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Clamping down

Shrugging off lawsuits, retail banks cling to 'absurd' fees

By Riva Froymovich
Staff Writer, The Prague Post
June 13th, 2007 issue

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In a verdict consumer advocates decry as a step backwards, ČSOB, the largest bank in the Czech Republic by assets, won a lawsuit last month that claimed the bank charges clients unjustified and exorbitant fees.
That’s a charge often heard from natives and foreign nationals living in Prague.
“We let them use our money and we are charged for that,” said a Komerční banka client, summing up one of the most common complaints.
There are monthly fees for checking accounts, which have the client losing money, rather than protecting it, if the account is not gaining any interest as a savings vehicle. Clients can be charged for receiving monthly paper statements — often the only kind available — and sometimes even for closing their account.
“Banks are selling their services. Every customer service has its costs and so it’s right to ask customers to cover those,” said Petr Špaček, managing director of the Czech Banking Association.
Such fees are common among many of the banks operating in the country, although they are a rarity in Western Europe. Most perplexing to clients of the country’s retail banks, then, is the fact that they are, by and large, owned by Western companies.
Out of the 37 banks operating in the country, 29 are foreign-controlled, according to the most recent statistics of the Czech National Bank. ČSOB, for example, is owned by Brussels-based KBC Bank.
Neither the Finance Ministry nor the Czech National Bank currently has the authority to cap banking fees, according to the office of the Financial Arbiter of the Czech Republic. While the Czech Banking Association publishes a nonbinding code, banks can choose whether to comply, said Deputy Finance Minister Milan Šimáček through a spokesman.
And now the courts have sided with the banks.
A court ruled May 15 that charges for the administration and closing of a bank account are legal, because customers are made aware of the fees upon signing a client contract when opening an account, said Milan Tománek, ČSOB executive director of external communication and investor relations.
The Consumers Defence Association of the Czech Republic (SOS), which organized the plaintiffs in the case, said an appeal to the Constitutional Court is likely.
“We want the interpretation of the law to be decided by these trials,” said Václav Beneš, a representative of SOS.
The association isn’t trying to create fee regulation, said SOS lawyer Klára Přikrylová.
“We respect that it is contractual and the choice of consumers, [but] we criticize the absurd creativity of banks in their fees policy,” she said.
“Because fee policy and the legitimacy of their charging is a widely discussed topic in the Czech Republic, and there are often consumer complaints, SOS is very interested in clarifying this problem,” she said.
The lawsuit was prepared back in November 2005, and another similar action is ongoing with Česká spořitelna, Přikrylová added.
Czech banks have said their fees are derived from the market. SOS agrees, in part.
“This is evidence that the bank market doesn’t work properly here,” said Beneš, who argues that there isn’t enough competition among banks in the Czech Republic. In other countries, banks have to compete for clients, who demand certain services at reasonable prices, he said.
Here, Czechs have wontedly accepted banking fees as a matter of course, allowing international operators to follow different standards.
“They can afford [to do] it here, but they wouldn’t do it in Western countries or their own countries,” Beneš said.
The tightly kept market gives little impetus for change, he said.
While the SOS admits that clients are in general aware of fees at the moment of signing their contract, they claim some items are simply “absurd or duplicate [charges].”
For instance, the monthly maintenance fee hits customers twice.
“There are other fees that cover the monthly costs for the account maintenance and that are charged separately. This fee is not exactly defined in the contract and thus its content is speculative,” said Přikrylová.
“We believe that the fee policies of banks can be changed by consumers themselves,” she said. “It’s more and more obvious that banks react to public opinion. [For example,] most banks have canceled the fee for closing an account. A similar development is happening now with incoming transfer fees,” she said.
In fact, since the lawsuit was filed, ČSOB revoked the fee for closing an account, “which was not merited by the lawsuit,” said the bank’s spokesperson.
Yet, the average price of basic banking in the country is 68 euros (1,932 Kč/$92) per year, less than the global average of 78 euros, according to Bert Pijls, head of Citibank’s Czech consumer banking division.
“I know for a fact that Citibank in the Czech Republic does not charge any fees that we would not charge in other markets around the world,” he said. “If you look at the trend in the [country], over the last three years fees came down dramatically.”
— Naďa Černá contributed to this report.

Riva Froymovich can be reached at rfroymovich@praguepost.com


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