, or 384 per cent per year if you borrow for two days, or 243 per cent per year if you borrow money for three days or 24 per cent per year if your borrow for 30 days. This is, of course, on top of the regular interest rate of 17 per cent that I already have to pay on an overdraft."

Mr D'Aguilar told Tribune Business that Bahamian businesses and consumers were "at the mercy" of the six banks - Royal Bank of Canada, CIBC FirstCaribbean, Fidelity Bank (Bahamas), Commonwealth Bank, Scotiabank and Bank of the Bahamas - who had the ability to operate as "a cartel".

As a result, there was very little option for Bahamian consumers, while changing banks overnight was not an option for many businesses given that they often had existing credit lines and properties mortgaged as collateral with one particular lending institution.

"There should be full disclosure of fees. People should see and view them," Mr D'Aguilar added. "A lot of businesses are not aware of what is going on. I was shocked when I saw $500-$600 of fees for one month.

"The Minister of Finance should focus on this issue, and not allow the banks to do what they want to do."

September 14, 2011

tribune242

caribbean Blog International

The Central Bank of The Bahamas has placed lending restrictions on Commercial Banks to protect the country's foreign reserves from being depleted

Bahamas Commercial Banks Losing Money

By Candia Dames

Nassau, The Bahamas

candiadames@hotmail.com

24/03/2004

 

 

Lending restrictions imposed two and a half years ago by the Central Bank are suppressing government revenue and hurting profits of commercial banks, according to a Cabinet Minister and a group of bankers.

 

But the Central Bank appears unlikely to raise those limits anytime soon.

 

State Minister for Finance James Smith recently blamed disappointing government revenue collections on the restrictions.

 

He told the Bahama Journal that, "If there is no credit growth, then clearly there is no appreciable growth in imports and consequently we have less in terms of customs duties."

 

In September 2001, the Central Bank placed the lending restrictions on banks to protect the foreign reserves from being depleted.  For the entire system as a whole, the restrictions limit the total lending to $3.7 billion.

 

Essentially, banks are restricted from lending more than what they are collecting in loan payments.

 

Central Bank Governor Julian Francis is set to meet with his Monetary Policy Committee Wednesday and wished not to comment on the continued effects of the limits.  The Committee, which meets once a month, is expected to review the present policy.

 

Governor Francis told the Bahama Journal in an earlier interview that, "If the banks became overly aggressive and were imprudent in their lending activity, then the Central Bank limit would come into play.

 

"And those limits are in place to protect the external reserves during a time of relatively slow economic activity when our economy is not generating the level of foreign currency which it would normally generate if the economic activity were stronger."

 

Mr. Francis also explained that if there is more to borrow, it costs less to borrow so more people tend to get loans, which is why the Central Bank restrictions are so important.

 

He has said that the Bank continues to review this policy and would only make adjustments if they were in the best interest of the overall economy.

 

The Governor reportedly told a meeting of commercial bankers two weeks ago that he is not now prepared to raise or eliminate the ceiling.

 

The restrictions continue to create a high level of liquidity in the system and commercial bankers continue to press the Governor to relax his position.

 

According to John Rolle, deputy manager of research at the Central Bank, the surplus stands at around $200 million.

 

One banker told the Journal Tuesday that, "Everybody (commercial banks) has a whole lot of money."

 

He said, "What it's going to do is drive deposit rates down.  If you're selling shoes and you have a store full of shoes and the Central Bank or some other body stops you from selling the shoes, the question is, are you going to order anymore shoes?  The answer is no.  Why should the banks continue to take deposits if they have no avenue to lend the money out?  The government has already said it is hurting them and it is hurting the consumer."

 

Foreign reserves, meanwhile, remain at a healthy $550 million.

 

But Mr. Rolle said while the reverses have been increasing in recent months, "the growth in reserves that we've seen is a bit deceptive."

 

"Some of that growth continues to occur because we are very restrictive on the credit side," he said.  "At the same time, the growth is reflecting the fact that there is a gradual firming in the momentum of tourism and we certainly hope that it will accelerate now that we enter the most important part of the tourist season."

 

Mr. Rolle said to remove the restrictions would be to presuppose that there are strong inflows coming into the economy that would support increased demand for imports.

 

"Increased demand for imports is going to be one of the results of removing the ceiling," he explained.

 

Mr. Rolle added, "When we talk about seeing improvements in the economy, we also know that when the improvements start to occur, it will also be evident in the government's position.  The majority of the imports in this country are not financed by credit.  They are financed by the general level of economic activity.  So as the general level of economic activity picks up so will imports and the government will see a return from that avenue."