Tens of millions of dollars will be returned to ANZ credit cardholders, after the Federal Court yesterday found late payment fees to be unfair. But while “Banks unfair & unconscionable” is a great headline, closer inspection says this is more about a technicality of contract law than the banks doing something really nasty.
The class action challenged a number of fees, including both late payment fees and over limit fees on cards. But it was only late payment fees that the court ruled against. Now I think if you asked most people, contract lawyers aside, they’d actually be surprised to learn that a penalty fee for not paying your debt on time is unfair. Because we get hit with this sort of thing if we pay our taxes late, we expect our phone to be cut off if we don’t pay the bill and we know we will be out on the street if we don’t keep up our mortgage repayments. Credit card companies can’t just cut you off or throw you out – because you still owe them – and so they invented the late payment fee. You know it is there when you first get the card, and forewarned is forearmed.
Actually, it’s the over limit fee that most cardholders would argue is unfair, where instead of stopping you from overspending or notifying you after the fact, the bank elected to let you go crazy and then fine you at the end of the month. It’s so wrong that the credit card regulations were overhauled a few years ago to stamp out the practice. Yet the courts found this fee to be ok. Go figure.
I know from my own experiences in working with card pricing and risk teams that both of these fees are (at least in part) used as a disincentive to behaviours that the banks see as undesirable, often because they are seen as lead indicators of default. So I had fully expected both of them to be struck down as contract penalties, which are, apparently, illegal. But as a consumer, I didn’t have an issue with the late fee until today, provided we were told about it up front and it was applied sensibly (a few days’ grace, for example).
So rather than a win for the consumer and a thumping for the banks, as the headlines would have you believe, I think this is more about work for the lawyers: work for the barristers to argue it in court and work for the banks’ legal departments to re-word the card contracts so that their fees don’t fall foul of a technicality in future.
But if you were a bit slack in remembering to pay your credit card bill over the last few years, congratulations.
Do you have an ANZ credit card? If so, tell us your thoughts about the latest court decision below!