Banks On Notice To Play Fairly

Sydney Morning Herald

Saturday April 26, 2008

Jessica Irvine Economics Correspondent

THE fight to abolish excessive bank penalties in Australia has been boosted by a landmark ruling in Britain requiring such fees to pass a fairness test.

In a case between the British Office of Fair Trading and eight banks, the High Court ruled this week that all such fees must be in line with the cost to the bank of the customers' error.

Customers in Australia can be slugged up to $50 by banks for relatively minor transgressions, such as having insufficient funds in an account to meet a direct debit payment, being overdrawn by $1 or attempting to deposit a cheque that bounces.

The Consumer Action Law Centre has estimated these penalties can be between 64 and 92 times the true cost to the bank.

Customers in Britain have been refunded more than #500 million ($1 billion) from contesting these fees and the High Court case ultimately may mean banks will be forced to refund an estimated #9 billion more.

"It's a huge win for UK bank customers and it's now time for Australian authorities to act," said the director of policy at the consumer group Choice, Gordon Renouf. No such case had been tried here because Australian banks were less willing to co-operate in a test case.

"In Australia it has been left to individual consumers to take on the banks by themselves, which is a ridiculous David-and-Goliath-style situation," he said.

However, the British ruling stopped short of labelling the fees as illegal, prompting Australian banks to welcome the decision. "The UK court decision is support for the banking industry's long-standing view that Australian exception fees are not 'penalty fees'," the Australian Bankers Association said.

Banks had moved to address consumer concerns through a campaign to improve disclosure and public awareness, it said.

* Mortgage holders with National Australia Bank will be hit from Monday with another 0.10 percentage-point interest rate rise, taking its standard variable home loan rate to 9.46 per cent.

Investing - Weekend Business, Page 45

© 2008 Sydney Morning Herald

Back to News Index | Back to Home