Preliminary talks are now underway with the Bermuda Monetary Authority, the Ombudsman and Consumer Affairs, following a slew of complaints alleging unfair banking practices by three local banks.
Several account holders, including senior citizens who don’t use computers, also contacted Bermuda Real to file grievances.
Complaints cited include allegations of deliberate loan refusals to force owners to sell their property, questionable minimum deposit penalty charges on accounts that fall under $500 dollars, and monthly deductions without notification from dormant accounts until account balances hit the zero mark.
Bermuda Real fielded a host of questions in writing to the Bermuda Monetary Authority, the Ombudsman’s office and Consumer Affairs in January. Ombudsman Victoria Pearman issued the following statement on February 6, 2015:
“The Office of the Ombudsman is aware of complaints of various unfair banking practices. Our jurisdiction does not extend to dealing with complaints of unfair banking practices directed at banks as wholly private entities.
“As the Bermuda Monetary Authority is responsible for the regulation of financial institutions including banks, the Ombudsman’s Office initiated talks with the BMA for the purpose of discussions about banking complaints which could be matters for attention of the BMA as Regulator and as a real means of protection for bank clients. In doing so the Ombudsman also sought input from the Consumer Affairs Office which receives confidential complaints about unfair practices from members of the public.”
Ms Pearman continued: “Our discussions at this point are at a very preliminary stage. We have not yet discussed with the BMA the range or types of unfair banking practices. As a result it would be premature for us to publicly respond before any substantive discussion is held. We anticipate further discussion will proceed in the near future.”
The bulk of the complaints sent to Bermuda Real focused on questionable practices by Clarien Bank, with others citing HSBC Bermuda and Butterfield Bank.
Speaking on the condition of anonymity, one property owner who we’ll refer to as Y, qualified for a loan within the past few years to renovate the property after securing a loan to obtain it. Their subsequent application for a loan to cover renovation costs was turned down and Y ended up in arrears, placing their initial loan in default.
Y put a large cash deposit down on the initial loan to be deducted on a monthly basis to cover them if they defaulted on their loan. The bank however, took the entire amount deposited all at once and put it against the principle. This left Y in the same position – in arrears, and unable to renovate the property to get a return on their investment.
Admittedly, Y said that was the bank’s perogative, but they maintain they would’ve cleared their outstanding debt if the bank would’ve have helped. Instead, Y now faces losing the property completely. There are other mitigating factors that Y declined to release in the interest of protecting their anonymity.
Another account holder went to Clarien Bank to deposit money into her savings account, and was told that her account had been closed. She insisted that she never closed the account herself. She also insisted that she was never notified, either in writing or online by the bank.
Fed up she said she no longer wishes to deal with Clarien Bank because her savings account was not dormant, nor was it inactive over a two year period.
A senior citizen who admitted that she is not computer friendly, took issue with a $3.00 monthly deduction from one of her savings accounts that had a balance under $500. She said $3 was deducted monthly, over an extended period until her account was nearly empty. She also insisted that she never received notification from the bank.
She complained that $3 a month doesn’t sound like a lot of money. But she said: “If you multiply $3 by say 20,000 separate accounts, that adds up to $60,000 a month. Times that by 12 months, and that’s $720,000 a year in bank fees for banks that pay you virtually no interest on your savings in the first place.
“As an ‘old timer’ who doesn’t have a lot of money to spare, it’s not worth having a savings account in Bermuda these days, especially when you look at the interest rate they pay. But charging me just to hold my money no matter how much it is, with virtually no interest is not worth it to me anymore.”
When contacted, a spokesperson for Clarien Bank said: “The monthly Maintenance Fee of $3 and the Dormant Fee of $8 per month were implemented in May 2014. Clarien Bank’s Fees Schedule, Terms and Conditions,the Fee Schedules and the Bermuda Banking Code of Conduct are always available at www.clarienbank.com for reference,” she added.
She also reiterated the bank’s commitment “to fair industry best practices and standards as outlined by the Bermuda Banking Code of Conduct”.
“The implementation of account fees and service charges is done in accordance with the Clarien Bank Limited Terms and Conditions as per the Clarien Fee Schedule and in alignment with industry standards.
“Banking fees are applied to the Bank’s operating costs for servicing accounts. A courtesy notice of 30 days is provided for new fee implementation or fee schedule revisions,” she said.
“Clarien clients are encouraged to speak with their financial services representative or branch teller regarding opportunities to reduce fees, such as utilizing online statements, avoiding late payments where applicable and maintaining an active account status. “Clients are also encouraged to review both documents for clarity, and should speak with their Financial Service Representative or a Branch Teller for opportunities to reduce fees based on personal banking practices,” she added.
HSBC Bermuda confirmed “some of their fee changes” were changed on July 1, 2014. “These changes affected Personal, Commercial and Global Banking customers,” a spokesperson said.
“HSBC considered many factors before deciding on the current fee schedule which was communicated beforehand with customers and is also published on our public website at www.hsbc.bm.
“We continually assess the costs of providing our banking products and services, rates and the current competitive environment. Overall, we are confident that our pricing is competitive and represents fair value for the service we provide to our clients,” she added.
“Under no circumstances does the Bank ever keep any funds belonging to a customer and not owed to the Bank. This includes a deceased customer’s funds.”
On the issue of dormant accounts being emptied without notification, the spokesperson stressed that “dormancy is driven by customer behavior where an account has not been used for a two year period and the charges are driven by the cost of doing business”.
“We provide adequate notice to our customers to this effect and where there may have been instances that customers were not satisfied, the usual course of action has been for them to speak directly with the bank representative.”
A spokesman for Butterfield Bank also referred us to their website for information on their current rates, fees and terms of service at www.butterfieldgroup.com to review the bank’s Terms and Conditions, plus their Schedule of Charges.
He noted that “Butterfield waives monthly account maintenance fees for seniors, youth, and charities”. “Customers who opt not to receive paper statements have their monthly maintenance fees waived,” and “electronic versions of statements are available to all customers on Butterfield Online”, he added.
“With respect to dormant accounts, Butterfield’s normal practice is to apply a monthly fee of $8 to accounts that have been inactive for a period of two years or more. Seniors, charities and youth are exempted from dormancy charges.
“Customers whose accounts are identified as dormant receive a letter advising them of their account status and the impending application of dormancy fees in the month the account is so-identified.
“When Butterfield is notified of the death of an account holder, the accounts in question are frozen so that regular fees (e.g. maintenance, dormancy, etc.) are not applied, however the account will continue to earn or pay interest as applicable until such time as it is closed by an authorised person,” he said.
The BMA lists on its own website that “other than and including the Minister of Finance”, they have “authority to govern-dictate to-regulate Interest Rates by local banks”.
In response to the list of questions by Bermuda Real, a BMA spokesman confirmed “the Authority is aware that there has been an increase in the number of complaints from customers of local banks”.
“The Authority has already held preliminary discussions with the Ombudsman in this regard and intends to conduct further meetings with both the Ombudsman and the Department of Consumer Affairs in due course,” he said.
“The purpose of these meetings will be to garner a better understanding of the types of complaints being submitted and whether any consistent themes need to be addressed with the Bermuda Banker’s Association.”
But he said: “As Bermuda’s financial services regulator, the Bermuda Monetary Authority’s stated mission is to protect and enhance Bermuda’s reputation and position as a leading international financial centre, in order to achieve this objective, the Authority supports the viability of Bermuda’s financial services which includes the banking sector.
“As the prudential regulator of Bermuda’s banks, the Authority conducts regular onsite visits and offsite surveillance, including revieweing prudential returns and regular prudential meetings with banks’ senior management. The Authority also pragmatically adopts international banking supervision standards, where appropriate, to further protect depositor interests.”
Under the current regulations, it was clear that no formal system exists for account holders to file formal complaints directly to the BMA as Regulator for the Island’s banks, or through the Ministry of Finance.
It was also clear, based on statements by Finance Minister Bob Richards in his Budget Statement last year that the Ministry and the BMA are not on the same page.
According to the BMAs Regulatory Update issued in December, Bermuda dollar loans by local banks hit a “seven-year low”. Third quarter figures totalled $4.34 billion in Bermuda dollar loans, advances and mortgages, which was down by $1 billion or nearly 19 percent from mid 2012; marking the lowest level of lending since the same quarter in 2007. Reasons cited included tightening of lending standards by local banks since the financial crisis in 2008.
The Minister, in his Budget Statement last February said the policies of local banks were “at odds with the national interest”. He noted that in Bermuda “banks must follow the monetary dictates of the Federal Reserve in the US and also there own individual appetites for lending”. But over the past decade he said: “The combination of these two factors has put bank lending policies at odds with Bermuda’s national economic interests – that is ultra-easy money lending when the economy was already red-hot followed by debilitating ultra-cautious lending during economic weakness.”
With “no appetite for lending” the Minister said: “This is, on multiple levels, contradictory banking policy at a time when we need to expand this economy. We have stated repeatedly that in order for Bermuda to move forward, all oars must be pulling in the same direction,” said Mr Richards.
Asked whether the BMA is on the same page as the Finance Minister, the spokesman said: “The Authority continues to work with the Ministry of Finance to strengthen Bermuda’s financial stability framework, including the formation of a Deposit Insurance Scheme, due to come online this year.
“Bermuda’s financial stability framework has the objective of identifying, monitoring and responding to emerging risks in the Bermudian fianancial sector and economy as a whole. A BMA financial committee meets regularly to assess and analyse global economic indicators with a view to offering assistance to the Ministry of Finance regarding matters of economic importance,” he added.
As for the Minister’s call for local banks to be on the same page to boost Bermuda’s economy, we put that question to the BMA spokesman as well.
“To ensure there is no confusion about the scope of powers of the BMA it should be noted that the power vested in the Authority to deal with interest rates is only in relation to the statutory interest rate prescribed under the Interest and Credit (Charges) Regulations Act 1975,” he said.
“This statutory rate is applied in limited circumstances as set out in the Act. For example, where there is a judgement order issued by a court the statutory rate may be applied. This Act does not cover interest rates generally,” he added.
The BMAs mandate, as listed on its own website lists the BMA as “the integrated regulator of the financial services sector in Bermuda”, as “the Authority supervises, regulates and inspects financial institutions operating from within the jurisdiction”.
It also issues “Bermuda’s national currency, manages exchange control transactions; assists other authorities in Bermuda with the detection and prevention of financial crime, and advises the Government and public bodies on banking and other financial and monetary matters”.
As the supervisor of Bermuda’s “banks, trust companies, investment funds, fund administrators, money service businesses and insurance companies”, the BMA is also charged with providing “specific reports on the activities to the Minister of Finance on an annual basis”.
” In carrying out its role, the Authority both follows and helps to set international best practice,” it says. What that means exactly for bank account holders in Bermuda remains questionable.