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Bank penalty fees too high and may be unlawfu -

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Bank penalty fees too high and may be unlawful: study

Reporter: Emma Alberici

MAXINE McKEW: We look now at the task of juggling bills and bank accounts. It's never more
difficult, of course, than at Christmas. To make matters worse, many people will get hit with a
steep fee for a late credit card payment or a cheque presented too early or too late. While most of
us just grin and bear it, a two-year study by the Victorian Consumer Law Centre claims those fees
are way too high, to the point of being unlawful. The banks claim they are recovering costs, but
the most recent figures indicate penalty fees totalled nearly $800 million. Emma Alberici reports.

EUGENE ADONCELLO (BUILDER): "Dear customer: if adjustment is required, if you have drawn against
uncleared funds that have subsequently cleared..."

EMMA ALBERICI: Eugene Adoncello has had a few too many of these letters in his life.

EUGENE ADONCELLO: "A payment honour fee of $38 will be charged, will be charged, will be charged,
will be charged..."

EUGENE ADONCELLO: If someone writes a cheque to me and it bounces, I have to pay a $38 fee for
them, for their mistake. I'm being penalised by my own bank for someone else's mistake. Then If I'm
overdrawn because of that, I get charged another $38. I remember one month we counted up it was
close to $300 just in dishonour fees.

EMMA ALBERICI: Eugene Adoncello runs a construction business where clients aren't always reliable
when it comes to paying their invoices. That means timing cheques coming in with cheques going out
can be a little tricky.

EUGENE ADONCELLO: Yeah, OK, I'm doing the wrong thing most probably, not having enough money in the
account, but it's not that you - you might have $100 overdrawn and they take $38 out. You ring them
up and explain it to them. I've been with the St George Bank 12 years now. I think I'm a valued
customer. Not in their eyes!

EMMA ALBERICI: A study by the Consumer Law Centre Victoria confirmed what Eugene Adoncello had
always suspected. It found the bank's penalty fees are excessive and way out of proportion to what
it costs them to process an account default.

NICOLE RICH (CONSUMER LAW CENTRE, VICTORIA): What we're saying is that under Australian law, these
penalty fees would most likely be unlawful or unenforcable in any Australian court. We estimate
that they could be charging up to 92 times what it actually costs them to process a direct debit

EMMA ALBERICI: How did you establish that these fees are indeed unlawful?

NICOLE RICH: Any law student doing a basic contract law course will learn this issue. It's very
well accepted in Australian law, and every lawyer understands that it is not lawful to charge a
breaching party to a contract a fee that is excessive in comparison to the other party's costs.

EUGENE ADONCELLO: How much does it cost you to send a letter out? 22 cents, 50 cents? 38 bucks is a
lot of money. It takes them two minutes to do that. So work it out on an hourly rate - it's a joke.

EMMA ALBERICI: The National Australia Bank takes the honours for having the highest cheque
dishonour and direct debit dishonour fee of $50. We asked the bank if that was a fair reimbursement
for the cost of processing a dishonour. No-one from the bank was prepared to do an interview with
us, but the public relations department sent this email, which states that their fees are
transparent and fully disclosed. But what about the cost of processing a dishonour? Well, they say
the cost of processing dishonoured cheques is commercially confidential.

NICOLE RICH: If the banks have nothing to fear from this issue, then they are quite able to
disclose further information that tells us once and for all what their costs are in processing
customer defaults, and that would enable us to make a definitive assessment. If they are not
willing to do that, then we're quite willing to stand by our calculations, and our calculations
demonstrate that the fees are excessive in comparison to the bank's costs.

DAVID BELL (AUSTRALIAN BANKERS ASSOCIATION): That's speculation on their behalf. The data they are
using is at least eight years out of date. They don't have up-to-date information, nor do we.

EMMA ALBERICI: David Bell is going in to bat for the bankers, but admits that not even he has
access to the current costs of processing bank defaults.

DAVID BELL: It's difficult for me to answer that question. I literally do not have access to banks'
confidential information about how they price their products. That would be inappropriate.

NICOLE RICH: The argument that some of the data we use is a few years old only strengthens our case
and weakens the case of the banks. Since that time there have been significant technological
advancements which have in fact reduced the cost to the bank of processing customer defaults, but
we're not seeing penalty fees go down. In fact, penalty fees continue to increase.

EMMA ALBERICI: Just in the past year, St George Bank's dishonour fee was lifted from $38 to $45.
ANZ Bank's credit card late payment and over-the-limit fees went from $25 to $35. Commonwealth
Bank's credit card late payment fee jumped to $25. And at Bendigo Bank, a direct debit dishonour
will now cost you $40.

DAVID BELL: The other side of the equation is how banks and other financial institutions cost their
products, and the authors of the report quite frankly don't have access to that information. So
we're a little bit puzzled as to how they've arrived at the conclusions that they have.

NICOLE RICH: We took the only available information about the costs of cheque and direct debit
dishonours, which is from the financial system inquiry - it was data provided by banks themselves -
and then we were very generous in our estimates. We actually doubled the costs to cover any
possible additional costs that might be included in processing a default.

EMMA ALBERICI: Four years ago, the Reserve Bank and the Australian Competition and Consumer
Commission released a report about bank interchange fees - the wholesale fees paid between
financial institutions when customers of one use the facilities of another. Before that report, the
banks had kept the information about how it calculated those fees secret. The report found that
interchange fees were excessive and did not represent cost recovery by the banks. The RBA has since
forced the banks to bring those fees down, and now the Consumer Law Centre is calling on them to do
the same thing with penalty fees, which they say are worse than any other type of fee.

NICOLE RICH: One of the main recommendations of our report is that the Reserve Bank of Australia
hold an inquiry, an investigation into penalty fees. In particular, the Reserve Bank has the power
to force the banks, if necessary, to disclose further information about the real costs of
processing customer defaults. We think that would be very useful.

MAXINE McKEW: Emma Alberici there.