It has taken more than a decade but finally, a serious Australian legal action has been launched against 12 of Australia’s largest financial institutions for alleged fee gouging. Financial Redress, which was recently acquired by ASX-listed litigation funder IMF Australia, yesterday announced that it is pursuing a class action against Australia’s largest banks.
The claim is being run by Maurice Blackburn, which has acted for plaintiffs in several large class actions, including the Longford Gas explosion and GIO shareholders. Banks involved in the matter include CBA, NAB, Westpac, ANZ, Citibank, Bendigo Bank, HSBC and Suncorp.
The basis underlying the class action is that many of the fees charged by banks, including charges for late credit card payments, exceeding a credit card limit, overdrawn accounts and direct debit dishonors are not permitted under contract law (and possibly, state-based consumer legislation such as the Fair Trading Act).
It is alleged that the quantum of fees imposed by banks does not represent “a genuine pre-estimate” of the costs incurred as a result of the consumer’s breach. While many fees charged by banks are about $40, according to the Wallis Final Report of the Financial System, the actual cost to financial institutions would be most likely less than $1. A similar study by the Consumer Federation of America estimated that the cost to process a dishonored direct debit was between $US48-65 cents.
Further, the bargaining position between a financial institution and its customers is not an equal one. For a start, there is a substantial inconvenience and cost for bank customers should they wish to change banks (customers have a large number of direct debts attached to their account, and the process of setting up a new account can often be time-consuming). Also, the manner in which the exception fees are applied (by direct debit to a customer’s account, without any avenue of appeal) further indicates a grossly uneven bargaining position.
Financial Redress states that in 2008 alone, banks charged customers more than $1.2 billion in fees, and noted that “when a class action is commenced in the court, it will be seeking to recover all exception fees you incurred over the six years with that bank prior to the commencement of the case, together with accrued interest. Although each claim will depend on the precise level of our losses, our previous experience tells us that a typical consumer claim might be $1000-$2000 and a business claim might be $3000-$6000.” While this amount sounds high, the claims of bank customers would also include interest on the fees charged.
The arguments proposed by Financial Redress will not be completely foreign to Crikey readers. In 2007, the author launched a legal claim based in the Victorian Civil and Administrative Tribunal and successfully obtained an (undefended) declaration that a penalty fee imposed by Citigroup was not lawful. A summary of that case can be found here and was based on the principle that fees charged by banks bear no reflection of the cost to banks as a result of a customer’s breach. Further, for many of those breaches, such as late payment of credit card balances, banks are able to charge extraordinarily high interest rates on the amount owing regardless of the penalty fee imposed.
Since that case was heard by VCAT, it is understood that several large banks have obtained high level legal advice from leading law corporate firms as to the legality of bank fees and possibility of subsequent legal action, like that being initiated by Financial Redress (and which have already occurred in the US and Britain).
While some financial institutions reduced the quantum of fees imposed in 2009, Financial Redress stated that “the incidence of these fees is still widespread. For example, banks still have punitive ‘late payment fees’ or ‘over-limit fees’, and many personal and business account holders still pay ‘overdrawn fees’. Where the banks have reduced these fees, they haven’t compensated customers for the over-charging they were doing before.”
The founder of Financial Redress is British-born corporate lawyer and stockbroker James Middleweek. Now based in Perth, Middleweek established Financial Redress last year. If the claims are successful, Financial Redress and IMF will impose a 25% commission on an compensation received, with the proceedings being conducted on a “no win, no fee” basis.
As a result, before administrative and legal costs, it is feasible that IMF could walk away with upwards of one hundred million dollars if the claim is successful.
Banks shares dropped by about 1% yesterday after news of the class action was reported.
You may be interested to learn about a recent fee rise at the ANZ for small business overdraft facilities up to $100,000. In February it went up by 120% from $750 to $1699 because (they said) they had to hold greater reserves to conform with the new regulatory provisions. I contacted APRA and found that, as yet, there are no new regulations – only a discussion paper. Meanwhile the ANZ is expanding into Asia at a cost of ..? So how does that affect greater cash reserves!
Banks in Australia are license to print money with a government guarantee. They operate in a market now so complex that it is virtually impossible for regulators to have a complete picture of fees charged and what actually happens in the market. The banks operate on the premise that if challenged by one in a million they will relent, say that it was a mistake, reverse the decision and keep quite. The money just keeps rolling in, – apparently billions of dollars worth.
The fact that such large amounts quoted are only estimates of the possible level of such fees charged is proof of how far banks have shifted from the original model of taking deposits and lending a percentage on the security of mortgages. Banks are now international traders in securities deriving fees from everything they touch. This, of course, is a legitimate business practice but the result is that most customers – virtually all – consumers or citizens have no idea whatsoever what they are being charged and they should know. They are entitled to know because they are the ones paying every month. They have a right to full and complete disclosure. Do they get this? Of course not. Are the regulatory authorities monitoring the market? Of course not,- how would they ever know?
They should know that, for example, – just one example – regardless of who arranged or introduced a domestic mortgage to a lender including banks an array of commissions are paid. To the bank officer as a performance bonus. To the mortgage broker as an up-front fee and trailing commission for the life of the mortgage. To the originator if applicable. To the aggregator a volume bonus. Level upon level. Everyone participates and they are all making a dollar.
The whole industry is self-regulated. Not bad. Except the person paying the mortgage pays at least $100 per month on a mortgage of $300,000 and knows absolutely nothing about it. That is $100 per month for the life of the mortgage so if it takes 15 years to pay-off their mortgage they have paid $18,000. This is paid from after tax income and is the equivalent of one years part-time wage. That is a person working for one year just to pay the commission.
I hate the banks.
I even hate myself for lending to the cts.
There are exceptions, but I even hate the numbscull moronic mind-fked robotic types who work in them and who masquerade as people.
I honestly ask you, who in their right mind would work for a bank? Obviously people who do as they are told and don’t question policy even when it is unlawful, or people who are trying to over compensate for their lack of sense of self worth by attaching themselves to a powerful organization.
I pray for the day when the banking system has a burning -two-edged-sword of truth taken to it and is hacked into a million pieces. Up the class action would be a good place to start.
Here’s a different exhorbitant bank charges matter. I’m overseas at present. I usually use a WIZARD (GE Finance) Mastercard which I keep in surplus — they make no charges for foreign withdrawals and always give a good exchange rate. However, I recently had to withdraw about $200 from my CBA credit card. They immediately charged me $14 — a charge that does not include any interest charges – just two separate widrawal charges. Outrageous!
I later found that if my CBA credit card is in surplus (that is, in credit) and I withdraw funds from it, the same charges will apply.
If GE Finance, through their Wizard Mastercard, can do it for free how can CBA justify a $14 charge?
As always the consumer has virtually no protection under Australian Consumer Protection laws or lack thereof. Once again the customer is ripped off in the land of Ned Kelly, but wait. Banks have shareholders!!