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).