What bankers silent about: FAS embarks on know-how with floating rates and smart cashback

What bankers are silent about

The Federal Antimonopoly Service is concerned about the “coronavirus flourishing” of unfair competition in the financial services market when banks attract customers by advertising fantastically favourable conditions, but in fact, they simply do not fulfill them. Andrey Kashevarov, the deputy head of the Federal Antimonopoly Service, spoke about negative manifestations in the banking environment at the round table discussion 'Banking System of Russia: The Lessons of the Coronacrisis'. Their essence boils down to that many banks are silent about the essential terms of the service contract. The meeting was attended by grandees of the country's financial market — Anatoly Aksakov, the chairperson of the State Duma's financial market committee, Vasily Solodkov, the director of the HSE Banking Institute, Mikhail Zadornov, the president and chairperson of the management board of Otkritie Bank, Alexander Sokolov, the president and chairperson of the management board of Trust non-core assets bank, and Irina Nosova, the director of the Analytical Credit Rating Agency (ACRA).

As the name of the conference suggests, the discussion focused entirely on how the banking sector survives the pandemic, what saved it, and what losses it cannot avoid. From this point of view, the incriminating angle of the FAS turned out to be quite unexpected. And the hot-button topic itself did not get much resonance in the speeches of other participants. Nevertheless, the methods of competition for the client described by the deputy head of the FAS aroused interest and were taken “for record” by representatives of the legislative power.

Those who have been left without state programmes use cunning

Even before proceeding to explain the essence of unfair practices, Andrey Kashevarov explained that they are used by banks that have been cut off from state support funds and do not participate in state programmes (as you know, they included large federal banks with high authorised capital — editor's note).

“In general, we recorded the facts of unfair competition of banks that have been left outside the perimeter of the participation in state programmes," he stressed. “To a lesser extent, this affected banks that had access to state funds and participated in various state programmes.

According to him, many resorted to such techniques to “maintain liquidity”. In other words, this “contagion” is mainly affected by regional banks whose authorised capital did not allow them to participate in state programmes. The programmes allow only large banks — Sberbank, VTB, Alfa-Bank, Otkritie FC. Andrey Kashevarov called for “all banks to have equal access to state support resources”.

Floating deposit rate — to the detriment of the depositor

Nevertheless, he does not justify the identified violations that hit the wallet of an average client. According to Andrey Kashevarov, banks “liked” the floating rate in deposit agreements, which often goes down rather than up.

“We often record unfair competition in deposit agreements," he said. “Here we are faced with that there is an announced contract with a floating rate, and in the application form we see the content of a single rate. But when funds begin to be replenished, the percentage of these replenished funds suddenly decreases.

In other words, a deposit with the right to top it up brings a lower return to the depositor than if he created a fixed amount on the deposit.

Playing with a floating deposit rate is a common phenomenon," says Kashevarov. “Standard forms of violations were changes in deposit interest rates during the term of the bank deposit agreement," he said. “For example, the introduction of a ban on replenishment of the account or charging interest on withdrawals. Further, when crises eased, banks sought to get rid of burdensome conditions for themselves and did this, as a rule, at the expense of the client. For the depositor, the conditions that were initially offered significantly worsened," he was indignant. However, he did not tell the names of the banks-violators.

High interest on account — only from the 12th month

The struggle to attract customers was expressed in the expansion of the line of banking products, the essential conditions for their provision of which banks are silent about.

“When extending the bank deposit agreement, clients are offered to open either savings accounts, investment insurance, or placement of funds in securities instead of bank deposits, often without explaining the terms of payments in the absence of guarantees of profitability," said Kashevarov.

According to him, when registering savings accounts, the FAS found that they offer twice as much interest than on current bank deposits on the balances on these accounts. “Customers respond to these offers and open savings accounts. At the same time, they do not pay attention to that the increased rate begins to operate only from the 12th month after the funds are found in this account," he said.

“We establish that banks can unilaterally change the interest rates on these accounts, and we saw these changes going downward. And, accordingly, the increased rate was received by hundredths of percent of depositors who opened such accounts," Andrey Kashevarov incriminated bankers.

As previously reported by the media, we are talking about savings accounts of Otkritie Bank:

“During the audit, it turned out that on its official website, when promoting the 'Savings' account, the bank purposefully attracted customers with a maximum interest rate of 9%. However, the maximum interest rate was applied starting from the 12th month of funds being in the account, and in the first months the rate was from 4%. At the same time, 12 months after the date of entry into force of the declared conditions for the savings account, the bank reduced the maximum interest rate on the account to 8%, the FAS press service said.

As a result, the FAS ordered Otkritie Bank to pay customers the lost funds on the savings account. The essence of the replacement is that the bank has the right to change the interest rate on the savings account, but not on the deposit, the FAS press service explained to Realnoe Vremya.

Custom smart cashback programme

Another common form of customer acquisition is banking products related to debit and credit card services. “And here we also find that bank customers are not fully informed," said Andrey Kashevarov. According to him, banks “play” with the grace period on credit cards, do not inform about restrictions when receiving cashback, there is no information about reducing the amount of the stated return of funds. “Cashback is a driver in the development of the non-cash payment system and we would not like this practice to slow down the process," said Andrey Kashevarov.

According to information from the agency's website, the warning was received by Raiffeisenbank JSC, which showed signs of violating the antimonopoly legislation.

“The bank, when promoting individual products, focused on the cashback that customers receive unconditionally, in which they do not have to comply with any conditions or choose certain categories of products. At the same time, in the rules of the corresponding loyalty programmes, there were certain restrictions for receiving cashback," the supervisory service explains.

The deputy head of the FAS expressed concern that such behaviour of banks was not observed in other crises. “This period differs from previous crises in that we have a completely different picture of the behaviour of banks. The borders between banks that have the state in the capital and without its participation have been significantly erased," he complained. According to him, since the beginning of the pandemic, the FAS has issued 12 warnings, whereas previously two or three cases were initiated. “For us, this is a fairly high indicator that banks actively attract customers not always following the principles of good faith. Now seven have been executed voluntarily in full, and we are continuing antitrust proceedings in relation to five cases," Kashevarov said. According to the FAS, Alfa-Bank, Vozrozhdenie Bank, Credit Bank of Moscow, Asia-Pacific Bank, and Raiffeisenbank received the warning (the last two were for cashback).

It may be added that the central office of the FAS initiates proceedings against banks based on complaints from citizens or on its own monitoring data. Moreover, the FAS acts as a champion of purity in a competitive market, and not a defender of the interests of depositors (Rospotrebnadzor and the Central Bank are obliged to protect their rights — editor's note), the press service of the antimonopoly department emphasised:

“We assume that an honest bank has lost a client who was taken away by unfair means.

The territorial administration of the Federal Antimonopoly Service of the Republic of Tatarstan reported that such cases have not been initiated.

“There was a case against the bank, but it concerned unauthorised SMS mailing," the press service of the department told Realnoe Vremya.

Towards 2021 — without banking tricks

In his closing speech, Anatoly Aksakov, the chairperson of the State Duma's financial market committee, admitted that it is “an outrage” when “a depositor is promised one percent, but then it turns out to be much lower than expected”. He said that in October a bill would be considered that would oblige the bank to disclose the essential terms of the agreement on the first page. The deputy expects the new rules to come into force by the end of the year.

“Those who read the first page will understand what they are signing. I hope there will be fewer such outrages when the depositor does not understand what is being offered to him," Aksakov expressed hope for a successful result of the document's adoption.

Unofficially, representatives of the banking sector note that everything that the FAS finds looks like childish pranks compared to the 2008 crisis. “At that time, depositors could not get money on deposits because banks could not return them. For it, “transit” accounts were issued, where cash was transferred," Realnoe Vremya was told. “This is not a fight for the purity of the financial market, but something else," they believe, pointing out that the range of interest rates is set by large players in the banking sector, and small ones obey them.