Mary Holm: Rivals keep banks on their toes

Banks, like some cabbies, may have bad reputations but they can be reasonable. Photo / Thinkstock

Here is my spleen vent: You are being far too easy on the banks. They are exploitative scum who prey on people's lack of time, resources or alternative options. They are no different to bent taxi drivers who take the longest route they can get away with, yet banks operate on a massive scale with regulators indifferent or subdued by party political donations.

Tricking $8 out of someone isn't much money but it adds up due to the number of transactions. Try tricking a shopkeeper out of $8 and you end up visiting Mr Plod.

Why does my money leave my account the instant I pay my credit card and then linger in interest-bearing bank limbo for two-plus days before being credited at the recipient account? Why can I buy counterfeit goods on my Visa card in Southeast Asia? Visa provides the credibility to the bent merchant and clips the ticket on the transaction.

Earn a foreign currency and convert back to NZ dollars and you end up working at least 1 day in 50 to pay for bank fees. Nice. Thanks regulators - who exactly are you looking after again?

Feeling better now? I do hope so.

I've got several responses:

Over the years, this column has hardly been easy on banks. But I always listen to both sides, and on the recent issues the banks have usually seemed reasonable.

There are indeed alternatives to banks, including credit unions, building societies and mattresses.

New Zealand is one of the least corrupt countries in the world, says recent research by Transparency International. While nobody can guarantee that regulators aren't on the take, these things don't stay hidden forever.

The $8 issue - in last week's column - was about missing a day's interest if you transfer money after a certain time in the evening. That's hardly trickery. It just shows that bank resources aren't endless.

On money being in limbo, we've discussed aspects of that lately, and do again below. The situation is less than perfect. But "exploitative scum"?

Do you really think Visa should check every item sold by every merchant it deals with? Would you be prepared to pay Visa fees that covered the cost of doing that?

The foreign currency issue does seem a bit foggy. With constantly changing exchange rates, it's practically impossible to know if your bank is ripping you off. In the end, I hope, competition and monitoring by consumer groups and the media will work towards keeping banks honest in this area.

More broadly, banks clearly compete hard for business. And changes are afoot to make it much easier to move from one bank to another. The threat of losing customers will surely help to keep banks on their toes.

Still not good enough for you? Check out the credit unions and building societies.

Clearing a cheque

Why does it take so long to "clear" a cheque in this modern age?

I believe it's still three days standard, which is no change from the 1950s when office juniors carried the cheques from bank to bank every afternoon and banking needed to be done by 3pm, otherwise it was "next day".

Surely computers should be reducing the "standard time".

I know you can get special fast clearance but often have to pay for this.

The key to my question is with the advent of computers, why has the clearance time for cheques not been reduced?

It has, the banks tell me. "Cheque clearance used to take up to five business days in the past. Due to computerised improvements we have been able to reduce this to three business days," says a Westpac spokesperson.

The usual cheque-clearing process works as follows, according to Shaun Drylie of ASB: "A customer deposits a cheque from another bank into an ASB branch on Monday (day one). The funds are credited to their account straight away, but they are not cleared immediately as ASB (the collecting bank) must wait for confirmation of cleared funds from the bank upon which the cheque is drawn (the paying bank).

"Cheques are collected from all bank branches each night, scanned, and then sent to the paying bank overnight through the regular inter-bank payment system. The cheque is then verified by the paying bank on Tuesday (day two).

"If the paying bank wants to dishonour payment, then it sends notice of dishonour back to ASB through the inter-bank payment overnight. This means the funds are not cleared or dishonoured until the Wednesday (day three), unless a special answer is requested by the customer banking the cheque."

Drylie adds that if the cheque were written by another ASB customer, cleared funds would be available by the end of day two. However, at ANZ, BNZ, Kiwibank, National and Westpac the process still normally takes three days even if the writer and recipient of the cheque both bank with them.

At all the banks, if a cheque is credited to your interest-bearing account during business hours, but hasn't yet been cleared, you will immediately earn interest. If the cheque is later dishonoured, that interest generally won't be taken away.

Why does the process take so long?

"The cheques cannot physically be processed in real-time during the day," says Drylie. "To put the volumes into perspective, ASB receives over 1 million cheques per month. Each night all cheques are collected from all bank branches and physically sent to the regional processing centres of the paying banks to be encoded and imaged. Once this is done the payment information is exchanged between the collecting and paying banks during the night."

I suppose banks could hire people to enter cheques into a computer all through the day - and charge us all higher fees.

But there's another issue here, too. People change their minds. "The payer of a cheque may dishonour or issue stop-payment instructions up to the second business day after a cheque is presented for payment," says Westpac. "Therefore, the three business days allow any potential stop-payment or dishonour instructions to be received and actioned by the bank."

As mentioned earlier, customers can also ask for a "special answer" when they deposit a cheque, to get it cleared more quickly. There is a fee for this.

Here's what the different banks offer. ANZ: same day $25, overnight $15. ASB: same day, $25. BNZ: same day or overnight, $25 plus courier or taxi if applicable. Kiwibank: overnight, $15. National: same day $22, overnight $12. Westpac: same day or overnight, $25.

Adds Kiwibank: "Special answers can take differing lengths of time depending on how quickly they are processed by the paying bank."

At some banks, if you want quick access to money, an electronic payment will work better - and without a fee. There are sometimes also other options, with fees. Ask your bank for details.

Another alternative is to get the payer to make out the cheque to cash - with no crossings - in which case it can normally be cashed right away.

Note, though, that cash cheques are much less secure. If you, as the payer, want to be sure the right person gets the money, you should name the payee, cross off "or bearer", and write "not transferable" across the corner.

Getting back to the issue of slow cheque clearance, a Kiwibank spokesperson makes a good final point: "While some people complain about delays in clearing cheques, others complain about real-time payments via the internet when they have changed their mind about a purchase or made a mistake!"

For mind-changers, having the time to cancel or dishonour a cheque is a big plus.

You can't please all the people all the time.

Repaying student loan

I read your recent Q&A about repaying student loans with particular interest. I recall a similar article in your column well over a year ago, and I thought you might like to hear about the steps we took as a result. You may not be aware of the present state of disarray at the IRD regarding this incentive scheme.

Having read your column, my fiance and I decided to pay off her loan. The formula indicated we would benefit from doing so. We duly paid off the full amount prior to the end of the 2009 financial year. We used savings to do so.

However, we are yet to receive any refund and the IRD's goalposts keep shifting. Its website initially indicated refunds in May (I think). However, this date shifted to October, which has now passed. The most current indication is the end of this year.

Having paid off the loan, we have lost the interest we could have earned on our savings (and the IRD has lost the RWT on that interest). We have also lost the interest we ought to have received on the loan incentive refund and the incentive itself.

So, while the incentive is great and the formula sensible, actually taking advantage of the scheme is another matter altogether. We will let you know if we ever get paid!

Inland Revenue is more or less saying "mea culpa" - although a spokeswoman adds that, as of October 31, the department had processed 15,700 voluntary repayment bonus cases, involving $9.4 million. It seems you are among the unlucky ones.

"We initially hoped to process all applications by August, but should now have them finalised in December," she says. "We acknowledge this is longer than borrowers expected and apologise to those affected by the delay. We have committed more resources to assist us to meet the December date."

Why the delay? Apparently there was a big uptake, and quite a few people were "not up-to-date with repayments and filing of income tax returns. That work must be done before we can apply the bonus."

The spokeswoman adds: "If interest accrued between the time a voluntary payment was made and processed, it would be reversed. In the rare case of a penalty being incurred during that period, it would also be reversed." You've still lost some interest, as you say, but hopefully you will end up well ahead by taking advantage of the bonus.

If you're worried about your situation, email Inland Revenue by going to www.ird.govt.nz and clicking "Get it done online". Adds the spokeswoman, "While there, they can also check their loan balance online to see whether their voluntary repayment bonus has been applied."

Mary Holm is a freelance journalist, part-time university lecturer, consumer representative on the board of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (pref daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

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