Further Questions On Cheque Charges

Press, Volume CVII, Issue 31530, 18 November 1967, Page 21

Further Questions On Cheque Charges

A Christchurch businessman, Mr C. D. Ogilvie, is not satisfied with answers given to his questions about the new bank charges by Mr R. O. Smillie, the research director of the New Zealand Bankers’ Association.

Earlier, Mr Ogilvie had questioned a statement by the association’s chairman (Mr J. Mowbray) that the new system was equitable in that the user would be asked to pay. “Mr Smillie, in answer to my earlier challenge to show the present bank charges as being equitable and truly a ‘user pays’ sytein, has avoided answering the most important question of all—that is how many million free cheques will be issued by the banking system in a year,” said Mr Ogilvie in a further statement

“Mr Smillie tells us that 75 per cent of all accounts draw less than 100 cheques per half year, and this would include the greater majority of all private accounts. “I believe that he gives subtly to the casual reader the idea that the number of free cheques issued is very limited indeed, whereas their mere mass would obviously account for many million cheques. A city bank manager quoted the figure that 125,000,000 cheques are drawn annually, and Mr Smillie does not deny this statement. Seventy-five per cent of 125 m is 93.75 m. Now 75 per cent of all accounts draw free cheques. Do these account holders draw 40m, 50m, or 60m free cheques? This figure must have been assessed by the Bankers’ Association, and this figure will be available to Mr Smillie. “On the other hand, all cheques deposited with the banks will be assessed a four cent fee, save one for each day’s lodgement Obviously much more money is going to be charged for lodging cheques than drawing them. Is this a ‘user pays’ principle,

or Just more acceptable to the private account holder? “The second point which he makes, that small account holders’ deposits back a large part of the overdraft borrowing of industry and commerce is not denied but the Bankers’ Association well knows that if these overdrafts are at 6 and 7 per cent, it is far better return than banking could obtain from investing depositors* money in gilt edged securities. Therefore, the cost of running an account is reduced at least by the differential of the earning power of the overdraft accom modations versus say, for in stance, government loans. “As regards the example quoted of the M.E.D., it is a prosaic argument to dismiss this example by saying that the M.E.D. would prefer the convenience of a cheque than the handling of cash. “If 800 cheques were not sent through the post then 800 pairs of feet would have to walk to the M.ED. to pay the accounts; we are, after all, in the twentieth century and any argument regarding the convenience of the cheque system should need no answei at all.” Bankers’ Comment

“An estimate of the number of cheques which will attract the ledger activity fee is known to the Bankers’ Association but is confidential," says Mr Smillie. "Overdrafts involve consider administrative expenses, but are still a cheap source of borrowing. “Mr Ogilvie’s suggestion that banks invest wholly in Government securities would deprive industry and commerce, as well as many individuals, of an important source of short-term borrowing already greatly restricted. Finally, it cannot be denied that if the M.E.D. elected to receive payment by cash the costs of running its cashier’s department would be very substantially increased,” Mr Smillie said.