Spotlight turns to Kiwi banks' hidden charges

By JOSIE CLARKE consumer reporter

Bank fees are likely to come under scrutiny again following an Australian report that has exposed hidden credit card charges worth millions of dollars.

The report, from the Reserve Bank of Australia and the Australian Competition and Consumer Commission, says banks there are making millions of dollars through hidden "interchange fees."

The report says the fees - which the banks pay one another to provide card services - are excessive and not subject to competitive pricing pressures.

The disclosure shows how consumers are forced to pay more for products because the hidden charges, which outweigh the cost of providing the card services, are built into the price tag.

The report was released last week as the National Australia Bank, owner of the Bank of New Zealand, confirmed it would raise fees on low account balances and close about 100 branches.

Commerce Minister Paul Swain, who wrote to Parliament's commerce select committee in the middle of the year requesting an inquiry into bank fees, expects that the charges outlined in the report will be included in the investigation.

While not keen on regulation, Mr Swain said he was interested in more transparent information for customers.

"What I'm after is greater disclosure, better information, driven by a move to actually be able to give customers that greater choice."

New Zealand Retail Merchants Association chief executive John Albertson said prices could drop if interchange fees could be driven down here.

The report comes four months after a Herald investigation showed New Zealand customers confronted by high fees while bank costs had been cut.

The investigation found that banks had dramatically increased their fees in recent years, but had narrowed their profits from interest rates.

The director of the Massey University Centre for Banking Studies, David Tripe, estimated that banks in New Zealand charged interchange fees for credit card transactions totalling between 2 and 3 per cent - a rate similar to Australian banks.

Mr Tripe said banks did face some costs for providing credit card services, but technology meant transactions were no longer as costly as in the past for them to process.

He understood that, in most cases, charges passed through to the cardholders' banks were effectively paying for various loyalty schemes, such as Fly Buys.

Banks had their most profitable quarter in four years in the three months to June, Mr Tripe said.

The quarterly return on assets for the major banks was up to 1.32 per cent.

Banks the Herald spoke to yesterday emphasised that customers never directly paid any transaction fees for using their credit cards.