The Australian Bankers Association is tackling the thorny issue of high penalty fees on common transaction accounts and loans with an industry self regulation initiative.
On Friday, the ABA is expected to announce an industry proposal to improve up-front disclosure and transparency of penalty fees on bank products such as transaction accounts and credit cards.
The announcement is expected to be a form of uniform disclosure requirement on banks to ensure that customers are aware of the fees when opening the account.
A number of bank executives spoken to yesterday said that if fees are disclosed up front there can be no doubt about their legality.
Victorian consumer rights solicitor Nicole Rich first raised the issue of the legality of high bank penalty fees for minor breaches of contract such as debit item dishonour in a 2004 paper for the Consumer Action Law Centre. Rich has argued that bank penalty fees, imposed to recover damages following a breach of contract (such as an overdrawn account) do not reflect actual costs and thus do not satisfy legal tests for such fees.
Asked about this controversy at a media briefing two weeks ago ANZ’s managing director John McFarlane said if penalty fees were illegal banks wouldn’t charge them.
The ABA opted not to comment yesterday on the issue but others in the industry have pointed to developments in Britain as a good reason to act now, rather than let consumer groups run the issue in an election year.
The Consumer Action Law Centre and Choice are encouraging customers to approach their banks for the repayment of penalty fees on the basis that they are “not enforceable in law”.
Yesterday, Nicole Rich welcomed the prospect of improved disclosure but said that did not fix the problem of penalty fees. “The issue is not about disclosure, the banks already disclose up front,” said Rich. “We still want to see some government action on this.”
Last week, Britain’s Office of Fair Trading announced a “market study into personal bank current account pricing, alongside a formal investigation into the fairness of charges for unauthorised overdrafts and returned items”.
The OFT was expected to ban penalty fees for unauthorised overdrafts, but backed off over fears the move would bring to an end fee-free banking for the disadvantaged.
One and a half million Britons have approached their bank demanding repayment of penalty fees imposed over the last six years.
The OFT promises that this will be “the most wide-ranging study into personal banking to date”. All Australian banks have penalty fees on at least some of their products, although none like to use the term “penalty” to describe them.
One bank executive said yesterday that “we don’t charge penalty fees, only governments can do that,” suggesting that some of the popular media commentary of late has been heard.
Partly in response to the emerging debate Bendigo Bank has this year taken to emphasising the cost rationale in newspaper advertisements announcing a couple of recent increases in penalty fees.
General banking penalty fees average $34 for items like outbound cheque dishonour and $20 for unauthorised overdrawing. NAB charges $50 for a debit item dishonour, while some of the credit unions charge $300 to replace a card lost overseas.