The Unused Facility Fee - from Standard Bank

[Justloadit]

My starting point was hunting around the various banks' websites too. They're all thin on specifics (at best) on this sort of fee.

Not surprising, when you steal from your customers, you do not want to make them aware of it if you can, or make it as difficult as possible to find. Something like the online T & C's they change it when ever they want, so after you have read it the first time, you think you have yourself covered, but it changes on the fly and next thing you supposedly agreed to the change.

[IanF]

Biz news has a critical article on the fee Biznews article

Standard Bank’s current advertising campaign asks: “When last did you feel this excited about banking?” The honest answer is: before I became a small business owner. But actually, honestly: probably never. Certainly not when they treat business people like they have this week. Maybe its advert is directed at shareholders, and not customers.
....
For businesses, the action steps are obvious:

Review your overdraft facilities and reduce them to the levels you absolutely need.
Look for alternative methods of funding cash flow requirements.
Move your business to another bank, or at least threaten to do so.
Like most banking facilities, it is likely that if you’re a good customer this additional fee might be negotiable.
Buy more banking shares.
It looks as if they’re going to continue their glorious tradition of making money no matter what happens to their customers or the economy.

[Alice Rain]

[Alice Rain]

Banks are NOT HERE to help us, they are BUSINESSES and need to make HUGE profits, out of us! I could've paid R42.00 instead of R99.00 for two prior years, but of course they don't tell you those things. I hardly ever go into a bank because I normally end up shouting at whoever's available to be shouted at! And if it just a poor employee, I say sorry and tell them not to take it personally ....

[Newretailer]

Banks are nothing but legalized theft. I am in the process of closing all my overdrafts and living within what I can afford to pay for outright. I have an overdraft with FNB and looking at all the monthly charges under various different names are sickening. I will close it before the end of the year and stick with my Capitec account.

Somewhere along the line, big business but especially banks have started to confuse making more profit by providing better and more services and growing business by getting more customers, with making more profit by inventing new charges on existing services. It is sickening and we don't seem to have a say. They just add what they feel like adding. When and where will this stop?

[Blurock]

As much as I agree that banks are ripping us off, I have to side with the banks on the commitment fee or utilisation fee.

Imagine that Grandpa has to hold R100,000 in reserve for Johnny's study fees. He can not invest it and earn interest, as the fees may be required at any time. he can also not charge interest, as it has not been paid out yet. So in other words, he is out of pocket for the interest that he could have earned.

The reason for a "commitment fee" is that the Basel 111 accord forces banks to hold more capital reserves in order to protect investors. This increases bank liquidity and reduces bank leverage (debt) and risk. These reserves are "non-performing assets" in the sense that they do not generate an income.

Banks must account for the value of outstanding loan commitments so that funds are available should the borrower request them. They represent a future obligation in full, even though a percentage of the notional loan amounts will never be utilized by the borrowers themselves. This is also a guarantee that the money will be available to the borrower when required, although the fine print allows banks to get out of this commitment very quickly, as an overdraft is essentially an "overnight facility" and can be called up on short notice.

Definition of 'Commitment Fee'

A fee charged by a lender to a borrower for an unused credit line or undisbursed loan. A commitment fee is generally specified as a fixed percentage of the undisbursed loan amount. The lender charges a commitment fee as compensation for keeping a line of credit open or to guarantee a loan at a specific date in future. The borrower pays the fee in return for the assurance that the lender will supply the loan funds at the specified future date and at the contracted interest rate, regardless of conditions in the financial and credit markets. (Wikipedia)

[Justloadit]

What is not mentioned is that the over draft facility is a secure loan, in other words there is no risk to the bank for lending it. This alone ensures that there is no risk and in principle does not require securing funds too meet the obligation.

Getting clients to secure overdraft limits ensures the bank has a client in which the bank makes money from the transactions processed by the client using the banking facilities. This in it's own right is income for the bank, using the Basil agreement to substantiate the 'robbery' IMHO is a farce in which they use to fleece the client even more.

My bank makes between R4 and R9K a month from my patronage, this is more than enough profit for allowing me an over draft facility.

I think that Stranded Bank may lose a number of corporate clients, who have OD facilities.
Just remember Stranded bank was the first to start charging for Cheque deposits.
Could this be a future trend from Stranded bank, making other banks follow their fleecing ways?

[Houses4Rent]

What is not mentioned is that the over draft facility is a secure loan, in other words there is no risk to the bank for lending it.

I know nothing about overdrafts, but wonder why its secure loan? What is the colateral? I think its an unsecured loan as they may or may not get the loan back and will have to sue for it.

Why don't you use your access bond as facility to borrow (and save for that matter)?

[Marq]

As much as I agree that banks are ripping us off, I have to side with the banks on the commitment fee or utilisation fee.

Imagine that Grandpa has to hold R100,000 in reserve for Johnny's study fees. He can not invest it and earn interest, as the fees may be required at any time. he can also not charge interest, as it has not been paid out yet. So in other words, he is out of pocket for the interest that he could have earned.

The reason for a "commitment fee" is that the Basel 111 accord forces banks to hold more capital reserves in order to protect investors. This increases bank liquidity and reduces bank leverage (debt) and risk. These reserves are "non-performing assets" in the sense that they do not generate an income.

Banks must account for the value of outstanding loan commitments so that funds are available should the borrower request them. They represent a future obligation in full, even though a percentage of the notional loan amounts will never be utilized by the borrowers themselves. This is also a guarantee that the money will be available to the borrower when required, although the fine print allows banks to get out of this commitment very quickly, as an overdraft is essentially an "overnight facility" and can be called up on short notice.

Definition of 'Commitment Fee'

A fee charged by a lender to a borrower for an unused credit line or undisbursed loan. A commitment fee is generally specified as a fixed percentage of the undisbursed loan amount. The lender charges a commitment fee as compensation for keeping a line of credit open or to guarantee a loan at a specific date in future. The borrower pays the fee in return for the assurance that the lender will supply the loan funds at the specified future date and at the contracted interest rate, regardless of conditions in the financial and credit markets. (Wikipedia)

See post #4 - thats how it really works, not like they would like you to believe it works.
The banks are not out of pocket at all.
If you discuss the commitment fee with your banker, chances are as I have found out, they cannot tell you much more that the basic letter and do not know anything about the things you mention in this post.
Baffled by BS.

[desA]

I've recently trimmed all bank facilities into a single savings account with internet banking. Tired of the milking process.

Have no need for overdraft.