The public are now far more aware of how they can stand up to the banks over bank penalty fees, and many people have been successful in having them reversed.
What you need to know about bank penalty fees
Economically, this has been one of the toughest years anyone can remember. The banks which got us into this mess, many of which have been bailed out by public money in certain countries, have not been shy about thanking their customers with hefty bank penalty fees. This year, banks in Australia took almost $1 billion in fees from their customers. That’s just the banks. That does not take into account the fees charged by any other financial institutions such as building societies, credit unions and non-bank lenders. So you are certainly not on your own if you have been subject to any of these bank penalty fees. These will include charges for going overdrawn on your account, charges for missing the payment deadlines on your credit card statement, or charges for making a debit transaction that was refused due to insufficient funds in your account.
When you look at the cost of the charges compared to what it must cost the bank to handle the “problem”, it is very easy to feel that something is very out of balance. The consumer advocate website Choice has a campaign to fight these bank penalty fees and charges on the basis that many are excessive, and some may not even be legally enforceable. This campaign has seen thousands of consumers download information from the Choice website, and public pressure to date has caused all of the major five banks to reduce their fees accordingly, and some of these new fees began this December 2010. Note this information is current as at the time of writing. Please check the current fees where applicable, as changes are likely to have occurred.
Here is how the new bank penalty fees look:
|Bank||Dishonour fee||Overdrawn account fee||Credit card late payment fee||Credit card limit exceeded fee|
|ANZ (From the 15th December)||$6||$6 per day||$20||$20|
|Commonwealth Bank||$5||$10 per day||$20||$20|
|National Australia Bank||$0||$0 per day||$5 (From 4th December 2009)||$0 (From 4th December 2009)|
|St.George Bank||$9||$9 per day||$9||$9|
The issue of legal enforceability of fees
Nicole Rich, who is now with the Consumer Action Law Centre, issued a report back in 2004 in which she argued that some bank penalty fees were probably not legally enforceable. In the report she said:
“A contract penalty is considered ‘excessive’ ‘” and therefore unenforceable ‘” if it’s not a genuine pre-estimate of the loss suffered by the bank as a result of the customer breaching a term in their contract … And there’s a second argument in Victoria, the only state with Unfair Contract Terms legislation, that some penalty fees represent an unfair contract term, making them null and void.”
Other financial institutions
Choice is not only targeting the banks in challenging unfair fees; it also believes that penalties imposed by other financial organisations need to be reviewed and amended. For example:
Credit Union Australia (CUA), the largest of the credit unions, charges a $9 dishonour fee to the receiving customer when they have been presented with a cheque that bounces due to insufficient funds in the cheque-issuer’s account, despite this person being charged a penalty by their own financial institution. Up to 2007, when the Choice campaign took effect, the fee was $20, but was reduced to $15 and then to $9. Traditionally, credit unions are meant to impose lower penalty fees than the banks. CUA told Choice in 2008 that: “We are keeping pressure on our bankers to reduce their fees to us, which represent the vast majority of what we charge to our customers.”
Under the same circumstances, Australian Central Credit Union charges a $15 inward cheque dishonour fee to the receiving customer.
Currently, none of the big five banks charge this inward cheque dishonour penalty.Citibank dropped its inward cheque dishonour fee, whilst St.George – recently acquired by Westpac – also charged this fee at a level of $10.50, but abandoned it in June 2007 following the Choice “Fair Go On Fees” campaign.Back to top
Balancing penalties against costs
This is the great bugbear of Choice. This would form the basis for any legal challenge to bank penalty fees: the disparity between what it costs the bank to rectify the problem, and how much is charged to the customer for the inconvenience, such as this exists. Choice argues:
- The banking industry maintain that its costs are commercially sensitive and thus cannot be released.
- There is no evidence available to the public that would support or refute how fair these charges might be, and if they relate to the actual costs borne by the banks.
- The actual figures for these penalty charges are murky, because banks in their annual reports do not separate out penalty charges from those that are levied for using ATMs and for maintaining customers’ accounts.
- Although conservative estimates by the Consumer Action Law Centre and Choice always suggested that these penalties were worth hundreds of millions of dollars to the banks each year, in May 2009 the Reserve Bank of Australia published the true value of these bank penalty fees for the first time. In fact, they made the banks nearly $1 billion in 2008.
How the Bankers’ Association responds
In 2007, the Australian Bankers’ Association (ABA) replied to its critics regarding accusations that bank penalty fees were unfair and possibly illegal. It said:
“We recognise that there has been extensive community debate about these fees. The ABA’s member banks are reviewing their terms and conditions on relevant products.”
Since then, the ABA’s member banks have been more open about their penalty fees – commonly referred to as “exception fees” – which has certainly allowed for a more informed choice of banks and banking products for consumers. The ABA did defend their stance somewhat, saying that their exception fees are perfectly avoidable if customers pay more attention to the state of the bank accounts so that their transactions remain within limits.
The penalty fee situation overseas
In 2006, the UK’s Office of Fair Trading (OFT) investigated credit card charges and decided that they were at a ‘significantly higher level than is legally fair’, with the illegal portion of fees totalling£300 million (over $700 million). The OFT advised credit card companies that it would consider anything above £12 (around $29) for a penalty charge to be unfair. As a result, UK consumer action groups have seen thousands of consumers recoup their unfair losses from the banks.
However, whilst in the UK the OFT has the power to make these investigations under the Unfair Contract Terms laws, the only place in Australia where similar legislation exists is Victoria.
In New Zealand, the Commerce Commission is also investigating credit card late payment fees, which, under New Zealand law, must be “reasonable”.Back to top
Avoiding the penalties
Taking the ABA’s advice to heart, here are some ways by which you can guard against being hit by bank penalty fees:
- Choose an account that doesn’t charge penalty fees, or charges lower ones. Currently, according to the information at the start, NAB is playing very fair in this respect with zero charges across the board.
- Contact your bank to query penalties and challenge them. Ask that they be reversed. This has proved very successful for many consumers, and Choice has forms that can help.
- Understand how your bank account and credit card work. Read the fine print so you know where fees are charged and can thus better avoid them.
- Know the state of your accounts. Make sure you know how your income stacks up against your expenditure, and never assume that money due has entered your account without checking first.
- Set it up so that your credit card bill is paid automatically; if not the full amount then a figure that you can be sure will always cover at least the minimum payment, and well before the due date considering it can take a few days for money to be transferred.
- Open a basic account, or a concession account if you are eligible. These should involve both lower transaction fees and penalties. Ask around to find out what the banks offer.
Bank penalty fees on standard accounts
According to the Reserve Bank of Australia, from 2000 to 2008 credit card late payment penalty fees rose from an average of $20 to $31, whilst credit card over-limit fees rose from $0 to an average of $30.
As of May 2008, these were the bank penalty fees charged by the five major banks:
|Bank||Periodic payment dishonour||Direct debit dishonour||Overdrawn account||Outward cheque dishonour||Inward cheque dishonour||Stop cheque||Credit card late payment||Credit card over limit|
|Commonwealth||$35||$35||$30 (Charged per day, not per item)||$35||$0||$15||$20||$0|
|National Australia Bank||$0-$30||$0-$30||$0-$30||$0-$30||$0||$15||$30||$25|
|St.George||$45||$45||$38||$45||$0||$8/15 ($15 for staff-assisted; $8 through phone or internet banking)||$35||$35|
|Westpac||$35||$35||$40 (Charged per day, not per item)||$35||$0||$12||$35||$35|
When are bank penalty fees charged?
- Periodic payment dishonour - This is when you set up a regular payment out of your account, but when the payment is meant to be debited your account does not contain enough funds to cover it, and the payment is therefore refused.
- Overdrawn account - This happens when you write a cheque or make a debit card transaction that takes your account overdrawn.
- Outward cheque dishonour - This is when you write a cheque that is not covered by sufficient funds at the time the cheque is presented for payment, thus the cheque bounces.
- Inward cheque dishonour - This bank penalty fee applies when someone else writes a cheque to you but their account does not contain sufficient funds to cover it at the time you present it for payment. None of the big five banks currently impose this fee.
- Stop cheque - This happens when you have written a cheque and given it to someone then decide that you want to cancel it. If the cheque is presented for payment after it has been stopped, you may be liable for another fee.
- Credit card late payment - This happens when the minimum amount on a credit card payment is not paid on time. This can happen more than once in a statement period, as some credit unions charge $15 every seven days that you do not pay.
- Credit card over-limit - This is when your credit card spending exceeds your set limit, although some banks such won’t charge unless you are a certain percentage over your limit.