The campaign against dubious bank penalty fees not only has legs, the legs are kicking goals. NAB today announced a sharp roll back of fees with the promise of further cuts in the new year.

The NAB changes should spark the competitive pressure necessary to end the gouge at all the banks – if consumers are smart enough to take advantage of NAB’s push for greater retail market share.

There is a bemusing PR battle over affordable banking being fought mainly by NAB and ANZ with Westpac making up the numbers and the CBA not playing at all. ANZ has grabbed plenty of headline space for reducing its penalty fees for pensioners while CEO John McFarlane talks of them being “unsustainable“. (That’s the fees that are unsustainable, not necessarily the pensioners.)

Westpac also has reduced penalty fees for concession card holders, but NAB has had a Concession Card Account with no penalty, account-keeping or transaction fees. One can sense a certain frustration over the greater coverage ANZ has received for doing less.

And at the other extreme, the CBA maintains the full suite of legally dubious penalty fees for all. As the biggest retail bank in general and having the most customers with government concession cards in particular, those fees are a very important source of revenue for the Commonwealth.

The NAB has the smallest retail presence – something it’s trying to change with today’s batch of low or no-fee accounts – but that’s also why it can afford to ditch or reduce the penalty fees.

Basically, if you’re a concession card holder and you’re not banking with NAB, you’re probably a mug. If you’re banking with the Commonwealth, you’re definitely a mug.

Now NAB is pushing some Concession Card Account concessions higher up the customer value chain. There are four new accounts on offer with different levels of bells and whistles. There’s an option of zero account keeping fees if your salary is at least washed through the account with no minimum balance requirement.

The base-level “Clear” account aimed at those having the most trouble managing their finances has no penalty fees – but it also doesn’t offer a cheque book.

Next year NAB’s outward dishonour fee (for writing a cheque that bounces) will be cut from $50 to $30, there will be no inward dishonour fee and the periodical non-payment fee will be trimmed from $35 to $30.

But NAB’s Australian operations boss Ahmed Fahour is promising a further move away from penalty fees and towards fee-for-service in 2008. We await that with interest and in the meantime, maintain the campaign.