Banks ride high on hidden charges

Unable to access money on the international markets and unwilling to share the billions that the government, via the taxpayer, pumped into the country's financial system, Spain's banks are maintaining profitability by squeezing ever-larger charges out of their smaller customers. A recent Bank of Spain report says that commissions have risen in some cases by as much as 35 percent in the last six months.

According to a new European Commission survey, along with Italy, Spain holds the dubious honor of imposing the highest banking charges in Europe - an annual average of

253 euros and 178 euros respectively, compared to an EU average of 111 euros. The government says that it wants to impose greater transparency on the sector; in the meantime, consumer rights organizations say they are receiving more and more complaints every month.

The survey found that 66 percent of the European banks it looked into used such confusing language to justify commissions that in many cases the experts preparing the report were unable to understand what clients were paying for.

The EU's experts also discovered that few bank employees understood the products they were selling. The report points out that in Germany clients prematurely cancel between 50 percent and 80 percent of their long-term investments due to insufficient advice, leading to the loss of billions of euros each year.

Michel Barnier, the EC's internal markets and financial services commissioner, has criticized Spain and Italy's banks for the lack of transparency with which they impose commissions on their customers. He has also criticized their governments for failing to regulate.

"European consumers do not know what they are paying for nor why they are paying. They are unable to compare what is on offer in the market place and unable to take advantage of competition," he says. The European Commission has told governments they have two months to introduce legislation on commissions, otherwise it would intervene.

In response, the government is to tell the banks that they must send their clients a detailed explanation each January of the commissions they have been charged in the previous year, and what they are for. Banks' websites must also include information about commissions.

ADICAE, an association that represents financial services consumers, has repeatedly attempted to draw attention to what it describes as "a false free banking services market." It also points out that since the financial crisis began in 2007, bank charges have steadily risen. It takes the country's banking regulators to task for not acting to prevent the banks from behaving like a cartel.

So far, however, Spain's National Commission on Competition has not looked into the way that the country's banks charge commissions.

Spain's banks often charge their customers commissions for everything from a simple request to see an account, or for paying money into an account in person, or for using telephone banking. Fernando López Romano of CEACCU, a nationwide consumer rights group, carried out a survey of 135 bank offices in nine cities.

The survey showed that the worst offenders were Banesto, Sabadell, CajaMadrid-Bankia, Banco de Valencia and Santander. The least abusive were BBK, Caja Laboral, Caja España and Bankinter. The worst cities to live in as regards banking charges are Gijón, Barcelona, A Coruña, Seville and Zaragoza; while Bilbao, Valencia, Madrid, and Valladolid were the cheapest.

John Lanchester, the British author of Whoops! Why Everyone Owes Everyone and No one Can Pay , which takes a common-sense look at how we got into the current mess we're in, says the general public has to learn about how finance works, otherwise, "the members of the finance industry will become a species of high priests who will look after their own interests, hated and feared by the rest of humanity." He accuses the banks of using every trick in the book to keep their customers in the dark.

So do we hate and fear our banks? It came as no surprise to hear the 15-M protest movement blame them for the current crisis, but things have come to a pass when the European commissioner for consumer protection, Meglena Kuneva, says: "The high street banks are deceiving their clients. There is no shortage of evidence that they are not complying with fundamental principles by using complex pricing structures, applying hidden charges, and providing unclear or incomplete information. The banks need to change their culture and the way they treat customers. And the relevant authorities in member states need to make them fulfill their obligations."

ADICAE encourages us to arrange meetings with our local bank branches to ask for our accounts to be explained. "Why should we pay for the crisis that they have brought about?" it demands to know.

So just how important are commissions to the banks? Ignacio Juliá, in charge of customer services at ING Direct, the Dutch bank that does not charge commissions, says, "Of course banks can live without commissions, and very well. We have been in Spain since 1999, and we have some 2.2 million loyal clients, that is to say, around 10 percent of Spanish households." He says the bank turned in a net profit last year of 79 million euros.

As John Lanchester says in his book about banking: "The basic principle of this business is to pay low interest to people who lend money, and to charge a higher interest rate to those who borrow. In theory, it's a business that cannot fail."

Given the huge amounts of our money that our governments have pumped into the banking system to keep it from collapsing, something went wrong somewhere; and in the case of Spain's savings banks, very wrong indeed.