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Opinion: Action against banks over exception fees will be a victory for customers even if banks merely have to disclose how much they pocket from such fees
By Gareth Vaughan
It seemed a little ironic.
Along with other media I was invited to join Andrew Hooker, the lawyer fronting the Fair Play on Fees group, outside the Auckland High Court for a press conference as he filed his group's statement of claim against ANZ over "excessive" fees it has charged its customers.
But when I asked if a copy of the statement of claim would be available I was told no, it wouldn't be.
Apparently this is because there's confidential information in the document, presumably relating to the lead plaintiffs and their bank account details. But wouldn't it be possible to blank that stuff out as they did in a media presentation last week? And as government departments do with the really good stuff when responding to pesky Official Information Act requests?
That said, Fair Play on Fees does anticipate any trial will be in open court with the media present.
But will the case ultimately get to trial?
My guess is no.
Mainly that's because these cases are notoriously slow, hard to "win", and the banks may not want the publicity of a trial.
Could Fair Play on Fees actually win? Commercial lawyer and ex-ACT MP Stephen Franks is one who thinks so.
According to a Franks article in NBR;
The foundation of the action against ANZ is a general contract law principle, not a specific banking law matter. It claims that the banks have been penalising unauthorised overdrafts and other breaches of contract, instead of just charging what they have cost the bank to deal with. I think the action is more likely than not to succeed because our law has always been against penalties in contracts. You can agree in advance on what happens if a contract is breached, if it is a genuine pre-estimate of the likely costs of fixing the breach. But if it is just a penalty, ancient law says that provision is not enforceable.
Justice in the slow lane
Whatever happens, the case won't move quickly.
Another representative action taken, by Feltex shareholders against directors and others associated with the carpet maker's ultimately disastrous 2004 initial public offering, is now into its fifth year and still yet to get to trial.
And in Australia a class action against bank exception fees has now been running for more than three years. In the Aussie case, a claim against ANZ on behalf of 38,000 customers, will be heard in the Federal Court in Melbourne in December. The hearing will be two years after the Federal Court ruled on which of 17 fees could be classified as penalties.
Fair Play on Fees, which aside from Hooker also includes Aussie law firm Slater & Gordon, and Aussie bank roller Litigation Lending Services, which is stumping up between $3 million and $4 million to fund the case, has run a smooth operation thus far. With the help of a public relations firm, they've held two well attended press conferences at Auckland hotels attracting the all important TV cameras and gaining plenty of coverage across the major media outlets.
They've also popped out several press releases, helping to keep the case in the news, and most importantly have now filed a statement of claim against the country's biggest bank. Cases are also promised against ASB, BNZ, Kiwibank and Westpac. Fair Play on Fees has also hired Bruce Gray QC as lead counsel.
Advertising for clients
As Stacey Shortall, a partner at Minter Ellison Rudd Watts told me last week getting this media coverage has been crucial for Fair Play on Fees. That's because although often touted as a class action, the case must actually be taken as a representative action, which requires customers to sign up individually. This means those behind the case have effectively been advertising for claimants.
With the media's help, Fair Play on Fees has done pretty well attracting claimants. It says about 32,000 people have registered in total, with the ANZ action being taken on behalf of around 13,500 individuals and 1,800 small businesses across an estimated 30,000 accounts.
In contrast to a representative action, proposed (but not passed) class action legislation would mean a litigant merely required seven people’s support to bring proceedings. The court would then control the litigation and anyone who has suffered loss and meets that criteria becomes eligible to benefit from the litigation.
Money for nothing
But then again if you're a bank customer and you've been charged exception fees at some point over the past six years, why wouldn't you sign up? Someone's offering you the potential to get some money at some point in the future through little effort on your part.
And the court of public opinion is stacked in Fair Play on Fees' favour. Almost every bank customer has had at least one experience with bank fees, whether they be the type of exception fees at the centre of this case or other fees, that has made their blood boil.
To clarify, the fees at the centre of the case are honour/unarranged overdraft fees, dishonour/payment failed fees, credit card late payment fees, and credit card over limit fees. These are all avoidable.
Fair Play on Fees estimates banks have charged around $1 billion too much for such fees over the past six years, with ANZ accounting for about $250 million of this. But the reality is this is guess work based on how much banks have made from such fees in Australia.
No obligation for banks to disclose
For unlike in Australia, where the Reserve Bank of Australia makes banks disclose exception fee income, there's no such requirement for New Zealand banks to do so. When asking the Reserve Bank of New Zealand for detail on how much New Zealand banks pocket from exception fees three years ago, I was referred to the Commerce Commission. It couldn't help.
It seems like a good idea to me that New Zealand banks disclose how much income they generate from these fees. Given our banking sector is dominated by the subsidiaries of four Australian banks who already do so, it shouldn't be too difficult for them. Even if Fair Play on Fees is ultimately unsuccessful at getting "back" some of the fees its claimants have been charged, this in itself would be a victory.
The crux of the case is actually what it costs the banks to do the fee transactions. Should it go to trial, I can see experts from all over the world being trotted out in court to argue the toss for both sides.
Just a few cents versus mathematical calculations
Fair Play on Fees estimates the actual cost is just a few cents per transaction, not the up to $20 ANZ charges, (see the Fair Play on Fees chart below). Both sides are talking tough.
As Hooker puts it: "How much does it cost for a computer to reject a payment on someone's bank account? We think it's a few cents. It's not the role of banks to punish their customers. Why are banks in such a special position? If you don't pay your plumber on time can he charge you a $15 penalty? No he can't because he doesn't have access to your bank account."
Naturally ANZ and the New Zealand Bankers' Association contest this. Kerri Thompson, ANZ's managing director for retail banking, labelled the just a few cents claim "ludicrous" and says ANZ has mathematical calculations backing up the basis of its fees.
"We've reviewed our fees and are very confident and comfortable with them," says Thompson.
Up to $15 'justifiable'
Then there's the position of the Commerce Commission.
In 2010 the Commerce Commission said a late payment credit card fee of up to $15 was likely to be justifiable on a cost recovery basis.
"We have advised the parties (banks) that any late payment fees at or below $15 should not trigger future investigation or enforcement action. Credit card issuers charging in excess of $15 may be liable to further action by the Commission. We expect any credit card issuers charging in excess of $15 to review these fees," the Commerce Commission said
Thompson says the other fees in question, which the Commerce Commission didn't review, are justified in the same way as the credit card fees it did review.
"So we're comfortable that as this case proceeds we'll be found to have been charging justified fees," she says.
But, of course, Hooker's view differs.
"If the banks reduced their fees in 2009 then we'll have the overcharges before then back straight away because that's effectively admitting they must have been charging too much. The Commerce Commission hasn't been regulating the bank fees. It came to an arrangement with the banks through which the banks reduced their fees. And I say $15 is still far too much for something that must cost the bank a few cents. So good on the Commerce Commission but they didn't go far enough," says Hooker.
As for the banks he says the onus is on them to prove how much collecting the fees in question actually costs them.
"If they have a fee that they're charging for the default of the contract, that fee must be an accurate reflection of their actual costs. And we invite the banks to explain to us what their actual costs are when they bounce an automatic payment."
And finally, a prediction
If I had to make a prediction, I'd suggest the case will ultimately settle, before any trial. This could see the banks, through gritted teeth, coughing up a relatively small percentage of the sum being claimed from them. That way Fair Play on Fees can claim victory, and themselves pocket 25% of any money won on behalf of their clients. For their part the bank bosses, who won't be enjoying the publicity of being sued by some of their customers, can show they're prepared to compromise, at least to a point.
And presumably any grey legal areas around exception fees will be removed, preventing this sort of action from occurring again.
But a lot of water will flow under the bridge before it gets to this point.
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