ANZ CEO John McFarlane has blown apart the Australian Bankers’ Association defence of legally dubious penalty fees.

Instead of being a totally reasonable way of ripping hundreds of millions of dollars off customers, it turns out they are unsustainable, “particularly for the people in the population who can least afford them”.

But the ANZ itself has only partially seen the light. While its Access account for people receiving government benefits has capped penalty fees at $10, ordinary customers who are a day late making a credit card payment or exceeding an overdraft limit by one dollar are still charged $35.

McFarlane’s stance at least puts pressure on the rest of the bankers club by agreeing with some of the arguments used against penalty fees.

It’s interesting the people who are the poorest pay the highest cost for borrowings … They also pay the most for their banking because…they’re the least literate financially and therefore the least capable of managing their accounts.

But for the rest of us, the gouge remains in place. Asked if regulation might follow the UK office of fair trade precedent, McFarlane said regulation wasn’t needed – competition would lower fees.

Ah, maybe. There’s still a big leap between reducing fees to a level you hope will be recoverable from the poor, to doing an equitable and reasonable thing by all customers.

In the meantime, it’s good PR for the ANZ to be talking the talk, if only shuffling the walk.

Disclosure: Michael Pascoe interviewed John McFarlane for the Australian British Chamber of Commerce yesterday.

CRIKEY: Remember, if you want to recoup money lost on penalty fees, there is a way, as instructed by Michael Pascoe in February this year.