I saw today that Choice and the Consumer Action Law Centre are running a campaign to make banks more transparent about the penalty fees which we all pay on our accounts. It’s called “Fair go on fees.”
I’m interested. I accidentally paid the rent twice over a few weeks back. In the process, I overdrew our account, and got charged a penalty fee. Oops. I was miffed.
Choice and CALC are questioning the legal basis upon which banks charge penalty fees. It’s fine for banks to charge customers a fee which represents a genuine pre-estimate of the loss caused by a default or breach of contract (sometimes called “liquidated damages”). However, “penalty” clauses, which seek to penalise the customer for the breach or default, are unenforceable by law, whether by principles of unconscionability (see eg. O’Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359; AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; Esanda Finance Corporation v Plessnig (1989) 166 CLR 131) or pursuant to legislative provisions such as s 32W of the Fair Trading Act 1999 (Vic).
Banks call these charges by all kinds of names: “service fees”, “account overdrawn” or “honour fees”, “credit card late payment fees”, “cheque dishonour fees” and “direct debit dishonour fees”. But it doesn’t matter what they call them – what do they look like in substance? The problem is that it’s hard to know. Banks don’t like disclosing information about penalty fees.
The fact of the matter is that some of the penalty fees don’t seem to bear any relationship to a pre-estimate of loss suffered. And some bank fees are rising far in excess of inflation. Sounds unfair…and illegal.
Another problem is that you are more likely to end up paying these fees if you don’t have much money. If you’re a millionaire, you don’t have to worry if the rent is taken out twice, or if you are charged for someone else’s cheque bouncing, but if you haven’t got stacks of cash in your account, then…whoopsies, there’s a big negative bank balance there. So the vulnerable are penalised.
Choice and CALC argue that:
Banks and other financial institutions should:
- Eliminate inward cheque dishonour fees.
- Introduce systems to provide a greater range of options and real-time information to consumers where there are insufficient funds to make a due payment. These might include simply declining payments without charging a fee, an automated system to notify consumers by email or text message (or perhaps for concession card holders without electronic facilities, by phone), or by automated message via the ATM or EFTPOS system, before the payment is processed.
- Adopt one of the following responses to credit card over-the-limit and account overdrawn honour fees:
- eliminate the fees altogether (we note that credit cards operated successfully in Australia for some 20 years without such fees)
- offer consumers a choice between declining transactions (at no cost), or charging a reasonable fee no more than the actual cost to the bank or say 2-3% of the amount by which the consumer has exceeded the limit/overdrawn their account, whichever is lower.
- Ensure that all other penalty fees are limited to the actual costs incurred by the institution.
Sounds fair enough to me. If my bank had a policy like that in place, then my second mistaken rent payment wouldn’t have gone through. The bank would have contacted me by e-mail, perhaps, to let me know of my mistake. I would have said I didn’t want the second rental payment to go through. And then I wouldn’t have been charged a fee. Simple.
But unfortunately, it doesn’t seem to be about making things easier for the customer. Banks just want their pound of flesh.
After reading that Choice website, I think I might contact my bank about that recent account overdrawn fee, and ask for a refund. The worst they can say is “No”. And the best outcome is that community pressure could force banks to change. Yeah! Power to da people!
The Legal Soapbox 
Hi LE,
1. Your fee – give them a call and point out you do not think the fee has been calculated correctly, and is a penalty. That you wish to complain about it. Most times it will be waived.
2. I copped a $7,000.00 “early repayment fee” on a fixed interest loan. I took that as far as I could without starting Court action. Their “genuine estimate” was based on bond rates for getting $ and by coincidence they had increased so the calculation was heavily in their favour. I’m never going to lock in the interest rate for such a long time, and once this loan is paid out in 4 years, it will be bye bye ANZ. Their customer complaints people couldn’t understand a simple request for evidence of the calculation – they just sent the summary. I’m still sitting here fuming at my impotence in not being able to sue them for this rip off – but they have the $ and I don’t.
The part I don’t get is they say they lost getting interest off me as for the next borrower their lending would cost more, but I pointed out the cost was the same as when I borrowed the money, as I repaid it to them – they didn’t have to borrow it again!
Not happy Jan.
Many years ago I used to be paid by cheque which the bank would clear immediately because it was a salary cheque (not sure if they still do this). One time the bank clerk forgot to clear it straight away. I didn’t realise this and withdrew money from an ATM which overdrew my account and I was charged a fee.
My main problem with this was that I didn’t even know I could overdraw my account. If I’d got a message saying ‘insuffient funds’ I would have gone to the branch to sort it out. Luckily, I complained and the fee was reversed.
I think when you withdraw money from your account via an ATM or transfer it via internet banking, and the transaction will overdraw your account you should get a message saying ‘you have insuffient funds for this transaction, if you choose to continue you will be charged a fee of $XX’. That way you can make an informed decision.
Good post. I agree on the overdrawing fees – last month I got charged $35 twice for overdrawing fees caused by the bank taking their monthly account servicing fees from my account. I emailed them via the netbanking site and they refunded the money straight away (one x $35 had been refunded before I even complained).
I look forward to the day that I dont have to email to get my own money back from the bank though!
I suspect, as pete alludes to in his post, that these fees amount to penalty clauses and are therefore impermissible in contract (if I remember correctly) because they do not correlate to the banks’ actual losses when customers overdraw their accounts.
I suspect the only reason they get away with it is that no-one has ever been sufficiently deep-pocketed and disgruntled to take them to court over $35 or $50.
I think much the same applies to cancellation fees for mobile phone contracts, too – they charge you the most outrageous amount if you cancel early, but I’m sure no-one has ever bothered to take it all the way to a serious court to resolve it.
The other “invoice rage” I get is from Telstra and my mobile mob charging a hefty “late payment fee” if it’s a day or so late.
I finally got up the energy to shift from the NAB a few years ago when they charged me $50 AND bounced a $35 cheque when I only had $20 in the cheque account. Not only was there a $ issue but I felt my business and financial integrity was besmirched with the payee.
This was at a time when there had been regular fortnightly automatic salary payments going into that account for over 10 years and the cheque was bounced the day prior to those well documented payments that even a half trained chook would have noted.
In addition the bank had the titles to assets (houses and land) that exceeded any debts by 10+ times. In short – about 30 seconds worth of key strokes would have told them that the $ would arive the next day to cover the cheque, that in any case assets far exceeded debts and the account record for many years was excellent.
My outraged complaints fell on barren ground.
So I shifted everything – mortgages, business, credit, loans, cash to Bendigo Bank.
Imagine my surprise two months later to get a call during a meeting, on my mobile no less, from the Bendigo manager:
“Sorry to bother you FX, but we have a guy presenting a cheque for $xG, dated today, and you have no money in that account to cover it. Is the cheque legit?”
Me: “yes er sorry er um I haven’t transfered the money yet I only wrote it to the painters this morning”
Bank: ” That’s ok – you want us to pay it?”
Me: “Sorry – yes I’ll transfer tonight.”
Bank: “No problem we can transfer for you now”
Me: “Sorry – how much will it cost?”
Bank: “Nothing – that’s our service”
Since then I have had at least 10 similar calls – never been charged a fee once or had a snippy exchange.
See it can be done.
Cheers for the tip Frances.
While my issue is not one of overdrawn fees, it is where they wish to cover their costs but it really is impossible to figure out how they figure out their costs! The bs I had to go through just to get this “cost” calculation was appalling.
Isn’t it amazing when a bank rings you and surprises you with their service?
I have had other nightmares with ANZ – and guess what – they won the bank of the year award – haha
“But unfortunately, it doesn’t seem to be about making things easier for the customer. Banks just want their pound of flesh” …. for their SHAREHOLDERS.
All shareholders of banks should be Co-defendants.
and here’s another one for Choice:
Phone provider account has charged me $2.20 for many months now, because I did not opt for Direct Debit payment. After feeling silly that I failed to notice this for so long, I examined every document back to the start, and found that at no time had this been declared/requested, the charge just sort of oozed in at some stage. For a while I thought I should pursue reimbursement, but hey, life’s too short. the bastards.
Guys, I feel your pain.
Many a long year ago, when I was a student, a certain bank (Which Bank? exactly!) charged me fees which it was not entitled to charge because I was a university student. Being an impoverished student, these fees pushed my account into debit. I went and protested about the fees. They refused to refund them. Therefore I said I was closing my account with that bank. They said “We don’t care”. So I closed all my accounts, moved to another bank, and said, “One day I’m going to be a big fat rich lawyer and have lots of money and you’ve just lost my business. I hope you’re happy.” Well, the rich lawyer bit hasn’t happened, but they still lost my business. How shortsighted and pathetic. I will never bank with that mob again.
And mobile phone charges? Don’t even get me started… Nope, gotta go do some marking…
Did anyone see 4 Corners about Telstra? I was already planning to move all my business away from them. That documentary reinforced why that is 1000% the right decision.
One problem is that because your account with the bank is a running account, you never really pay the bank until the account is closed, when either you pay them or (more commonly) they don’t pay you. And if you have a mortgage, the bank has a practical means of ensuring it gets its money. It would be a big call for any individual an would require nerves of steel to calculate precisely all the penalties which have been charged, close all savings and similar accounts and, for example, simply walk away from a credit card account which you left owing all the wrongly charged fees and then sue the Bank for defamation once they reported you to their credit reference associations.
This really is an area which requires regulatory intervention because on the individual transactions, its not worth any individual taking the bank on. I don’t see why the ACCC shouldn’t take action under the Trade Practices Act on the basis that account entries asserting unenforceable penalties are systematic misleading and deceptive conduct.
It is possible that a consumer revolution (or is that an oxymoron? I probably just mean “customer backlash”) could cause enough aggravation to the banks to make them change their behaviour, and competition (query the scope for this though with the four and a bit pillars, as well as sheer customer inertia) could lead to some change. For example, it was only once the banks saw funds migrating to people like ING that they got serious about offering on demand accounts with a reasonable interest rate. Other examples which come to mind are the introduction of broadband packages with tapering, rather than the outrageous excess capacity fees which are charged on some packages.
There is a deeper philosophical point here about the limits of freedom of contract, but I haven’t got the energy to go there just now. We’d have to talk about “work choices,” not to mention a whole lot of late nineteenth-century American legal decisions on any number of things, etc etc etc….
I recently used the form letter provided by Choice to attempt to have a 35.00 dishonour fee on my account reversed (that was applied as the result of a direct debit overdrawing the account).
The form letter requests an explanation as to how the $35.00 amount is justified as genuinely covering the bank’s costs (legal) vs. being a penalty (illegal). The response I received from Anna Troise in ANZ’s customer resolution team stated:
“Your request to have $35.00 refunded… is declined on the basis that the fees charged were disclosed to you prior to your obtaining the product , and are reasonable”
Well… reasonable is a relative concept. And no one explicitly told me this when I signed on. This is besides the point anyway as the response did nothing to address the point of the dispute – that $35.00 is a punitive charge in this case and not a realistic representation of ANZ’s costs for my account being $5 overdrawn.
What happens next? Thank goodness for free legal advice at Choice – I’m $35.00 short for my local attorney!