Central bank unveils simpler fee model - Haaretz

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Fri., November 16, 2007 Kislev 6, 5768

Israel Time: 02:06 (EST+7)

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Central bank unveils simpler fee model

By Ram Dagan

tags: bank fees, Bank of Israel

The banks are frightened that the latest Bank of Israel drive regarding their fees will flatten their profits, but the supervisor of banks is determined to stand strong and not fold before their pressure. "We will not negotiate," Rony Hizkiyahu stated yesterday. "We will be the ones who determine how the price list looks."

Hizkiyahu says his intention isn't to tell the banks how much they may charge, only which fees they may charge, thereby giving bank customers the tools to actually compare banks. When taking the job, Hizkiyahu had promised to reform bank fees, and he's making good on his word, and ahead of time at that. His team had another month's time to present the new pricing list for bank fees. But the supervisor wants the changes to be implemented as fast as possible and yesterday presented a slim, 11-page booklet that lays down the rules.

The new list does not come into force immediately. Over several weeks Hizkiyahu's list of fees will be discussed by an advisory committee including representatives from the banks and the public. They can comment on technicalities, but not the principle of the matter.

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Throughout the whole of last year, the supervisor of banks at the Bank of Israel had been under terrific pressure from the banks, pressure that mounted in recent weeks as the deadline approached. Hizkiyahu says that his team had listened to what the bank representatives had to say, but at the end of the day the pricing list looks the way the Bank of Israel wanted it to.

He does not deny that the banks will be losing money on the deal, while the main winners will be household clients. In fact, Hizkiyahu projected that the banks stand to lose hundreds of millions of shekels in revenues each year following the reform. "That won't endanger their stability," he said. What his reform will accomplish is to lower fees for the little man, and make the banking sector more competitive, Hizkiyahu said.

One change is that a great number of fees have been consolidated under a single title: "Teller action." The concept was to preclude confusion among customers, and avoid the habit among banks for having multiple fees with different names for fundamentally similar actions. The new fee covers depositing checks, withdrawing money and more.

Uniform fees for transfers

One refreshing change is in fees for bank transfers. Banks currently charge high fees for both bank-to-bank transfers and transfers between different branches of the same bank. Under the new regime, bank transfers are among the teller-assisted services, and fees will be uniform, regardless of the location of the accounts involved in the transfer.

For checking accounts, the banks will be allowed to differentiate between common services received at a branch and operations received directly (by Internet, telephone or other automated tools - without personal handling from a teller). A list of common, direct banking operation will be charged a uniform fee. The Bank of Israel estimates that the fee for operations will be low - approximately NIS 1.21, and that teller-assisted services will be more expensive, about NIS 4-4.5 per operation.

The Achilles' heel of the reform lies in customers who are unaware or uninterested in conducting their bank business through direct services. Such customers, generally elderly, will be negatively impacted because they will be charged more. The Bank of Israel will attempt to limit this impact, and the new price list includes instructions that such a customer who is unable or unwilling to receive direct services will be entitled to four teller actions per month for the same cost as direct services.

Fees for teller-assisted and direct-action services represent fees for clusters of services, similar in nature to the basket of services designated by the Bank of Israel and the Knesset Economic Affairs Committee in the past. But unlike them, the new plan does not involve a basket of services for a single fee, which the Bank of Israel has decided to cancel along with the fees plan proposed by the banks independently, but rather, a charge per operation.

As an aside, Hizkiyahu unburdened himself of Israel Discount Bank when he canceled two fees charged only at Discount Bank - the fee for sale and purchase of mutual funds, and its credit card membership fee. As a member of the bank's management, Hizkiyahu was party to the decision to instigate these charges in late 2006, just a few months prior to his appointment as supervisor of banks. Hizkiyahu gave no special privileges to Bank Hapoalim either, where he developed his career: he has canceled "fee tracks," an area in which Bank Hapoalim is considered a leader.

The storm over bank fees finally erupted a year ago, in October 2006, when the three biggest banks - Hapoalim, Leumi and Discount - sharply raised their fees charged to households one after another. Soon thereafter the governor of the Bank of Israel, Stanley Fischer, shocked many with a cutting critique of the banks' practices regarding service fees, accusing them of opaque conduct and of impairing competition: Customers couldn't possibly compare the banks, he said. The result was a new law empowering the supervisor of banks to overwrite the entire mechanism, by issuing a new price list that would apply to all the banks. This he has now done. The banks may not charge fees not appearing in the list.

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