Customers to pay less when switching banks

Companies and individuals that want to change their lender may soon be exempt from the payment of the penalty fee which can amount to as much as 3% of the loan taken out.

The Competition Council (CC) yesterday requested that the Government and the Parliament apply the European legislation on this matter and take the necessary steps to eliminate the fees for advance reimbursement of consumption loans. CC also proposed the expansion of this measure (within reasonable limits) to cover mortgage loans and long term loans with real security interest.

"We have urged the state authorities, the Government and the Parliament, to implement the European directive which sets a cap on early loan reimbursement fees", Bogdan Chiriţoiu, the chairman of the Competition Council yesterday announced, as part of an event called "Competition - the key to economic development and consumer welfare".

According to Bogdan Chiriţoiu, this decision would ensure greater competition between the lending institutions in terms of loans and commissions, which will generate a greater competition between banks and will help make borrowing more affordable.

Bogdan Chiriţoiu said: "I noticed it is extremely hard to switch banks. One of the reasons is the early reimbursement fees, which means one can"t switch banks without paying a penalty fee. We asked for the elimination of these fees for consumption loans and we have a deadline for implementing this European directive by May 2010. We have also suggested extending this measure or capping these fees in the case of mortgage loans as well. Customers will be able to go to the banks that have the best terms".

The president of the Competition Council opined that once early reimbursement fees are capped, banks will be forced to lower their fees and interest rates to keep their customers.

"Our final objective is to see lower interest rates for consumers, and this can only happen once the competition between banks increases", Bogdan Chiriţoiu said, who added: "Once banks become aware of the risk of losing their customers, they will be forced to lower their interest rates and fees.

• Chiriţoiu: "There is not enough competition between banks"

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The president of the Competition Council said that there is still not enough competition in the banking system and he mentioned that his goal is to take competition on this market to a level similar to that of the telecom market.

"There are high interest rates in Romania and there are big spreads between the interest paid by banks on deposits and the interest rate they charge for loans", Chiriţoiu said, adding: "There is not enough competition between banks".

The head of the Competition Council said that if the state authorities do not implement the provisions of the European directive, the European Commission will launch the infringement procedure against Romania. The head of the CC said that he discussed this issue with banks.

When asked about how banks received this message, he said: "Obviously, no one is happy that this puts a damper on their ability to make a profit, but banks are very large and very serious institutions, and I am convinced that since this a European directive, they will accept to work with the competition watchdog on this issue".

• Gheţea: "It"s possible these reimbursement fees have been abused"

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The head of the Romanian Banking Association, (ARB), the president of CEC Bank, Radu Graţian Gheţea, considers that the actions of the Competition Council are justified, but said that this commission is not a source of income for banks.

"I think the initiative to cap this fee is fair", Gheţea said, who explained: "This fee is not a way of making money, but rather a way for banks to recover their losses caused by customers paying their loans in advance. When that happens, the bank can not always place the returned funds to another customer right away, whereas it has to pay that customer the interest it has promised. It is something that applies in all domestic and international conventions. It is possible that this early reimbursement fee has been abused in order to retain customers. From this point of view, I find that this act of the Competition Council is fair".

The chairman of the RBA added that in some cases, these commissions can amount to as much as 3% of the total amount of the loan.

"A fee of a minimum of 1% as proposed by the European directive is reasonable and covers enough of the possible losses", the head of the RBA concluded.