Category Archives: consumer affairs

Seinfeld makes it to court

I’ve written previously on how Alice in Wonderland has made it into many Court judgments. Well, now Jerry and Elaine have made it into a judgment too!

In Parish Oil Co Inc v Dillon Companies Inc, the US Court of Appeals in Colorado mentioned Seinfeld in an anti-trust case:

Indeed, the plaintiffs’ reading would apparently render unlawful in the State of Colorado a promotional gimmick so common that it features in an episode from Seinfeld:

JERRY: “Atomic Sub”? Why are you eating there?

ELAINE: I got a card, and they stamp it every time I buy a sub. Twenty four stamps, and I become a Submarine Captain!

JERRY: What does that mean?

ELAINE (embarrassed): Free sub.

Seinfeld: The Strike (NBC television broadcast Dec. 18, 1997).

If the first twenty-four sandwiches are sold for $4 apiece at a cost to the maker of $3, the customer who follows through and redeems the offer will have spent $96 to buy $75 worth of sandwiches. But the last one is sold below cost (in fact, it is “free”), making it illegal under the plaintiffs’ version of the UPA. We do not believe the Colorado legislature would have acted so cavalierly as to ban such customer-rewards programs—indeed, to make them criminal—without more clearly expressing an intent to do so.

The plaintiff had sought to challenge a scheme whereby consumers at a particular supermarket got reduced cost petrol from a particular supplier if they had purchased groceries of a specified value. I’m sure this is familiar to all and sundry (our house abounds in vouchers for cut-price petrol from various outlets).

I think it’s awesome that the Court used Seinfeld to illustrate its point.

Now my only wish is that a court use the episode from Treehouse of Horror IV  to illustrate the concept of nemo dat quod non habet (you cannot give what you do not have). In a portion of this episode, Ned Flanders appears as the devil and tempts Homer with a donut in exchange for his soul. Homer, of course, accepts the offer and signs the contract. He cannot resist eating all of the donut, and the devil appears to claim his soul. However, Marge and Lisa are able to show that Homer could not give his soul to the devil because he had already given his soul to Marge on their wedding day (Marge produces a signed photo as evidence of this). Accordingly, the devil cannot take Homer’s soul, but turns his head into a huge donut… There you have it: nemo dat quod non habet in a nutshell.

Well, I’m a property lawyer, of course my wishes are nerdy.

(Via Core Economics)

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The Spirit and the Law – consumer protection and mediums

A certain section of the British spiritualist community is protesting again the repeal of the Fraudulent Mediums Act 1951 (UK). The Independent reported the other day that the recently formed Spiritualist Workers Association (SWA) believes that the repeal of the legislation is discriminatory towards spiritualism. The Spiritualists’ National Union (SNU) which is a long-established body, backed the changes.

The government has denied that the changes are in any way discriminatory, saying that the repeal of the legislation is merely intended to pave the way for the implementation of the EC Unfair Commercial Practices law. The Consumer Protection Regulations cover all activities involving the supply of goods and services to consumers in trade or business, and like our Australian Trade Practices Legislation, looks to prohibit any activity which is misleading to consumers, and aggressive selling techniques.

The issue is that the previous act (which replaced the Witchcraft Act 1735) required the medium to have a deceptive intent or to use a fraudulent device before any contravention could be proven. Very few prosecutions were made, because it was difficult to prove dishonest intent. By contrast, it will be easier to punish or prosecute fraudulent mediums under ordinary consumer protection laws. According to this article in The Times, about £40 million is lost per annum as a result of fraudulent clairvoyant or spiritualist schemes. I agree with the author that the veracity of the religion is not being challenged: it is merely that those who provide services should be subject to uniform standards, and should not make claims that mislead or exploit vulnerable people.

When looking at the issue, I found this interesting directive by the UK Committee of Advertising Practice, which summarises its conclusions for spiritualists, psychics and the like as follows:

  • Marketers should hold documentary evidence to prove any claims that are capable of objective substantiation;
  • Marketers should not mislead or exploit vulnerable people;
  • Claims about successfully solving problems or improving health should be avoided because they are likely to be impossible to prove;
  • Claims of ‘help offered’ should be replaced with ‘advice’;
  • References to healing should refer to spiritual rather than physical healing;
  • Direct marketers should not imply that they have personal knowledge about recipients;
  • Claims relating to the accuracy of readings or guaranteed results should not be made unless they are backed up by appropriate evidence;
  • Claims about being a personal advisor to stars, the wealthy etc and claims such as ‘…as featured on TV’ should be backed up by appropriate evidence;
  • Claims relating to the length of time that a marketer has been established should be backed up by evidence;
  • Money-back guarantees should be clear and genuine;
  • Any testimonials used should be genuine;
  • Marketers should not imply that a lucky charm can directly affect a user’s circumstances;
  • Claims that a lucky charm can act as a confidence prop are acceptable if emphasis is placed on a user’s state of mind, and unproven beliefs that do not relate to the effect of a lucky charm may be acceptable if expressed as a matter of opinion;
  • Marketers offering premium rate fortune telling services should adhere to the ICSTIS Code of Practice.

Sounds eminently sensible to me…any UK clairvoyant, spiritualist or other practitioner in the alternative health sphere would do well to heed it, and then they shouldn’t have any problem with the new legislation. Legitimate practitioners need not worry, because presumably they can provide evidence of their skills, accreditation and testimonials from satisfied customers.

Some lawyers have suggested that spiritualists should describe their service as “entertainment” or a scientific experiment. Hmm, I don’t think so. Just don’t make claims that you can’t back up.

Personally, I don’t rule out the existence of talents which I cannot explain or the effectiveness of alternative treatments, although I have a fair measure of scepticism about some practices. What I very much object to is unrealistic claims about the provision of such services.

I particularly dislike some faith healing claims where, if the service doesn’t work, the fault is not that of the practitioner or the healing method, but the fault of the patient for lacking “faith” or “determination”. As someone who has suffered from illness and disability from an early age, I know that there are some things which just can’t be fixed. Don’t get me wrong: positive thought and determination are very useful. But you’re not a failure if you’re ill. The last thing you need if you are ill is to feel that somehow it is your fault. I have personally benefited from some “alternative” therapies in relation to problems with walking, including Feldenkrais, yoga, acupuncture and Bowen therapy. A friend’s mother gave me Feldenkrias training when I was a teenager after I had an operation on my legs and had to learn to walk again, and it was extremely helpful. I doubt I would have recovered so quickly or so well without it. But ultimately, some problems can never be totally “healed”.

I guess the ultimate point for all consumers is: IF IT SOUNDS TOO GOOD TO BE TRUE, IT IS! How loudly can I say it (well, type it)?

It doesn’t matter whether it’s spiritualism, alternative therapy or investment services. In one of my jobs, I used to come across a lot of share scams and investment scams, and I’ve seen some tragic cases. Indeed, there was a case in the paper this morning about the collapse of a Geelong investment firm which reportedly promised some investors returns of up to 70%. As I always tell my class: as a general rule, the return is directly proportional to the risk – the higher the return, the higher the risk!

So, to all you consumers out there, retain a measure of scepticism and don’t get carried away by extraordinary claims. I’m all for uniform standards which keep those who provide services to the public on the straight and narrow.

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Costs under a void costs agreement

The case of Equuscorp Pty Ltd v Wilmoth Field Warne (a firm) [2007] VSCA 280 deals with the question of legal costs under a costs agreement which was void by operation of statute, but in the event, the client was estopped from alleging that the agreement was void. 

Equuscorp retained Wilmoth Field Warne as its solicitors. The agreement was a form of contingent fee agreement.  It provided that Wilmoth Field Warne would be remunerated at two different rates: a ‘normal rate’ of $400 per hour and a ‘discount rate’ of $66 per hour. Wilmoth Field Warne were to render monthly bills showing professional costs at both rates. Interim bills would be paid at the discount rate, but upon a “successful result” (ie, settlement or judgment and recovery from the judgment debtor) Wilmoth Field Warne would be paid the difference between the two rates.

A little less than a year after entering into the agreement, Equuscorp and Wilmoth Field Warne had a falling out. Equuscorp purported to terminate the agreement and demanded the return of its files. It alleged it had paid costs it owed under the agreement. By counterclaim, Wilmoth Field Warne alleged there were still costs outstanding and it was entitled to retain the files pursuant to a solicitor’s lien.

The legal action was protracted. Various questions were tried between December 2003 and March 2004, and judgment was handed down in the first trial in June 2004.  A second trial occurred in October 2005. Some six weeks after the conclusion of this second trial, and before judgment was delivered, Equuscorp applied for leave to re-open its case. It sought leave to amend its pleadings, alleging that that the agreement contravened s. 98(3) of the Legal Practice Act 1996.  That provision prohibited costs agreements under which a client was liable to pay a premium in the event of a successful outcome other than 25% or less of the costs otherwise payable.  (The current similar but not identical equivalent provision is s. 3.4.28(4) of the Legal Profession Act, 2004.) The trial judge allowed Equuscorp to amend.  A third trial occurred early in 2006. The trial judge held that the agreement was void because of s 102 (the equivalent of today’s s. 3.4.31). The question was then whether Wilmoth Field Warne was entitled to recover any of its costs, notwithstanding the fact that the costs agreement was void.As a restitution lawyer, the first thing which came into my head was the decision of Pavey and Matthews Pty Ltd v Paul (1987) 162 CLR 221. In that case, a builder entered into an oral contract with a homeowner.  The builder did not realise oral contracts were void under s 45 of the Builders Licensing Act 1971 (NSW). He completed the work, but when he came to demand payment, the homeowner, Mrs Paul, said that she did not have to pay because the contract was void. Nevertheless, the builder successfully sued Mrs Paul for unjust enrichment, claiming quantum meruit for the value of the work done. The High Court agreed that Mrs Paul would be unjustly enriched if she were allowed to keep the value of the builder’s services without paying for them.

However, unfortunately for Wilmoth Field Warne, this argument was not available to them. Section 102 provided that a legal practitioner who has entered into a contract which infringed s. 98(3) ‘is not entitled to recover any amount in respect of the provision of legal services in the matter to which the costs agreement related,’ and this provision took precedence over s 93 which did allow for fair and reasonable compensation to be paid in the absence of a valid costs agreement.  In other words, though parliament had contemplated that, as a minimum, lawyers should be remunerated on a ‘fair and reasonable’ basis even in the case of a void costs agreement, it had taken away that protection in the case of certain cases of voidness, occasioned by conduct which it presumably considered to be egregious.

Wilmoth Field Warne was forced to argue that Equuscorp was estopped from denying the validity of the costs agreement. Estoppel applies where a person has created a representation or an assumption on which the other person has relied to his or her detriment, such that it would be unconscionable (unfair) for the first person to resile from that assumption or representation. So let’s say I ask you to build a supermarket, and say that I’ll lease it from you when you finish building. We don’t actually conclude the terms of the contract, but you go ahead and build 70% of the supermarket. I know that you are building the supermarket. Shortly before it is completed, I turn around and say “Actually, I don’t want that supermarket any more, see you later.”

The landmark case of Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 was a case where this very scenario was played out. The High Court held that Waltons Stores was estopped from denying the assumption that it had created (ie, that the Mahers would be able to lease out the supermarket to it). The Mahers had relied on the assumption to their detriment (by building 70% of a supermarket premises to Waltons Stores’ knowledge).

However, not just any commercial transaction will give rise to estoppel. It has been made clear that corporations on an even playing field (with equal resources and bargaining power) will not be able to argue estoppel, particularly when what has occurred is more in the nature of a “cat and mouse game” played in a commercial negotiation. So in Austotel Pty Ltd v Franklins Self-Service Ltd (1989) 16 NSWLR 582 (another supermarket lease case), Kirby P said at 585–6 :

We are not dealing here with ordinary individuals invoking the protection of equity from the unconscionable operation of a rigid rule of the common law. Nor are we dealing with parties which were unequal in bargaining power. Nor were the parties lacking in advice either of a legal character or of technical expertise. The court has before it two groupings of substantial commercial enterprises, well resourced and advised, dealing in a commercial transaction having a great value. …

At least in circumstances such as the present, courts should be careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hardheaded decisions of business people …

The wellsprings of the conduct of commercial people are self-evidently important for the efficient operation of the economy. Their actions typically depend on self-interest and profit making not conscience or fairness. In particular circumstances protection from unconscionable conduct will be entirely appropriate. But courts should in my view, be wary lest they distort the relationships of substantial, well-advised corporations in commercial transactions by subjecting them to the overly tender consciences of judges.

As it turns out, the relative bargaining power of the parties and the commercial context of the dispute were important in the present case. Wilmoth Field Warne argued that estoppel applied to prevent Equuscorp from denying the validity of the costs agreement. The Victorian Court of Appeal accepted that argument (overturning the decision of the trial judge). Buchanan, Ashley and Neave JJA said at [75] – [77]:

In our view there is no doubt that WFW has suffered detriment as the result of its reliance on the parties’ common assumption that the agreement was valid. Prior to the termination of the agreement WFW provided extensive legal services to Equus because it assumed that the parties’ legal relationship was regulated by the agreement. WFW acted for Equus in a number of proceedings and Equus paid WFW for its legal services at the ‘discount rate’ set out in the agreement. After Equus sought to terminate the agreement the parties fought two trials to their conclusion on the assumption that the parties’ relationship was governed by the agreement. In addition to its legal costs, WFW experienced the stress and anxiety associated with the conduct of that litigation and is now faced with the prospect that its efforts in defending the action will have been entirely pointless. In Verwayen Deane and Dawson JJ accepted that the stress and anxiety occasioned by litigation may amount to detriment for the purposes of estoppel and this proposition also seems to have been assumed by Mason CJ.

WFW must also show that it would be unconscionable for Equus to contend that the agreement was void because of s 102 of the Act. His Honour considered that this requirement was not satisfied because:

[i]t is not suggested that [Equus] contributed in any way to the assumption of WFW that the deed of costs was not void. It has not been established that it knew of the statute but, nevertheless, permitted the agreement to be implemented and indeed litigated. The fact that the consequence of the point Equus now takes is that it has had the benefit of WFW’s legal work without payment is a result of the decision of Parliament to visit this draconian punishment upon the legal practitioner.

In our view it was unnecessary to show that Equus contributed to WFW’s assumption. As we have already said…it may be unconscionable for a party to seek to depart from an assumption which provided the basis for their relationship with the other party, even if that assumption was not based on a representation made by the party sought to be estopped. In our view it would be unconscionable for Equus to now assert that the agreement is void.

It was important that Equuscorp was a well-resourced commercial party and that there was no inequality of bargaining power between Equuscorp and Wilmoth Field Warne. Both the Court of Appeal and the trial judge noted that the costs agreement had been negotiated by the then managing director of Equuscorp, an experienced businessman and litigant. The Court of Appeal inferred that the policy behind the provisions of the Legal Practice Act which had been contravened in this instance was to prevent vulnerable and powerless clients from being exposed to excessive costs. It was material that the agreement did not expose Equuscorp to excessive costs, but indeed in some respects, it operated against the interests of Wilmoth Field Warne. Therefore, the Court of Appeal found that because the policy of the Act was not contravened by the particular agreement, the terms of the Legal Practice Act did not operate to exclude estoppel.

In my opinion, this appeal was correctly decided.  Although the costs agreement between Wilmoth Field Warne and Equuscorp technically breached those provisions, in fact it did not expose Equuscorp to excessive costs. In addition, very importantly, the parties had been litigating for four years on the basis of the assumption that the costs agreement was valid before Equuscorp actually raised the argument that the agreement was void. In those very particular circumstances, it seems fair that Equuscorp be estopped from denying the validity of the agreement. Whether or not estoppel will operate to prevent the operation of a particular statute will depend on the particular circumstances of the case, and whether the policy of the statute would be subverted if estoppel was allowed to operate.

Postscript: I was inspired to write on this case after reading about it on Stephen Warne’s blog here and a subsequent discussion over coffee with Stephen. My gut feeling (without reading the case) was that estoppel was inappropriate in the context of void costs agreements, but interestingly, once I read the case in full, I changed my mind.

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Fair recompense

Have I spoken about the case of Roxborough v Rothmans of Pall Mall Australia Limited [2001] HCA 68 on this blog before? If not, I’m surprised, because it’s one of my bug-bears.

Put briefly, tobacco wholesalers collected excise tax to pay to the State government. This tax was forwarded from tobacco retailers, who in turn charged the general public extra on the price of tobacco products. The retailers had collected the tax from the consumers, and had forwarded the tax to the wholesalers, but the wholesalers had not yet purchased excise licences from the NSW government when the High Court declared that state excise taxes were unconstitutional. There was a whole heap of unconstitutional tax money up for grabs. So the retailers sued the wholesalers to get the tax back. And they succeeded.

Here we have a problem. Can you see it? The retailers are not the real losers in this situation. The real losers are the consumers, the every day people who paid extra for their cigarettes. So whether it was the wholesalers or the retailers who kept the tax, the winner would get a windfall.

How can we give a fair recompense to the members of the public who had been overcharged for the price of their cigarettes? It would be almost impossible to prove how much consumers had been overcharged in that time.

I have always been a fan of creating some kind of trust for the benefit of the consumers. But then, what would be for the benefit of tobacco consumers? Maybe some kind of trust to recompense consumers, their families and the general public for the medical costs that they will have to incur as a result of tobacco related diseases? That way, it would be for the benefit of all.

There’s no way as the law presently stands that a court could do that. However, both American and Canadian law have developed in a way that enables a court to administer the proceeds of a class action according to the cy pres doctrine. That is, the court might not be able to compensate each wronged consumer precisely, but they could administer the money for the benefit of the wronged consumer for a purpose that comes as close as possible to helping all.

Recently, the Victorian Law Reform Commission has been considering proposals to enact provisions allowing Victorian courts to do this in its First Exposure Draft on Civil Reforms (pages 42 – 47 for those interested). I note that they consider precisely the sort of mechanism I proposed above and believe that courts should have the power to make such an arrangement. I prefer putting money into a cy pres scheme rather than putting it into some kind of a Justice Fund (which is another proposal), but I agree with the VLRC that there should be a broad discretion on the part of judges to choose how they administer the money.

All these considerations returned to my mind again with the recent Federal Court ruling against cardboard box magnate Richard Pratt. Visy was found to have entered into a price-fixing arrangement with its main rival, Amcor, so that they could set the price at a higher level than would occur if genuine competition were present. Apparently companies who have purchased Visy and Amcor products have commenced a class action, and have been greatly heartened by Justice Heerey’s ruling.

But here again: who are the real losers in this scenario? It is the general public, to whom the puchasers of Visy and Amcor products would have passed on any extra costs to the consumer. As Graeme Samuels, head of the ACCC said, “It was a premeditated fraud on Australian consumers. Anyone in the past who has bought a block of chocolate or a piece of fruit packed in a box made by Visy or Amcor has probably been ripped off.”

This is where another of my favourite beasts, a profit-stripping remedy, could come in useful. I would like consumer groups to bring an action to strip Visy and Amcor of ill-gotten profits gained through price-fixing and then ask the court administer the funds in a cy pres scheme for the benefit of the public (eg, to help people who are struggling to afford food and basic necessities).

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Rat finks, be careful when you send flowers to your mistress

Thanks to my lovely Mum for pointing me to the crazy case of Leroy Greer, who is suing 1-800-flowers.com for giving his wife information about the long-stemmed roses which he had sent to his mistress months earlier.

Greer alleges that he ordered the roses for his mistress via the online florist, and that they agreed to keep the records of the transaction private, with no record of the transaction to be mailed to his home or office. Some months later, the florist sent a “Thank You” card to Greer’s home, thanking him for using their services. His suspicious wife called the florists, asking for information about when he had bought flowers from them. They faxed her through the order (including details of the mistress) and she subsequently filed for divorce. Abovethelaw.com has a copy of the order which the florists faxed to the wife, including an interesting handwritten annotation, presumably written by said ex-wife.

What a rat fink. It’s his own fault if he had an affair: he should wear the consequences.

(via Abovethelaw.com)

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Pants guy loses

Predictably enough, Roy Pearson has been “pantsed” by the District Court of Columbia over his claim for US$65M for a pair of (allegedly) missing pants. A copy of the judgment is here.

Page 19 of the judgment states:

The plaintiff’s claims regarding the “Satisfaction Guaranteed” sign are premised on his interpretation that the sign is an unconditional and unlimited warranty of satisfaction to the customer, as determined solely by the customer, without regard to the facts or to any notion of reasonableness. The plaintiff confirmed at trial that in his view, if a customer brings in an item of clothing to be dry cleaned, and the dry cleaner remembers the item, and the customer then claims that the item is not his when the dry cleaner presents it back to the customer after it has been cleaned, the cleaner must pay the customer whatever the customer claims the item is worth if there is a “Satisfaction Guaranteed” sign in the store, even if the dry cleaner knows the customer is mistaken or lying.

The judgment continues on pages 19 – 20:

A reasonable consumer would not interpret “Satisfaction Guaranteed” to mean that a merchant is required to satisfy a customer’s unreasonable demands or to accede to demands that the merchant has reasonable grounds to dispute. To the extent that the plaintiff’s claims of unfair trade practices are based on his contention that the “Satisfaction Guaranteed” sign required the defendants to accede to his demands regarding his allegedly missing pants, despite the defendants’ reasonable belief that they had produced the same pants that he had brought in for alterations, those claims must fail.

Similarly, the defendants’ acknowledgement that they did not interpret “Satisfaction Guaranteed” to require them to meet any customer’s unreasonable demand does not constitute an unfair trade practice under any of the provisions of the CPPA invoked by the plaintiff.

Naturally, the defendants were entitled to costs, and have also filed an application seeking sanctions, including attorney’s fees, pursuant to Rule 11 of the Supreme Court Rules of Civil Procedure, which will be heard after the trial.

All’s well that end’s well, then? Not quite, suggests Olu Oguibe in an interesting post on his site, Frankly Speaking. He notes that the judge did not specify what about Pearson’s conduct was unreasonable, and suggests that the judgment is bad for customers and consumers. He argues that it was reasonable for Pearson to expect his pants back by the due date, and to get compensation for those pants if they were in fact lost. I think this is a good point.

As Oguibe notes, there was a kernel of a reasonable complaint in there somewhere, but it got lost because Pearson made his claims in such an unattractive, aggressive and totally over-the-top manner. It is irritating if something isn’t ready by the time specified. I drove to pick up some shoes the other Friday. The shoe repairer is about a half an hour drive away from my house, and not in the vicinity of anywhere I would ordinarily visit. With a small child in tow, it’s an expedition. Although they’d told me the shoes would be ready by the Thursday, they were not ready by then, or the day after. I was irritated at making the drive out there. But I’m not about to file a claim for $64M against them. It would be nice if they acknowledged the inconvenience, or even took a few bucks off the repair fee for all the petrol I’ve used getting there and back again, but that’s about all I’d expect.

Obviously, Pearson’s subsequent actions were unreasonable in the extreme, including the extraordinarily exorbitant damages claims, the claims for emotional distress and suffering and the car hire fees. But Oguibe is right: I think the judgment should perhaps have drawn the distinction between Pearson’s initial legitimate complaint and his subsequent extremely unreasonable complaints.

It’s a bit of a sad case. It must have been awful for the Chungs to have to go through the ordeal of a trial with very little merit. On the other hand, Pearson seems to be a bit of a sad character, who has become obsessed with his legal action and turned into a vexatious litigant (a la Bleak House). Pearson has already indicated he will appeal, of course. It’s a lose-lose situation, really.

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Fair go on fees

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!

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