More and more banks indicate already on their opening credit that in case of presentation of documents with discrepancies a fees of US$ 75.-- will be deducted at the time of payment. It happens however frequently that documents are sent to opening bank requesting payment and when payment arrives same show a deduction for discrepancies fees. No advice of disposal has however been received indicating the irregularities noted. Therefore, if no message has been sent to the bank remitting the documents advising any discrepancies, relative fees should no be deducted either.
This is however a practice used more and more frequently and banks acting this way should be aware that such behaviour is not correct and in no way in conformity with UCP 500 which clearly regulates those cases.
Roland
commission and charges
-
RolandLeupi
- Posts: 115
- Joined: Fri Apr 05, 2019 5:26 pm
commission and charges
Roland,
I assume this occurs where the issuing bank believes it has identified discrepancies but received a waiver prior to it being necessary to send a refusal message.
Nonetheless, I quite agree with you that it is quite wrong to deduct a discrepancy charge without any explanation to the documents remitting bank that details the alleged discrepancies and that banks that act in this manner are doing so disreputably, particularly as a ‘discrepancy fee’ invariably has the cost of a refusal message factored into it, so the remitting bank is not even getting full value for the charge levied against it.
Jeremy
I assume this occurs where the issuing bank believes it has identified discrepancies but received a waiver prior to it being necessary to send a refusal message.
Nonetheless, I quite agree with you that it is quite wrong to deduct a discrepancy charge without any explanation to the documents remitting bank that details the alleged discrepancies and that banks that act in this manner are doing so disreputably, particularly as a ‘discrepancy fee’ invariably has the cost of a refusal message factored into it, so the remitting bank is not even getting full value for the charge levied against it.
Jeremy
-
KimChristensen
- Posts: 404
- Joined: Fri Apr 05, 2019 5:21 pm
commission and charges
Dear Roland and Jeremy,
I will agree to the fact, that if a bank deducts discrepancy fees, then the documents should contain “valid” discrepancies – and it is no doubt most prudent to advise those discrepancies when making the payment deducting the fee – but if the bank has “forgotten” to do so, I can not see why the bank can not inform those afterwards – should the presenter hold the view that the documents were credit compliant. (I would assume that in the majority of the cases, the presenter is aware that the documents are discrepant).
As to Jeremy’s comment regarding the discrepancy fee including the cost of a refusal message, I do think this is a matter or “internal policies” and the banks that I know of, usually has one “price structure” when discrepancies are waived by the applicant and another when the documents are actually refused.
I think that the “positive” side of the issue raised here, is that the documents are in fact NOT refused – everything is handled smoothly via a contact to the applicant (which to my experience is what the discrepancy fee covers).
Although I basically agree with Roland about the principles here, I can not see that this is actually regulated by the UCP 500. As far as I know there is nothing mentioned about discrepancy fees??
Best regards
Kim
I will agree to the fact, that if a bank deducts discrepancy fees, then the documents should contain “valid” discrepancies – and it is no doubt most prudent to advise those discrepancies when making the payment deducting the fee – but if the bank has “forgotten” to do so, I can not see why the bank can not inform those afterwards – should the presenter hold the view that the documents were credit compliant. (I would assume that in the majority of the cases, the presenter is aware that the documents are discrepant).
As to Jeremy’s comment regarding the discrepancy fee including the cost of a refusal message, I do think this is a matter or “internal policies” and the banks that I know of, usually has one “price structure” when discrepancies are waived by the applicant and another when the documents are actually refused.
I think that the “positive” side of the issue raised here, is that the documents are in fact NOT refused – everything is handled smoothly via a contact to the applicant (which to my experience is what the discrepancy fee covers).
Although I basically agree with Roland about the principles here, I can not see that this is actually regulated by the UCP 500. As far as I know there is nothing mentioned about discrepancy fees??
Best regards
Kim
-
RolandLeupi
- Posts: 115
- Joined: Fri Apr 05, 2019 5:26 pm
commission and charges
Thanks for having taken position in this not very important issue. My opinion is that if a bank charges discrepancies fees I should at least know what the discrpancies are. Upon receipt of a notice of refusal I can agree or reject same. But most important is that I may learn something and in case of valid discrepancies I can try to avoid them for future negotiations. In addition to that, I am convinced that before sending a notice of refusal a bank would think twice how to formulate the message and much probably some discrepancies would "disappear" from the initial checking if not very consistent.
At least, even if not correct, but in order to save time and money, I would accept a payment deducting discrepancies fees at condition that same would be indicated.
Roland
At least, even if not correct, but in order to save time and money, I would accept a payment deducting discrepancies fees at condition that same would be indicated.
Roland
commission and charges
An issuing or confirming bank that pays in apparent honor of its LC obligation has no obvious basis under UCP500 for charging any fee unless it first refuses (or has supplemented UCP500 by providing for such fee deduction in its confirmation).
Regards, Jim Barnes
Regards, Jim Barnes
-
PradeepT_old
- Posts: 39
- Joined: Fri Apr 05, 2019 5:25 pm
commission and charges
Dear Roland,
The concept of discrepancy fee arises out of a practice that increasingly came into vogue during the late eighties and early nineties. Obviously, the so called fee was hypothetically “invented” by such banks to cover their costs for identifying the discrepancies, notifying the negotiating banks, contacting the applicants, seeking waiver, communicating to negotiating bank again etc.
However, the very veracity of such a practice itself was a mute question due to a viewpoint obligating the Issuing Banks to take up the documents irrespective of any discrepancies due to the clause in the LC whereby Issuing Bank undertook to pay against discrepant documents after deducting the discrepancy fee.
What started as an income generating device for the issuing banks later became a commonplace practice but which is certainly not regulated by UCP 500 nor is it required to be regulated. I maintain a simple stance that in the event Issuing bank fails to notify discrepancies as per Article 14.d.i of UCP 500, then as per article 14.e., it is precluded from claiming that documents are not compliant. And as such, the Issuing bank has no right to recover discrepancy fee without having notified the discrepancies to the presenting bank first.
Regards,
Pradeep Taneja,
Bahrain
The concept of discrepancy fee arises out of a practice that increasingly came into vogue during the late eighties and early nineties. Obviously, the so called fee was hypothetically “invented” by such banks to cover their costs for identifying the discrepancies, notifying the negotiating banks, contacting the applicants, seeking waiver, communicating to negotiating bank again etc.
However, the very veracity of such a practice itself was a mute question due to a viewpoint obligating the Issuing Banks to take up the documents irrespective of any discrepancies due to the clause in the LC whereby Issuing Bank undertook to pay against discrepant documents after deducting the discrepancy fee.
What started as an income generating device for the issuing banks later became a commonplace practice but which is certainly not regulated by UCP 500 nor is it required to be regulated. I maintain a simple stance that in the event Issuing bank fails to notify discrepancies as per Article 14.d.i of UCP 500, then as per article 14.e., it is precluded from claiming that documents are not compliant. And as such, the Issuing bank has no right to recover discrepancy fee without having notified the discrepancies to the presenting bank first.
Regards,
Pradeep Taneja,
Bahrain
-
RolandLeupi
- Posts: 115
- Joined: Fri Apr 05, 2019 5:26 pm
commission and charges
Jim and Pradeep
Thanks for your contribution
Roland
Thanks for your contribution
Roland
-
KimChristensen
- Posts: 404
- Joined: Fri Apr 05, 2019 5:21 pm
commission and charges
This is not an easy post for me to write – as it may sound as if I am in favor of fees like this one – which I am certainly not.
In general I think there are two issues to consider when discussing fees.
1) One is what it actually covers – and
2) the other is the level of the fee.
When I react to discrepancy fees, it is usually because of the second. I have seen L/Cs stating that a certain amount will be charged “per discrepancy” – or even some where the discrepancy fee is calculated as a per mille of the document amount. These are to me outrageous – because of the first: It covers the extra work related to the documents being discrepant – rather than being credit compliant. To me it does not make a difference how many discrepancies there are – or the amount of the documents.
I simply do not think this is covered by the UCP 500 – and I certainly do not accept the reference to article 14 here. To me the scope of 14(e) is something else – namely that if the provisions set forth in article 14 (e.g. in 14(d)(ii)) is not complied with, then an issuing/confirming bank must pay, accept or whatever the L/C calls for. This does however not change whether or not the documents actually did contain discrepancies that could have been used to refuse documents on.
Based on this, what is most relevant to me is article 14(c) which permits for contacting the applicant for a waiver. To me this allows primarily the issuing bank to contact the applicant – thereby doing an activity that the bank would not otherwise have done, and for that most bank are charging a fee – which to me does not seem unreasonable. In fact I think that the discrepancy fee falls in a straight line from this sub-article.
Besides that I think that 14(c) is a very positive article, as it helps avoiding many refusals, and facilitates payment faster than had it actually been refused – fee or no fee.
The above being said I do not think that the discrepancy fee should be used as “an automatic income generator” and I still agree with the initial posting by Roland that when deducting this fee you should list the discrepancies found in the documents – and I also think (as Jim says), that the discrepancy fee should be mentioned in the specific L/C – so that the nominated bank/beneficiary would know what to expect.
Best regards
Kim
In general I think there are two issues to consider when discussing fees.
1) One is what it actually covers – and
2) the other is the level of the fee.
When I react to discrepancy fees, it is usually because of the second. I have seen L/Cs stating that a certain amount will be charged “per discrepancy” – or even some where the discrepancy fee is calculated as a per mille of the document amount. These are to me outrageous – because of the first: It covers the extra work related to the documents being discrepant – rather than being credit compliant. To me it does not make a difference how many discrepancies there are – or the amount of the documents.
I simply do not think this is covered by the UCP 500 – and I certainly do not accept the reference to article 14 here. To me the scope of 14(e) is something else – namely that if the provisions set forth in article 14 (e.g. in 14(d)(ii)) is not complied with, then an issuing/confirming bank must pay, accept or whatever the L/C calls for. This does however not change whether or not the documents actually did contain discrepancies that could have been used to refuse documents on.
Based on this, what is most relevant to me is article 14(c) which permits for contacting the applicant for a waiver. To me this allows primarily the issuing bank to contact the applicant – thereby doing an activity that the bank would not otherwise have done, and for that most bank are charging a fee – which to me does not seem unreasonable. In fact I think that the discrepancy fee falls in a straight line from this sub-article.
Besides that I think that 14(c) is a very positive article, as it helps avoiding many refusals, and facilitates payment faster than had it actually been refused – fee or no fee.
The above being said I do not think that the discrepancy fee should be used as “an automatic income generator” and I still agree with the initial posting by Roland that when deducting this fee you should list the discrepancies found in the documents – and I also think (as Jim says), that the discrepancy fee should be mentioned in the specific L/C – so that the nominated bank/beneficiary would know what to expect.
Best regards
Kim
-
KimChristensen
- Posts: 404
- Joined: Fri Apr 05, 2019 5:21 pm
commission and charges
Hi there
Someone whispered in my mailbox to check ICC Opinion R307 and R441.
I did and here are the links:
R307:
http://snipurl.com/vnhs
R441:
http://snipurl.com/vnhw
Best regards
Kim
Someone whispered in my mailbox to check ICC Opinion R307 and R441.
I did and here are the links:
R307:
http://snipurl.com/vnhs
R441:
http://snipurl.com/vnhw
Best regards
Kim
commission and charges
Should the SWIFT MT734 be a 'notice of discrepancies found' rather than 'Notice of refusal'?
Do we need a separate message in SWIFT. In virtually every case where I have sent a MT734 the documents have been paid?
Regarding discrepancy fees, my view is if the beneficiary (and presenting bank in some cases) got their act together and presented credit conforming documents the issue of fees would not be a problem.
Regards
Do we need a separate message in SWIFT. In virtually every case where I have sent a MT734 the documents have been paid?
Regarding discrepancy fees, my view is if the beneficiary (and presenting bank in some cases) got their act together and presented credit conforming documents the issue of fees would not be a problem.
Regards