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As group prepares to sue ANZ over exception fees, senior lawyer warns litigation funder and plaintiff's lawyer usually the big winners in such cases

Posted in Personal Finance

By Gareth Vaughan

A senior New Zealand lawyer with more than a decade's experience in class action law suits in the United States is warning that cases like the one looming against ANZ in New Zealand usually result in the litigation funder and the plaintiff's law firm emerging as the main winners.

The Fair Play on Fees group is pledging to sue ANZ on behalf of at least 14,000 of its customers in a representative action over exception fees saying on Wednesday afternoon that 3,000 have signed up in the last 24 hours. It maintains the bank has over charged customers by as much as $250 million over six years. ANZ denies this and is promising a vigorous fight.

Stacey Shortall, a partner at Minter Ellison Rudd Watts, told interest.co.nz that although the New Zealand case follows a similar, ongoing one in Australia, there are important differences. This includes that Australia has a class action regime and New Zealand doesn't, meaning the action here is through a more challenging representative action through which customers must sign up individually. This means those behind the case are basically advertising for claimants. See more on class actions versus representative actions here.

Shortall noted there was also a "material difference" between the Australian and New Zealand situations in that the Commerce Commission here had looked at some of the fees at the centre of the Fair Play on Fees claim and made determinations.

"That's a fairly material factor to have in the mix," she said.

$15 a pop okay with 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.

Fair Play on Fees is targeting honour or unarranged overdraft fees, dishonour or payment failed fees, credit card late payment fees, and credit card over limit fees. It maintains banks have charged around NZ$1 billion too much for such fees over the past six years.

Lawyer Andrew Hooker, who is fronting the Fair Play on Fees group, says ANZ's charges of $15 per month for an unarranged overdraft, $20 for insufficient funds/dishonour fee, $7.50 for unpaid bill payments, $15 a month for being over the limit on credit cards, and a monthly $15 credit card late payment charge are default events that actually only cost the banks a few cents each. ANZ managing director of retail banking, Kerri Thompson, says this claim is ludicrous and ANZ has mathematical calculations backing up the basis of its fees.

Feltex comparison

The most similar case Shortall could think of in New Zealand was a representative action being taken by Feltex shareholders against former directors of the failed carpet maker and parties behind its 2004 sharemarket float. That case has entered its fifth year and is still yet to go to trial. See more on the Feltex case here and here.

Shortall, who worked for 11 years as a Wall Street litigator in New York, said she had defended class action litigation brought against financial institutions.

"In my experience the merits of litigation often gets talked up at the outset to try and attract plaintiffs to the pool. These cases, if they truly are common interest cases, there invariably are quite complex questions around establishing the claim and as a result the quantum of the claim."

Such cases are always complex and always take a long time to resolve.

"I would expect this to be a long and drawn out battle before there's any clarity as to the strength of that (Fair Play on Fees) claim," Shortall said.

'Talk to your bank'

Speaking from a personal perspective, Shortall said she would try and talk to her bank first and understand what if any charges she might have been hit with, and what might have come from that.

"In my experience in the US where group litigation was brought, the party that often did best out of that was the funder and the plaintiff's law firm involved. There is a lot of statistical analysis in those US type actions with plaintiffs only getting cents on the dollar so they become a conduit for others to benefit," said Shortall.

"The legal system shouldn't be set up for lawyers and funders to be making money. It's set up to ensure people have access to justice."

The parties behind Fair Play on Fees - Australian law firm Slater & Gordon and Australian litigation funder Litigation Lending Services - stand to pocket 25% of any money won through their action, plus getting Litigation Lending Services' costs of between $3 million and $4 million back.

Any defendant in a law suit had to consider reputational consequences, which banks would take very seriously. Thus far we've mainly heard from the plaintiff's lawyer "advertising for claimants", but the banks would get the opportunity to respond and might have very strong responses, Shortall added.

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6 Comments

"The legal system shouldn't

"The legal system shouldn't be set up for lawyers and funders to be making money. It's set up to ensure people have access to justice."
 
An admirable sentiment in need of evidence?

Justice doesn't always come

Justice doesn't always come in the form of a cash payout! Are they saying it doesn't make sense to prosecute a murderer unless the victom's family are going to get a cash settlement?
I would be quite happy if the banks handed over a crap load of money to a bunch of legal firms and the individuals didn't get a cent - at least the banks won't try that again! And a lot of other companies will also take note!

Shortall noted there was also

Shortall noted there was also a "material difference" between the Australian and New Zealand situations in that the Commerce Commission here had looked at some of the fees at the centre of the Fair Play on Fees claim and made determinations.
"That's a fairly material factor to have in the mix," she said.
 
$15 a pop okay with 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.
 
Fair point, but if the Com Com had justified otherwise, is it not the case the Government would have jumped in on the banks' behalf, employing similar tactics that have become evident on behalf of Chorus? Read here and here
 
Nonetheless, lose, lose all round for the combatants - I don't think this type of publicly is good publicity.
 
Chorus found out publicly calling in markers comes with a price and always draws unwanted attention:
 
Chorus made an expensive gamble in rejecting a deal that would have seen it paid just under $14 a month for wholesale copper broadband connections, according to sources close to the failed negotiations.
 
Chorus' share price has been on the slide since the Commerce Commission proposed slashing the regulated price of wholesale copper broadband connections by about $12 a month to $8.93 in a draft decision in December.
 
But the company is understood to have chosen to take its chances persuading the commission to set a higher price or on government intervention.
.

Yeah maybee, but even if the

Yeah maybee, but even if the plaintiffs get very little, at least the litigation will serve as some sort of deterent to the banks rapacious behaviour.  If the government were doing their job, there would be no scope for such action.  In the long run bank customers may benefit a lot as a result of some legal actions. 
The best answer for customers is to take their buisness to one of the NZ owned banks which are generally far more reasonable and retain their profits in NZ.  Remember that $3-4 billion flows out of the country each year in bank profits and anything that helps keep some of that money in NZ is good.

Yep, this is how I view the

Yep, this is how I view the actions....
Im not sure NZ banks are any better BTW.
regards
 

"$15 a pop okay with the

"$15 a pop okay with the Commerce Commission" - can anyone explain this to me? I go into negative by a few cents and the bank 'automatically arranges an overdraft' for this transaction electronically (despite my preference to be declined) - and somehow the bank incurs $15 in costs that I also need to pay for? WTF?
 
Sure, charge a high interest rate on the overdraft by all means, but something that just happens by default in the system with absolutely no human intervention is not worth $15 in costs - it is pure gauging.
 
I smell a very dirty rat in the commerce commission - either that or some incredible stupidity!