The government is planning to curb unreasonable bank service fees by launching a new regulation. A draft version of the Commercial Bank Service Fee Management Regulation has been released on February 10, and industry experts estimate that it will be put into use in around six months time.
The purpose of the new regulation is to allow the government to monitor the prices banks charge for the services they offer, and to reduce unreasonable fees. However, some have expressed concern that the regulation will not have any real power, and that banks will be able to find ways to get around it.
Unreasonable fees
Research published by China Banking Association on July 12 last year said that Chinese banks were offering 1,076 kinds of services, 850 of which were not free of charge.
"From 2003 to 2010, paid bank services grew rapidly from 338 to 662. The new services are related to stocks, futures, funds, insurance, agent services, e-commerce, online banking, mobile banking and many others," Yang Zaiping, vice president of China Banking Association, told the Global Times.
The rise in fee-paying services has left many customers perplexed. "I am confused by the service fees of the banks. The same service can have different rates among different banks," Guo Lizhong, an office worker in Beijing, told the Global Times.
The government implemented a regulation on July 1 last year exempting customers from paying fees for 34 kinds of bank services. However, banks launched more paid services and raised the service charges in order to cover their losses. Many fees are considered unreasonable by customers, such as 10 yuan ($1.59) for reporting the loss of an account password and 2 to 5 yuan a month for SMS alerts of any account changes.
"I don't know exactly how much I pay in bank service fees. Banks seldom notify me of the charges," said Chu Yulan, a 56-year-old housewife from Xuzhou in east China's Jiangsu Province.
Bank revenues come from two main areas: the interest margin between deposits and loans, and charging for services. Though banks seldom release details of what they earn from service fees, it is believed to be an important portion of their revenue, and they won't easily give it up, Zhou Xing, assistant professor of economics at Renmin University of China, told the Global Times.
Getting tough?
On February 9, the China Banking Regulatory Commission (CBRC) released a notice saying that banks should comply with standards and regulations for service charges. According to the notice, banks will be punished if they are caught violating regulations and if they fail to release a report on their business, internal management, services and fees by April 1.
However, the CBRC, the National Development and Reform Commission and the People's Bank of China then released the draft version of the Commercial Bank Service Fee Management Regulation on February 10.
One clear change in the new regulation is that banks no longer need to wait for government approval before launching a new service or raising fees.
Under the new regulation, banks must consult public opinion three months before the launch date of a new service and report it to government supervision departments one month before. For a rise in the fee charged for a service, banks should consult public opinion one month beforehand and the government 15 days before.
"The current bank service management regulation was launched in 2003, and is not able to cope with the rapid rise of bank service fees and ever growing number of bank services," He Zhengsheng, economy law expert and founding partner of Beijing Honor Base Law Firm, told the Global Times.
Lack of competition
Banks have already begun devising ways to cope with potential losses from the new regulation.
China Minsheng Bank Corp announced on January 16 that it would raise the service charge for paying credit card bills in installments from 0.02 percent to 0.07 percent per payment from March 1. A service representative at Minsheng Bank told the Global Times that the increase in the fee is a normal business adjustment.
"Minsheng is the first among commercial banks to take action before the new regulation has gone into effect," said Zhou Xing. "The installment service fee is another important area of revenue for banks, and the rise in the fee will compensate for losses in other service charges."
The rise in service fees has been a trend recently, and more banks will adjust their charges for paying credit card bills in installments, according to a report by City Express on February 18. Some banks also raised interest rates on loans, according to a report on finance information portal ce.cn on February 18. The government's strict supervision of service fees is the direct reason for this, a Xinhua report said.
"There is not enough competition among Chinese banks, so they don't give enough consideration to customers' interests or provide enough transparency on charges," said He Zhengsheng.
In some ways, according to He, the new regulation actually increases banks' power to raise charges, given that they no longer need to wait for government approval before raising fees. So long as there are no complaints during the consultation period, they can go ahead with the price rise.
Also, the regulation doesn't clearly state that banks must cut the number of fee-paying services or reduce service charges, said He.
"If the government can't increase competition in banking services in the near future, it should further strengthen the supervision and management of banks," said Tian Zhengyi, an analyst at Zhengwang Consulting Co.