The Unused Facility Fee - from Standard Bank

[Dave A]

I'm sure most of us see nothing unusual in being charged interest on money we borrow from the bank. But what is the view here on interest being charged on the money that you don't borrow?

This email received from my business banking manager at Standard Bank introducing the Unused Facility Fee (UFF) certainly has me pondering the concept.
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Dear Valued Customer

A new fee is going to be implemented by the Bank as from 1 July 2014

The unutilised overdraft fee is going to be levied on business accounts that have a history of not utilizing it facilities to capacity.

This will also assist the owner to manage the business cash flows.


What is UFF?

• UFF is a fee charged by a lender to a borrower for an unused or underutilised credit line.
• An Unutilized Facility Fee is generally specified as a fixed percentage of the undisbursed loan amount.
• The lender charges an Unutilized Facility Fee as compensation for keeping a line of credit opened

Reasons for the Unutilized Facility Fee introduction:

• Access to an overdraft facility is provided up to an agreed limit
• As a bank, we are obliged to hold capital against the entire overdraft facility, regardless of whether it is used or not
• Under the new international regulatory framework of Basel III, all banks are now required to raise their regulatory capital base to improve the banking sector’s ability to absorb financial and economic stresses in order to protect all depositors
• Unlike competitors, Standard Bank have not previously charged a fee, however the new regulatory environment has now necessitated the introduction of this fee

How is UFF Calculated?

• Fee charged on the unutilised portion of a customer’s overdraft facility
• Calculated on the daily outstanding balance of the facility
• Recovered monthly
• Fee will fluctuate depending on the utilization of the overdraft over the month
• The fee will be charged at 1.2% of the unutilized portion of the Overdraft in any given day

Fee to be applicable to accounts based on following rule:

If utilisation is less than the maximum stipulated utilisation rate (i.e. 80%), then Charge applicable fee, else
If utilisation is greater or equal to the maximum stipulated utilisation rate (i.e. 80%) then fee = 0%.

Normal interest on overdraft will be levied.

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Thoughts, anyone?

[Marq]

So wrong on all levels.
I am sure one could invoke the CPA.

Reminds me of the Hotel Bill joke. Its time we started invoicing the banks for
for wasted time and paper dealing with their incompetence. This thing where they
just dip into our accounts for whatever charges they feel like for the month
is so wrong as well. They are entrusted with our life savings and should show more
respect rather than steal from us under the colour of the law that they have laid
out themselves.

For those who don't know the Hotel Bill joke.... here is one of its many forms:-

A husband and wife are travelling by car from Johannesburg to Cape Town.
After many hours on the road, they're too tired to continue,
and they decide to stop for a rest. They stop at a nice hotel and
take a room, but they only plan to sleep for four hours and then get back
on the road. When they check out four hours later, the desk clerk hands
them a bill for R 3,500. The man explodes and demands to know why the charge
is so high.
He tells the clerk although it's a nice hotel, the rooms certainly aren't worth
R3,500. When the clerk tells him R3500 is the standard rate, the man insists
on speaking to the Manager. The Manager appears, listens to the man,
and then explains that the hotel has an Olympic- sized pool and a huge
conference centre that were available for the husband and wife to use.
"But we didn't use them", the man complains.
"Well, they are here, and you could have," explains the Manager.
He goes on to explain they could have taken in one of the shows for
which the hotel is famous. "The best entertainers in the world perform
here," the Manager says.
"But we didn't go to any of those shows," complains the man again.
"Well, we have them, and you could have", the Manager replies.
The Manager is unmoved, and eventually the man gives up
and agrees to pay. He writes a cheque and gives it to the Manager.
The Manager is surprised when he looks at the check. "But sir," he says, "this
cheque is only made out for R1000."
"That's right," says the man. "I charged you R2500 for sleeping with
my wife."
"But I didn't!" exclaims the Manager.
"Well," the man replies, "she was here, and you could have!

[Marq]

Remove the Reserve Bank for Starters

[Marq]

Realise the problem!

[Marq]

And then stop borrowing form the Banks.
Its the only way to solve these kinds of issues.

[adrianh]

I honestly think that we should think of ways to get around the banking system. They simply make up new rules as they go along and we just have to pay whether we like it or not.

[desA]

SA banks have no shame.

[Greig Whitton]

I honestly think that we should think of ways to get around the banking system.

You're not alone. Peer-to-peer lending may be the future.

[Dave A]

So I went hunting the net to see what popped up. The only serious comment I've found published so far was this - Banks, small businesses and paying for what you don’t use by Graeme Codrington. It seems he took the trouble to follow up on the sms sent out at the end of last month. Personally I found it too short on detail to serve as anything remotely like official notification, and was far too busy dealing with the month end joys of being an entrepreneur.

It seems as well I didn't bother, as this snippet reveals:

On Tuesday, as business people around South Africa had to deal with the news that the economy had contracted by 0.6% in the first quarter of this year, those that have business banking facilities with Standard Bank also received an sms informing them that the bank would now be charging “a fee of 1.2% on all unutilised overdraft facilities”. No further information was given, except to phone the business banking call centre if one had queries.

Those customers who did phone encountered bemused and clueless call centre operators who took a few minutes even to confirm the information with their supervisors. Apparently, no-one in the business banking decision making department had thought to tell anyone else in the business banking division about this interesting new approach to charging customers for services they did not need to use.

And it's not like Standard Bank didn't have time to plan for this announcement - my business bank manager gave me a heads up that this was on the horizon in November last year.

All of which makes the email's lack of clarity on some pretty key specifics even more tragic.

Like that 1.2% - is that per day, per month, or per annum?
Like that 80% threshold you need to get over (or is that under?) - do you get hit with this UFF every day you don't make the 80%, or do you just have to hit the target every month and you're only hit for the months you don't, or what?

And finally, given all that time for careful consideration, to still push out a line like this:

Unlike competitors, Standard Bank have not previously charged a fee, however the new regulatory environment has now necessitated the introduction of this fee

Did they seriously think no-one would check if this was true?

[Mike C]

Did they seriously think no-one would check if this was true?

Yeah - I think that ABSA has had this for some time now. They call it a "Commitment Fee".

[Marq]

You're not alone. Peer-to-peer lending may be the future.

The thing is that the money will still be channelled through the banks.
A system needs to be introduced alongside the loans where the p2p parties pay creditors directly and avoid the banking side.
Could be something along a separate debits and credits barter type system where no actual cash is exchanged.

[Dave A]

Yeah - I think that ABSA has had this for some time now. They call it a "Commitment Fee".

How is that structured, Mike?
And does anyone know if any of the other banks do this?

[adrianh]

The thing is that the money will still be channelled through the banks.
A system needs to be introduced alongside the loans where the p2p parties pay creditors directly and avoid the banking side.
Could be something along a separate debits and credits barter type system where no actual cash is exchanged.

Isn't this what Bitcoin is about.

The difficulty is that we need something common to us all to trade with. The problem is when you are transacting over long distances. There must be a way to get around moving money. One way is to pay in airtime (which is exactly what some people do in ZIM) Am airtime voucher can be passed around easily, used by the final recipient or sold for cash. The only thing that one needs to keep in mind is that the voucher expires. One could get around this by trading in small enough vouchers that they can be cashed in by numerous parties.

[adrianh]

Imagine if you can get an big airtime vendor in on this.


....its just stuck me, this is exactly what a certain family member must have done elsewhere.....

[roryf]

Nedbank have been doing this for sometime.Like Mike said,Nedbank also call it a commitment fee.