Former Central Bank Governor James Smith lauded the efforts of the Consumer Protection Commission (CPC) in finding out how the public feels about retail banking fees via a recent survey, but noted that price controls in the Bahamian economy could create market distortions.
Speaking with Guardian Business yesterday, Smith agreed with the CPC's move to collect evidence on consumer perceptions of banking fees. The majority of respondents to the survey did not feel there is "consumer protection in The Bahamas".
"At the end of the day, in a democracy you have to respond to the legitimate wishes of the people," said Smith.
"And one way of finding out how the majority of the people feel about something is to ask them.
"So I think from that point of view, the CPC was correct, instead of trying to implement policies or programs on a whim.
"By doing a survey, they would have determined that there are some concerns about the multitude of banking fees."
Smith noted, however, that a closer look should be taken into why banks are charging higher fees on certain services.
"I think we have to also recognize that the banks have gone through a tremendous period of losses occasioned by bad loans by the very consumers probably participating in the survey," he said.
Smith pointed out that non-performing loans are now in excess of $1 billion, representing a major loss in interest income.
Therefore, the banks' next "line of defense" would be for them to look at fee income.
A study conducted by The Central Bank of The Bahamas showed that over the past six years, banks in The Bahamas have raised their fees on a significant number of services and have even added new fees on existing facilities.
And while the regulator agreed on the need to strengthen consumer financial protection, it stated that "a direct response through price controls would introduce adverse distortions in the sector".
Smith agreed with the regulator's comments. He explained that it is a general thought that price controls in a market economy, like The Bahamas, would not reflect demand and supply but impose prices.
And when there is a small number of banks in a banking sector, Smith said that oligopolistic behavior could occur.
"You need be very careful on any kind of pricing system because you could have unintended effects," he said.

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