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Parties behind 'largest class action in NZ's history', taken against major banks, stand to pocket up to NZ$250 mln

Posted in Personal Finance Updated

The parties behind what they're describing as the biggest class action in New Zealand legal history, stand to pocket up to NZ$250 million if their case against the country's major banks is ultimately successful.

New Zealand lawyer Andrew Hooker, Australian class action experts Slater & Gordon, the former firm of Aussie Prime Minister Julia Gillard, and Aussie litigation funder Litigation Lending Services, have launched what they're calling "Fair Play on Fees."

The group is seeking to "claim back excessive" bank default fees from the past six years, which is the limitation period for such action. Hooker said it was New Zealand's largest ever planned class action and banks had been "unlawfully overcharging" Kiwis for many years. Fees at the centre of the case are what are known as honour and dishonour fees, plus credit card late payment and credit card over limit fees.

"Customers are charged an average of NZ$15 every time they overdraw their accounts, pay their credit card late or bounce a cheque when the cost to the bank is actually just a few cents," Hooker told a press conference at Auckland's SkyCity Hotel.

"These fees are excessive and add up to around NZ$1 billion over the past six years. It's time Kiwis fought back."

Litigation Lending Services is tipping in what its managing director Michelle Silvers said was "millions of dollars" to cover the costs of the case, from which Hooker said no bank was off the hook, although the main targets were obviously the big banks - ANZ, ASB, BNZ, Kiwibank and Westpac.

Hooker said the case would be based on a principle of contract law which places a limit on the amount a customer can be charged if they default on an obligation.

"If a default fee is higher than what it costs the other party then that is an unenforceable penalty," said Hooker. "We believe the banks rely on New Zealanders not taking the banks to court. Why would you sue a bank for NZ$15 or even NZ$20?. A class action is the only way banks can be held accountable for these charges and they can be recouped. And more importantly we can prevent banks from charging these excessive and unlawful fees in the future."

Silvers said the parties taking the case needed around 10,000 people to sign up to make it worth their while, and they estimate around a million New Zealanders could be eligible. They've launched a sign up website at www.fairplayonfees.co.nz Speaking on TVNZ's Breakfast programme on Tuesday morning Hooker said thousands of people had already signed up.

The parties behind the case won't be paid unless they win and will take 25% of all winnings if the case is successful, plus repayment of their costs. So based on their estimate of NZ$1 billion worth of unfairly charged bank fees, the action could - potentially - reap them NZ$250 million.

A Commerce Commission spokeswoman, meanwhile, told interest.co.nz the consumer watchdog had no involvement in the class action against banks and did not know what legislation it would be taken under.

'Talk to your bank about fees, not these Aussie lawyers,' banks retort

Responding to news of the launch of the "Fair Play on Fees" action, bank lobby group the New Zealand Bankers' Association (NZBA) said talk of legal action failed to take into account differences between the New Zealand and Australian banking sectors.

“Australian legislation around civil suits is very different from what we have in New Zealand. We are surprised the lawyers running this don’t appear to know about these differences. We also note that similar action in Australia remains unresolved,” NZBA chief executive Kirk Hope said.

Hope added that the New Zealand banking sector also operates "quite differently" from Australia, where the legal action was being driven from.

“Three of the four main fees being targeted by this action have been overseen by the Commerce Commission for the last ten years. The Commission has released draft guidelines regarding these fees," said Hope.

“Our banks communicate very clearly on fees, which is a reflection of our very competitive banking sector. The fees being singled out are avoidable, and our industry has also made it easy for customers to switch banks if they feel the fees they’re paying are too high."

He said banks worked hard to attract and keep their customers, and will work with them to reduce their fees.

"This came through in a Consumer NZ survey last year which found bank customer satisfaction at 92%, outshining other industries. We’re also not sure what’s motivating the action, how many Kiwis have signed up to this action, what their cut of any successful law suit would be, or how they’ve calculated the size of the proposed claim. We’d encourage customers concerned about fees to simply talk to their bank, rather than talk to lawyers,” said Hope.

The action from Hooker, Slater & Gordon and Litigation Lending Services comes after Christchurch law firm Wakefield Associates tried unsuccessfully in 2010 to piggyback on a case in Australia against bank fees.

The Australian case, on behalf of 170,000 bank customers led by litigation funder IMF, continues after the High Court - in a set back for the banks - declared last September that ANZ's over-limit fees could be characterised as a penalty or punishment. The claims over there began in September 2010 and involve 12 banks with the ANZ case being run effectively as the test case.

Following September's ruling ANZ said it would "continue to vigorously defend" itself, and noted the High Court hadn't determined whether ANZ’s fees were penalties.

Commerce Commission found in 2010 some fees didn't comply with the Credit Contracts and Consumer Finance Act

In 2010 the Commerce Commission here in New Zealand issued compliance advice letters to several banks and credit card providers after a probe into the reasonableness of credit card exception fees. The Commission noted late payment and over-limit fees were two of a group of fees commonly known as "exception fees".

The Commission investigated the late payment fees and over-limit fees charged on credit card transactions by American Express International (NZ) Inc., ANZ National Bank Limited, ASB Bank Limited, Bank of New Zealand Limited, Kiwibank Limited, TSB Bank Limited, The Warehouse Financial Services Limited and Westpac New Zealand Limited.

"The investigation into late payment fees has now concluded, while the investigation into over-limit fees continues," the Commission said at the time.

"Up until 2009, issuers charged late payment fees ranging from NZ$20 to NZ$25. As a result of its investigation, the Commission has concluded that it is unlikely that late payment fees in the range of NZ$20 to NZ$25 can be justified as reasonable. Credit card issuers charging this level of fee were generally generating profit in addition to recovering the actual costs of late payment by card holders."

"In the Commission's view this practice does not comply with the Credit Contracts and Consumer Finance Act. Issuers have also used the late payment fees to recover bad debt. The Commission does not believe that card holders who ultimately make right their late payment should be held liable for the costs and losses incurred through defaulting customers who never make good their debt. In addition, various costs appear to have been included in the fee which, in the Commission's opinion, are too removed from the act of late payment to be properly recoverable in this way."

NZ$15 fee 'likely to be justifiable'

The consumer watchdog said some credit card issuers had suggested it was "reasonable commercial practice" to charge a fee that recovered more than the costs associated with late payments, as it would have a deterrent effect. But the Commission didn't buy this, saying it had neither seen, nor been provided with, any supporting evidence that charging a high level late payment fee deterred credit card holders from defaulting.

"But during the Commission's investigation, in mid-2009, a number of the credit card issuers voluntarily dropped their late payment fees to less than NZ$15 due to market changes in New Zealand and similar changes in fee structure in Australia. The Commission considers that a late payment fee of NZ$15 or less is likely to be justifiable on a cost recovery basis."

Although it was appropriate to issue compliance advice to all investigated parties recognising their voluntary reduction in late payment fees had enhanced competition in the market, the Commission also said it was "drawing a line in the sand."

"We have advised the parties that any late payment fees at or below NZ$15 should not trigger future investigation or enforcement action. (But) credit card issuers charging in excess of NZ$15 may be liable to further action by the Commission."

Meanwhile, the Commission wrote to nine credit card issuers, including the big banks, in April 2011 with advice on what it believed was "reasonable" for over-limit fees for credit cards. A Commission spokeswoman said this followed a "detailed" investigation into the issue.

"While the investigation was ongoing, a number of credit card issuers reduced their over-limit fees (and one issuer introduced an over-limit fee). Generally, the Commission’s view was that an over-limit fee is, of itself, not unreasonable as long as it is a reasonable compensation for costs incurred by the creditor; is not an over-recovery of costs; and is properly disclosed to the consumer."

Representative action v class action

Although the legal action is being touted as class action, technically it isn't, and this is why the parties running it need as many punters as possible to sign up.

That's because the New Zealand government is yet to pass a specific law enabling class actions meaning our law currently doesn't cater for them.

Rather, customers or investors can take what's known as representative action. This requires investors or customers to sign up individually with a law firm or litigation funder. If an investor or customer doesn’t know the action is being taken and that there was a cut off date they had to sign up by, they would miss out.

In contrast under class action legislation the government has considered, a litigant would merely require seven people’s support to bring proceedings. The court would then control the litigation and it becomes a class action in the sense that anyone who believes they have suffered loss and meets the criteria becomes eligible to potentially benefit from the litigation. See more in 'Why NZ needs class actions law' here.

Hooker, meanwhile, says banks have been ignoring the principal of contract law for years and customers have been helpless to fight them.

"Banks are in the privileged position of having access to customers' funds and can just extract these fees from customers without much of a right of reply. They have also relied on individuals not making the effort to take the banks to court," Hooker said.

"A class action is the only way banks can be held accountable and prevented from charging excessive fees now and into the future."

(Updated, including with comments from the New Zealand Bankers' Association, and the Commerce Commission).

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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40 Comments

One group of

One group of parasites,lawyers,taking legal action against another group of parasites,banks.
My guess is that the clients that the lawyers are representing are not your every day bank customer but are high profile business people and their companies.

No Ngakonui, it's not

No Ngakonui, it's not financial elites with deep pockets
 
It will be IMF litigation funders IMF Australia
http://www.imf.com.au/
 
Fronted by everymans ambulance chasers
Slater and Gordon (crucible that produces Union affilliated poor-mans politicians)
Maurice Blackburn
 
They have been very successful going up against the Big4 in AU
Same banks with tentacles in the NZ pie
Same banking infrastructure
Same banking systems that automatically generate penalty fees
Hundreds of Millions of Dollars involved
These outfits wouldn't bother touting in NZ if there wasnt the loot to go after.

NZ explicitly doesn't allow

NZ explicitly doesn't allow class action legal actions, thereby protecting the financial elites from messy, expensive, public litigation, enabling them to keep their ill-gotten loot. Perpetuating the rule that the law is only for the rich. The poor cannot afford to enforce their rights. 
 
How many countries in the world have such a regime?
 
a bit of related trivia
On the BBC forum last night it was commented that there are only 3 countries in the world that don't have a written constitution, NZ being one of them.

U.K and Israel being the

U.K and Israel being the other two - right?

correct

correct

a bit of related trivia On

a bit of related trivia
On the BBC forum last night it was commented that there are only 3 countries in the world that don't have a written constitution, NZ being one of them.
iconoclast, that's not trivia
The three countries are
England which has evolved over hundreds of years, had a revolution and has the Magna Carta ond so on. It is steeped in history.
Israel which was formed by the League of Nations, now the United Nations
And New Zealand.
When a country becomes independant you are supposed to have an interim government. That government puts together a constitution, the people vote on it, and if a majority of the people agree to the constitution then elections are held acording to the terms of that constitution.
None of that hapenned in New Zealand. Ask any constitutional lawyer, or the so called "NZ government" and they will fudge about and cant tell you. They will talk about how Britain passed laws in the British house of parliament making the NZ government legal but under international law one country cannot pass laws binding on another country. If British law was still binding on NZ then we were not independant. They also try to mask our real position by saying we are a "constitutional Monarchy" whatever they mean by that and we would be the only one in the world.
Geofrey Parlmer wrote the 1986 NZ constitution but it was never voted on by the people. Some constitutional lawyers argue that it was this 1986 constitution that marked the day NZ had a bloodless coup.
So today NZ either has the longest serving interim government in the history of mankind (over 100 years) or we have a party political dictatorship in which all the political parties are part of, and support, that dictatorship.
We should all be asking  "Why isn't the news media talking about this?"
Bernard, why don't you talk to some constitutional lawyers and do a story on it?
 

No, agree, it's not

No, agree, it's not trivial.
Thanks for your excellent post.
What surprised me was, I didn't know it.
 
If Bernard Hickey doesnt take up the challenge, perhaps David Chaston could invite one of the constitutional lawyers to do a guest article. Hello David? Are you there David? David?

So are we, in fact, still a

So are we, in fact, still a British colony or some status less than full nation? If so, why are Kiwi Taxpayers having to pay for the apalling land theft carried out by the British Elite with the full knowledge and support of the colonial government. Crimes carried out after the Treaty between the British Crown and the people of New Zealand.
Send the bill to HRH!

An excellent idea Mike

An excellent idea Mike B.....
 100 years of unconstitutional reign ought to be worth discussing at least......I thought unzipping a bannana.
 I'd wager the constitution would require complete ratification of the Treaty, would need to encompass the rights of  indigenous individuals not yet agreed upon.
The reverse complications that arose out of Empire building in having a one size fits all constitution while the Treaty guaranteed indigenous people their special relationship to the land under a living document , or compensation thereto when those relationships became unserviceable, untenable.
I'd wager they will argue in favour of a Constitution if...it superceded the Treaty.
Not along side of , in conjunction with, but as a full replacement.
I'd wager they have nibbled their fingernails waiting on demand for a Constitution.

Have you seen a copy of the

Have you seen a copy of the 1986 Geoffrey Palmer job?
 
Reckon it would be better done sooner rather than later, because the indigenous ones are being bred out of existence percentage-wise, and those voting on the introduction of a constitution, some time down the track, will be so far removed from it, and will out-weigh the locals percentage-wise.

And that, iconoclast will be

And that, iconoclast will be no accident.....an act of sublime passive attrition to overcome contrition and all it's dues.
 On Palmer, yes I did, it was a start, kicked to touch as he trumpeted..... I thought ,as I went back to my bannana. 

Is it available on the

Is it available on the internet? Parliamentary archives?

tons out there

tons out there iconoclast...this will help out
http://empowernz.co.nz/wp-content/uploads/2012/08/Palmer-Constitutional-Culture.pdf
Hey look, I've got this banna to eat see...so uh ...see you soon.

Mike B - you are

Mike B - you are correct!!!!
It is for this reason that I harp on about the Universal Declaration of Human Rights........as it is the only document which NZ is a signatory too that sets out people's rights.
 
NZ Politicians have been playing a dangerous game, personally I would like to see class action against (or should I say representative action) against the Government and all Politicians past and present. As they know the game they have been playing.
NZ Politicians swear their allegiance to the Queen when being sworn into Parliament.....Not the people.
 
NZ has been reprimanded constantly by the UN for breaches that have occured by the Government. Nothing is ever done.
NZ was declared an Independent Country in 1835.  I fail to see how we can go from being independent to having the Treaty being the official document of settlement. The Maori were having trouble with white people and asked for assistance and that was when the Treaty was drafted. As the Treaty makes no reference to NZ Independence then it should be assumed that we are still independent.
With all the Universities, Politicians and Legal professionals running around I cannot understand why this issue has not been challenged before.  From everything I have read our Government appears to be illegal.  Why has the Attorney General allowed this to continue?
My family has a long history in NZ pre-dating the Independence and Treaty.  It's quite a blood mixture but I have been fortunate to have much of the history passed along and have also read numerous articles.   The Scots, Irish, Brits and many other Nationalities that were here at the time prior to the Declaration of Independence in 1835 know that it is BS.
 
 
 

So?  Are all the other

So?  Are all the other countries in the world demonstrably doing better than NZ, Israel and the UK as a result?  By what criteria?

Well, whaddya know. Andrew

Well, whaddya know. Andrew Hooker, our favourite periodic guest scribe here on legal matters on insurance issues, defender of the little man, is the front-man on behalf of Slater and Gordon.

David Chaston: see what

David Chaston: see what happens when you give a professional a platform. Action.

While I like that fact that

While I like that fact that someone is picking up the fight against unreasonable bank fees, I don't think anyone deserves a windfall of up to 250 million dollars for doing so.
This should be something the government or commerce commission should investigate/regulate.

How ironic is this - the

How ironic is this - the lawyers that are fighting for fairness in fee charging are themselves doing exactly what they accuse others of. 
So, Andrew Hooker, Slater & Gordon and Litigation Lending Services, justify your 25% take of the spoils. 

Big difference there

Big difference there Interested and Father Ted.
 
It's a contigency job. No win. No Fee.
The litigators fund the entire case, put up all the costs, advertise to get 10,000 customers, administer all that, then run the court case which won't be small. They're up against deep pocketed Banks who can ask for security of (the banks) costs in advance. Those costs come out of their fee if they win. If they lose they wear the costs and eat the loss. In the event of a loss they pay their own costs plus the banks costs. Possibly $100 ml + $100 ml = $200 million all up.
 
More importantly it's a one off cost. If they win, the banks come to heel, and the customers win the past, and from that day on, and for ever after.

Not really.  Don't go into

Not really.  Don't go into unarranged overdraft and there's no fee.
 
It doesn't matter how you spin it, there's no defence for taking 25% of the 'pot' from the 'victims'.  Further, there's no transparancy as to how much the 'victims' will actually get.
 
You've got to step back here iconoclast, and see the much bigger picture.

Seems to me that reporters

Seems to me that reporters have a duty to make it very clear to people tempted to join the suit, that the bank charges being challenged here only apply to people who go into unauthorised overdrafts and dishonour transactions, ie take money that doesn't belong to them, known as stealing in other contexts.  
 
Such people will be the only winners if this case succeeds.   Other banking customers, those who manage their finances better, will be likely to face higher costs for other banking transactions as banks seek to make up the loss in other ways.  Some of them may feel comfortable with that, not wanting to benefit at the expense of those who don't manage their money properly.  But they should be very clear that they'll pay a price for that altruism.

You do realise that a

You do realise that a "dishonour" fee is for a rejected payment, right?  So, the customer doesn't get any money, they just get charged a fee? 
And the whole point is that banks won't "take a loss", since it apparently doesn't cost them $15 to decline a transaction.  I mean, literally.  That is the whole point of the class action.

Yes, thanks.  In this case

Yes, thanks.  In this case the bank customer has written a cheque, or othwewise promised to pay, for goods or services received and not subsequently honoured that commitment.  The theft here is from the provider of the goods and services, not from the bank.  That doesn't make it better. 
 
If banks are no longer able to charge for such behaviour, which presumably you are not arguing is to be encouraged, (a) the disincentive is reduced and (b) banks lose an income stream.    That is the loss they will want to make up.

Well it's not "theft", it's

Well it's not "theft", it's just a debt--theft is when you take something without any intention of paying for it.  Promising to pay and then not paying (either by choice or necessity) isn't a crime, it's just incurring a debt.  There's a mechanism for dealing with this already, just normal debt recovery.  Bankrupt the customer, agree to a payment plan, whatever works.  If it is theft, sure, charge them with theft.
 
The problem I have with dishonour fees being defended on the basis they are "disincentives" is that banks don't have a mandate to disincentivise this situation.  For example:  a customer uses power and then at the end of the month they don't have enough to pay for it.  I can see how this is bad, and should be disincentivised.  But it should be (and btw, actually already is) something that the power company disincentivises, by charging a late fee or whatever.  There's no need for the bank to step in as well and slap another fine on.  Because why do the banks care?  When did banks set themselves up as deciders of right and wrong and decide to take responsibility for punishing people who are crap with money?  The bank should just recover their costs and move on. 

So if I take your car without

So if I take your car without asking, that's just "incurring a debt" - and it's all right if I then give it back?

Not OK, not theft, but in any

Not OK, not theft, but in any case, even if you did that, why is the bank stepping in and fining you $15?

"(b) banks lose an income

"(b) banks lose an income stream."
You mean the income of currency that the banks create then charge you interest on top of? You can't lose when you create currency MdM

No, I mean the income that

No, I mean the income that they gain when they charge people for unauthorised overdrafts etc.

Interesting action though -

Interesting action though - there are a mirad of suppliers of services to me, lawyers included where their costs & fees would take a hell of alot of justifying in courts, yet here we are taking one industry to court because we don't like what they charge us when we take their money off them without asking...interesting

I see no problem with the

I see no problem with the bank charging for a bounced cheque. See it as a disincentive for not having sufficient funds to cover the cheque you write out. As a person on the receiving end of bounced cheques, it pisses me off no end that I have to bank the cheque, then if one of them bounces undo the transaction of all the cheques banked, create a credit for the bounced cheque, re-bank them again, and hope there will be enough funds when I re-present the bounced cheque.
Come to think of it, I should charge my customers $25 for bounced cheques!! Might put that clause in my Terms :)

Banks Overcharging When Simon

Banks Overcharging
When Simon power was MED Minister there was a conference with major financial market players to discuss the financial markets affecting consumer clients. It was decided at that conference, after representations against from the "major market players" translated major Banks, that there would be no attempt to bring in a maximum interest rate.
This is because some of their products clearly do not conform to the CCCFA. Good luck to Slater and Gordon a firm I am familar with through family connections in Australia.
They should also look at the default interest charged on mortgage arrears in respect of the red bank. They have charged 27% on one client I have seen. I thought that bank mortgage default rates were usually 4 to 6% above the normal rate but not so. I have seen 5 or 6 such situations over a 4 year period. I believe that is the tip of the iceberg and the ComCom should have a close look. The District Court in Auckland (for the Auckland area) is meant to maintain a register of mortgagee sale actions as required by statute law but never had. This would make it easy to communicate with red bank ex clients if the information was available.
For mortgage clients whom are in arrears on their mortgages and are trying to catch up it must be heartbreaking when the red bank instigates such practices.
If you or somebody you know has suffered from this red bank practice please comment with email contact phone details as I would like to talk to you regarding taking action to halt this practice.
South Island Dick

How are the fees

How are the fees avoidable?   Do they mean "avoidable" as in you can avoid an unarranged overdraft fee ($15) by paying a dishonour fee ($15)?  Or are banks letting you cancel direct debit authorities now? 
 
Because it's all very well to say "don't write a cheque if you don't have the cash" (btw, no-one uses cheques anymore, which is half the problem--the fortnightly salary vs monthly bill cycle gets out of sync, as there's not exactly 4 weeks in a month, and with automatic payments it's easier to get caught out unawares), but what do you do if you sign up to a 2 year HP contract and 1 year in lose your job?  Ask the finance company behind Harvey Norman very nicely to stop submitting dd requests?  Or should you just close your bank account? 

This case has nothing to do

This case has nothing to do with cheques (who uses cheques anymore?) it's to do with electronic banking and the way the banks do their processing .. fixed payments (automatic debits) that come out of your account at specific times on specific dates .. when you do an eftpos transaction it comes out of your account instantly .. but when you deposit money into your account it gets processed in one of two processing sweeps each day .. the bank is in control .. it does a debits sweep first each day and processes all the automatic debits plus new debits and then does a credits sweep at midday and another one early evening .. if you have any fixed debits to your account you have to make sure you deposit the funds the day before, before 6:00 pm. Now in the scheme of things if you have a debit and a credit hitting your account on the same day, the debit get processed first, potentially sending your account into overdrawn status temporarily, or your payment gets dishonoured and that catches a whole bunch of fees .. the bank is in control and a lot of people living on the breadline get caught out .. $ millions each year