In what could be a legal first in Australia (a UK judge is currently deciding a test case on a similar issue and is expected to deliver his judgment in the coming days), the Victorian Civil and Administrative Tribunal has held that a $40.00 late payment fee imposed was an illegal penalty and therefore unenforceable.
The Tribunal also agreed with my submission that the fee amounted to a breach of the Victorian Fair Trading Act. (It should be noted that Citigroup, the respondent to the action, did not attend the Hearing and make any submissions. Citigroup did however pay the claim in full prior to the Hearing).
Your correspondent submitted an application to VCAT in late 2007 year seeking a declaration that a late payment fee (of $40.00) which had been directly debited by Citibank was unenforceable. The application can be viewed here. While the legal reasoning is too lengthy for this article (and was largely based upon Victorian Consumer Law Centre solicitor, Nicole Rich’s, excellent Report Into Penalty Fees) it essentially stated that:
- Any fee charged by a financial institution must be a fair reflection of the loss suffered as a result of the customer’s breach;
- A fee of $40.00 for failing to pay an outstanding credit card balance (as well as interest charges approaching 20%) is not a fair estimate of the financial institution’s loss – rather, the fee is a profit generator for the institution; and
- The relative bargaining positions of the parties is grossly uneven, with the institution able to directly charge any fee it sees fit without any course of appeal or mitigation by the customer.
The application sought damages of $135.00 for the “illegal” penalty fee plus associated costs. As noted above, Citigroup paid the damages in full prior to the hearing by directly depositing the money in the my credit card account but did not seek to defend the matter in VCAT. While VCAT decisions don’t set precedents in the same way as the Supreme or High Court decision does, the fact that a full-time VCAT member provided a judgment noting that the bank-fee charged was unenforceable and amounted to an unfair term in the contract is an indictment on the conduct of a financial institution. While Citigroup did not defend the matter, the VCAT member would have been within his rights to dismiss the application if he was of the opinion that it was without merit.
Based on the Tribunal’s finding, and Citigroup’s willingness to settle the claim, it is possible that any bank customer who receives a bank fee above a nominal amount could adopt the legal reasoning above and seek an immediate refund of the fee imposed, plus any associated costs relating to the application. If financial institutions have to refund a significant percentage of fees imposed they may even stop charging fees at all.
Citigroup can appeal VCAT’s decision in the Supreme Court of Victoria. However, in doing so, it would run the grave risk of setting a formal precedent should the Supreme Court uphold the finding of VCAT.
now that you have done that for Australia you should look into the fact that when a bank gives you credit it actually has no debt to show for it.
it can lend over ten times what it actually has in the vault so we are paying interest on thin air….
its not only usury buy also the biggest scam ever….
im paying $450 dollars a week repayments on a debt that is just numbers on a computer.
the bank has no risk as it payed me nothing… how is this legal or fair?
http://video.google.com.au/videosearch?q=moneyasdebt.net&ie
Thank you for taking on the bastards over their usurious fees and penalties. Just one thing you overlooked – you ought to have included a substantial fee in your costs (hefty but at the current market rate for good legal advice) to cover the time and the effort you obviously invested in legal research and preparation of your arguments in your submission to the Tribunal. Until more consumers take on corporate greed nothing will change. Exasperated by their incompetence and intransigence, I once told Telstra I’d be sending them a bill for my time if I had to make yet another phone call asking them to correct overcharging errors on my bill. Lo and behold, they fixed them quick smart.
My hero! If this decision stands and becomes a precedent, there will Adam Schwab statues in every town square in Australia. Speaking as someone who has been “double-bunged” by one of the big three (direct debit dishonour fee which then put the account into debit, triggering an overdraft fee) I sincerely hope the bastards’ bowels are turning to water over this.
why when you get a judgment at VCAT do you then have to go to another court to register it for enforcement?
i fink you done good Adam and i fink dat it is interesting dat every ancient holy text right or wrong ever written forbids da act of lending money at interest i mean debt servitude is da new yoke of egypt i fink