Holiday Cheers for Consumers from the UK Treasury

Holiday Cheers for Consumers from the UK Treasury
Just before the country stopped to celebrate Christmas, the UK Treasury announced that the government plans to ban the ‘excessive’ fees for card payments before the end of 2012. Essentially, this is the ban for card surcharging, i.e. fees that get added to the transaction if the person chooses to pay by card. Unfortunately, in Europe surcharging is quite widespread. When I was regularly travelling to Denmark, I used to pay a fee for pretty much all card transcations. Here in England, consumers rarely get charged by brick-and-mortar retailers, but are quite often hit by charges from online merchants, especially the airlines and various ticketing agencies. As a consumer, I find it really annoying, as these fees are not made transparent until late in the checkout process. So, you think you are getting a good price, only to find out that you’ve been slammed with an extra fee just to pay by card. The surcharges have already come under scrutiny. Earlier this year, Which?, a consumer group, complained about the surcharges which prompted an investigation by the Office of Fair Trading (OFT). The European Union also has approved the new rules giving the European shoppers more rights when returning goods or paying by card, but the rules are unlikely to be implemented until 2014. So, the latest announcement by the UK Treasury expected to come into force by the end of 2012 is a welcome step towards limiting surcharging and increasing price transparency. It will be interesting to see how this will be implemented – what level will be deemed as “excessive”, how the compliance will be monitored and how any breaches will be penalised. There is a clear difference between a small mom-and-pop store charging £0.35 to recoup their additional cost of a card transaction and the likes of Ryanair, a so-called “budget” airline, charging £12 per person for booking a return flight. The other question, of course, is that of the alternatives – at a physical store, I can perhaps pay cash to avoid card fees, whereas online, the card is often the only payment method available. The Office of Fair Trading report has been arguing that the fees should not be applied to at least debit cards, as they represent the equivalent of cash in the digital world. The Treasury’s proposal seems to go one step further and limit the fees to credit cards as well. Will it reduce the ultimate price consumers have to pay? Possibly not, as the retailers can easily just add the today’s fees to tomorrow’s prices. Yet, it would be a big improvement, as consumers could more easily shop around and compare prices knowing that they wouldn’t be charged for the privilege of parting with their money. Given the background of all the gloomy reports about recession, rising unemployment and other bad news, the Treasury announcement should bring the holiday cheers to the UK consumers.

Overdraft Fee Assault: Debacle or Dream Come True?

Overdraft Fee Assault: Debacle or Dream Come True?
Recent changes in Reg. E requiring banks to institute mandatory opt-in provisions for courtesy overdraft programs weren’t a big hit with most banks – for good reason. NSF fees comprised 74% of total fee income collected by US banks in 2007 according to the FDIC, amounting to nearly $30 billion. Right or wrong, NSF fees grew to become an important contributor to checking account profitability among US banks. rev-per-acct This occurred alongside the growth of “free checking”. The end result was a bifurcated model for checking account profitability. A small number of high fee and high balance customers have subsidized the majority of low balance customers with limited NSF behavior. The latter customers used to pay monthly maintenance fees, but those vanished with the advent of free checking – along with the perceived value of bank services. The end result was unfortunate in a way. A majority of banking customers received banking services essentially free of charge and didn’t appreciate it, while a small minority of customers paid significant NSF fees (ostensibly due to their own negligence) and ended up offended. In addition, differentiating became difficult with most every bank offering generic free checking. There has got to be a better way to do things. Bank of America announced significant changes in its overdraft policy this week. Going well above the call of duty, Bank of America announced it will effectively eliminate overdraft fees caused by debit card transactions (through denial of those transactions) while preserving courtesy overdraft on check or ACH transactions in a highly transparent manner. Customers will also be able to obtain emergency cash at ATMs with explicit fee notices. Moves like this are likely to go a long way in restoring trust and confidence among consumers. Good brand building in other words. But, there’s more to this opportunity than brand building along. It may come to play that free checking as US consumers have known it will largely disappear as a result of the Reg. E changes. Opinions differ on the matter, but the associated revenue loss will be certain – and substantial. Many banks will be quick to seek alternative fee revenue. Savvy banks have a golden opportunity to use the heightened public awareness of bank fees to their advantage. The debacle can instead become a dream come true – an opportunity to redefine their value proposition. It won’t be easy, but opportunities like this don’t come around very often.

The Thriving Fee-based Economy – unless you’re a Bank

The Thriving Fee-based Economy – unless you’re a Bank
The recent Federal Reserve actions to limit bank overdraft fees have been widely reported. The US press seems all too eager to throw banks under the bus with assertions of all manner of unfairness (or worse) in describing the practice of levying fees upon allegedly unsuspecting account holders. Even written accounts of communications campaigns launched in compliance with the opt-in mandate for automatic overdraft protection assert nefarious intent among some banks. US banks have lots on their collective plates in today’s environment. The attack on overdraft fees is only making matters worse. And the story may not be over. A proposed Senate bill, The Fairness and Accountability in Receiving Overdraft Coverage Act would impose further restrictions on overdraft fees, effectively eliminating bank’s ability to offer free checking services to millions of account holders. In light of the moral high ground claimed by some supporters of the proposed legislation, one would think that banks stand alone in an otherwise ocean of fairness and serenity. But, this is hardly the case. I thought I would share an anecdote from my own experience while in Orlando for the BAI Payments Connect Conference at the Gaylord Palms Resort to ilustrate my point. While at the event, I concluded it would be wise to return one day earlier than originally planned. In weighing the cost of doing so, I concluded that the modest fee associated with changing flights (previously $50.00) would be more than offset by not having to pay another night’s stay at the Gaylord. After making the new flight arrangements, I discovered that the fees associated with doing so had tripled to $150.00 Upset, but undeterred, I continued. After all, the hotel rates were expensive, so the savings would still more than offset the (shall I dare say unreasonable) fees imposed by Delta. The Gaylord front desk staff were a delightful bunch who immediately took action on my request to check out. In less than a minute I had a detailed reconciliation of my two-night stay there, being politely reviewed by the highly trained hotel staff. The invoice revealed a “Resort Fee” of $11.30 per night. Interesting I mused. Charging a resort fee to experience a multitude of retail shops in close proximity to the hotel is like paying a cover charge to enter a shopping mall. At least I avoided the “Self Park” fee by taking a taxi to the hotel. I don’t recall the resort fee being mentioned at check-in. Worse, was the additional levying of an “Early Departure Fee” of $56.50 – not including the additional Osceola County Tax which was assessed on top of the fee. Nearly $60.00 for leaving a day early? Heck, that could buy a good night’s sleep and continental breakfast at lesser properties. I asked the kind lady behind the front-desk if I somehow should have known about this so-called early departure fee, and sure enough – I had NOT opted in. Maybe banks should consider operating some of the properties being foreclosed upon. At least one can earn fee income in the hospitality industry – for the time being.