An exceptional case

A slew of Australia’s banks, including the Big 4, are facing, what is being labeled as the largest class action case in corporate history. Litigation funder IMF Australia is funding several class action suits against the banks, seeking at least $400 million of the $5 billion charged in ‘exception fees’ by the banks.

Exception fees are fees charged by banks for ‘exceptional’ circumstances. These circumstances include late payment fees on both credit cards and loans, over-limit fees on credit cards, honour fees when overdrawing a bank account, and dishonour fees charged for cheques that bounce. Reserve Bank data shows that banks charged consumers $961 million in exception fees in 2008.

The impact of these fees on your credit card cost can be significant. Say you’re on a ‘low rate’ credit card with an interest rate of 11.99% and running a $3000 balance. A $30 charge for being a couple of days late on a payment effectively makes your interest rate 12.99% in terms of your cost. If you’re late or overdraw a few more times over the course of the year, the additional costs effectively transforms your low rate card into a middle of the range card without any of the perks.

The principal legal argument for the class action is that when a customer breaks a contract with a bank (by making a late payment for example), the bank may only be able to recover a reasonable estimate of the cost. IMF Australia’s contention is that the banks charge fees much higher than what can be termed a ‘reasonable estimation’, given that it actually costs banks “only a few dollars at most” when you make a late payment or overdraw on your account.

There is a foreign precedent, with close to a million Britons unsuccessfully seeking compensation for overdraft charges in 2009, though a new case set to be heard in Glasgow in June could lead to more litigation. The issue also reared its head in America, with the US Federal Reserve recently ruling that creditors must obtain a consumer’s consent before charging fees for transactions that exceed the credit limit.

Here in Australia, the worst offenders for credit card over limit and late payment fees are Citibank and Suncorp, both charging a whopping $40 for each occurrence. Even NAB, who made a great deal of noise when slashing bank account fees this year, still charge $25 for going over your card limit and $30 for a late payment. Westpac and St.George lead the way, charging only $9. However, the case goes back six years, which could still spell trouble for those who have only recently cut fees.

Even though there will most likely not be a resolution for years, if ever, it will be intriguing to see how the banks behave in the light of all this publicity, particularly in a time of record profits. Even if this case is successful, it almost goes without saying that the banks will find other means to maintain their margins, whether through higher regular account fees or interest rates. As a consumer, the best way to deal with this is to shop around. Only when customers start voting with their feet (and their wallets) will banks really address these issues.

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An exceptional case was last modified: June 29, 2015 by Yash Murthy

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3 Comments - Write a Comment

  1. Mozo,

    I am liking this blog, what’s more is that I am liking the fact I can refer to you as Mozo.

    I am a girl quite big on having ‘safety money’ as I like to call it. But am honestly scared to get a credit card, especially when you point out the likes of Suncorp and Citibank charging in excess of $40 for late payment fees. What a joke!!

    Absolutely astonishing find there Mozo.
    Can’t wait to hear what rambling wit you have next…

  2. @Cash Queen – I agree. WIth $40 late payment fees that is a total joke! Especially considering there is such a big discrepancy between the $40 from Citi and Sun vs $9 for Westpac and St.George.

  3. Thanks for expressing your ideas on this blog. Additionally, a fantasy regarding the banking companies intentions whenever talking about home foreclosure is that the standard bank will not take my payments. There is a certain amount of time that the bank will need payments in some places. If you are as well deep within the hole, they will commonly demand that you pay the payment 100 %. However, i am not saying that they will have any sort of installments at all. Should you and the traditional bank can manage to work something out, a foreclosure process may halt. However, if you continue to pass up payments beneath new program, the property foreclosures process can pick up where it left off.


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