Bank Information

During the years, bank charges have been one issue that both business and local consumers have had to endure. It was very unfortunate that when the banking market started to open up in Malta the first thing that increased were not the benefits to consumers, but the charges. The prime mover was HSBC but this was soon followed by Bank of Valletta and later APS. Thus, the result was an escalation of bank profits and higher charges for consumers.

Mind you, this is not a local phenomenon, though in a small market the impact is much greater. The EU is very much concerned about this aspect since this phenomenon is creating a very uneven market within the Single Market. One result of such concern was the setting up of the Consumer Markets Scoreboard which tries to monitor market signals across the EU. This is becoming a very important policy tool and there are plans that this will be expanded over the years.

The latest Consumer Markets Scoreboard confirmed that there were three different retail financial services issues where consumers experience difficulties:

Pre-contractual information;
Some services are opaque in structure; and,
Switching of bank accounts.

In this article I want to take a closer look at the first factor, using as an example the third factor as there have been some recent developments.

One essential feature of a market economy is that consumers would be able to get the best deal available. At times this would require switching of bank accounts. This seems to be a simplistic operation but in practice it is not that simplistic, and often quite complicated and frustrating.

The EU is taking this matter quite seriously. In fact, one of the measures is that of simplifying the transfer of current accounts between different banks. Theoretically, this should not be complicated but in reality it seems that even transferring accounts from one branch to another within the same bank seems to be shrouded in mystery. Recently, someone wrote to a local newspaper pointing this out:

Does this also apply to switching accounts from one branch to another of the same bank, because from my experience this also was a harrowing ordeal?!

Such experiences should now be a thing of the past. However, there is one precondition. The consumers should know about their rights. From the initial statement that was issued by the Malta Bankers’ Association which is a local agency responsible for introducing these measures, the Principles are available at the branches of the most popular banks in Malta.

But what is the availability of such information? What type of information is being given to consumers?

I personally visited a branch of each of the three largest banks - HSBC, Bank of Valletta and APS. In none of these branches was the information readily available in the form of a leaflet. Thus, I had to ask specifically for the information. At first glance this should not be a problem. But if there is a queue of people waiting to be served, this suddenly becomes a problem and the information cannot be said to be readily available to the consumer before the transaction takes place. In two of the branches I visited, it took more than 20 minutes to obtain the information.

At the APS branch, the person behind the counter found it difficult to understand what I wanted. It was after the intervention of a higher official that he understood what I required. After all this effort, all I got was the initial statement printed in the local press.

With regard to HSBC and the Bank of Valletta, at least the person behind the counter understood what I wanted and obtained the document after waiting for it to be printed. Mind you, in both cases, though I specifically asked for the information, both clerks at first thought that I wanted to switch my current account and were going to start the process before I was given the information.

BOV gave me the full document which includes the Principles and other information. The document given was full of technical jargon. I had to go through it to find the new facilitating process that was being proposed to switch current accounts. Instead of an information document, consumers are being presented with a legal document. Moreover, in all cases the documents received were in English.

The document I received from HSBC was much shorter as it included only the three steps required, together with sample letters. This formed only one annex of the original document. Though shorter, it was direct and to the point and quite easy to follow. I was also given the latest schedule of bank charges.

Three points emerged from this exercise. First, Maltese consumers are not conscious of such developments. Even though there was a press statement, this was not enough to make consumers conscious. The staff at one of the banks had to request their marketing section to help them search for the document on their website as I was the only person who asked for such a document.

Second, as already described above, the information is not quite available. Thirdly, though the information was prepared at one source (the Malta Bankers’ Association) I ended up with three different versions of the same document. I would expect that such information be standard.

I sincerely hope that this was the initial phase and that a leaflet in simple language explaining how the consumer should go about the process of switching current accounts would be produced and be readily available.

Unless this is done, the local banks will succeed in making a mockery of a good EU requirement. Unfortunately, this would not be the only time that they succeed in producing a legal document covering their ass and mystifying a process that should be beneficial to the local consumer. They have already done it with MIFID and the Consumer Credit requirements. Let us hope they will not do it again.

Published on Maltastar.com on 19^th November 2009

Paradise Lost

On my last visit to Valletta, at the Bus Terminus, I was struck by the amount of HSBC adverts on buses. Just a small deviation - though I find nothing objectionable re adverts on buses, I do object to adverts on the back for two reasons. First, it reduces the driver’s visibility of the traffic behind the bus and secondly, the graphics or message may catch the attention of the driver behind the bus to such an extent that the risk of a collision is greatly increased. I hope that the Public Transport Authority will consider these facts.

Most of these adverts focused on investment products. I mentioned HSBC as their adverts on buses dominated the scene. However, there are similar campaigns on other media by other banks.

These campaigns are understandable taking into consideration the recent turmoil in the financial markets. I found it very striking as the local media practically disregarded this fact – the effect of this turmoil on individual consumer. We have heard that our banking system and the economy weren’t much affected by the global financial turmoil. It was a relief that the local big cats (the banks) didn’t get burnt as the repercussions would have been much greater. The only benefit of this turmoil was that the government finally approved the amendments to the Deposit Compensation Scheme regulations which increased the cover to €100,000 per individual. Needless to say, most of the burden was again passed on to the taxpayer as our big cats succeeded in shifting most of their responsibilities.

But there was one question that was randomly asked and to my knowledge never answered: Is our system so much insulated and isolated from the global system? If it is, we’re not only missing the risks and difficulties of the last turmoil but we also missed the benefits during growth periods which had lasted for years.

The second question is how our consumers, who during the last few years invested their savings, fared. This point practically has been totally absent from the media comments. In my opinion this is a serious omission by our media. This is not the first time that this happened. Another occasion that comes to mind was when the Argentina crisis hit the Maltese investors. Even then the most conspicuous thing in the comments of the local financial commentators was the absence of discussion on the extent that the small local investor was affected. It is a pity that the effect of the last financial debacle on the local small investor had to face the same fate.

Another point that amazed me was that even the small investors themselves barely voiced their dismay, concern and anger. It was only the very rare exception that one would read comments such as

Some three years ago we made an investment thro HSBC (Malta), since then our money, in this investment, has been melting like ice. To add insult to injury we received a notice that our bank charges are to be increased. The trouble is that we do not like to withdraw the investment which now is worth just over half of we invested. What shall we do?? (Times of Malta, 1^st October 2009)

I’m sure that such comments are not restricted only to investments made through HSBC. They apply also to investments made through other banks and other licensed financial institutions or brokers. I’m also sure that there are many who share the above experience.

But if this is so, why have very few people voiced their experience. I notice that many of my friends are silent on this subject but you can sense that they are uncomfortable about it. Recently a friend of mine gave me an indication. While we were talking about this subject, he asked me a question: how will you break such news to your wife or husband? He opined, and I tend to share such an opinion, that in many instances, decisions regarding investment decisions of a couple are usually taken by one of them. Consequently, if the couple’s savings have been invested in some financial product which has resulted in negative returns i.e. the investment is lower than the sum invested, it is very difficult to inform the other partner that their life’s savings are in jeopardy. This is especially so if the couple is nearing retirement or are in retirement.

There may be other reasons for this lack of openness by individual consumers. Two that come to mind are that no one would like to tell others that his investment acumen simply failed and secondly, that there are others who are still expecting their positive results in spite of the recent turmoil in financial markets. The last class I mentioned have continued their periodic investment with no appreciable change in their behaviour and thus do not have a negative impact on the economy.

But my concern is for the impact the others have. Recently, I was invited to attend a meeting regarding pension funds. We listened to the representative trying to sell us a group pension scheme. There was very little interest. One could sense this through the very limited number of questions asked. However, after the meeting the general feeling was very apparent. None wanted to have to do with such schemes. One could easily get hints that their experience after investing in the products offered locally was far from good. Mind you these are highly professional people (not in the financial area). They form part of the upper middle class, and succeed in saving part of their income. Most probably they were the main small investors.

My concern is simply that we cannot just let this cohort leave the financial markets and ‘invest’ in other things which might prove to be more speculative as if nothing has happened. If we’re not to lose this group there are some serious questions to be asked. Can anybody try to assess the impact that the recent financial turmoil had on the individual investors, especially those who are on the verge of retiring? If there were losses, how extensive were these? Were the financial instruments which were sold to these consumers appropriate to them? If not, do we have a lacuna in our regulatory structure or was it lack of supervision? Did those institutions who were providing these financial instruments take any action to ensure that their advice in future is more sound? Did they feel the need to change their managers who were responsible for such investments?

There need to be answers to these questions. Apart from this, the plea for help from the above-mentioned consumer cannot simply be disregarded. He represents the silent majority. I am sure that only straight answers and transparency will help this cohort to reconsider their position and start trusting the financial system again, this time more carefully.

Published in Maltastar.com on 18th October 2009