The law abhors a penalty

So the banks are being sued for excessive fees.

A $220 million High Court challenge against excessive bank fees has kicked off with claims ANZ Bank customers were unfairly penalised by over-limit charges.
Lawyers representing the customers today argued charges for overdrawing accounts, worth up to $45 per breach, were designed purely to enrich the bank.

This argument is a bit hard to take. When you begin a banking relationship you normally sign a contract that includes the fees that you’ll pay for various services including the fee you pay for late payments or overdrawing etc. etc. This is a straight-forward contract.

Of course, in a competitive market we would expect these sorts of fees to be competed away and that is exactly what we see here.

Nicole Rich’s study could have been the template for the British consumer action. It comes down to there being no provision in contract law for penalty provisions beyond recouping actual losses.
It didn’t take too long for the message to start getting through to the banks.
It had been a very nice little earner, part of the furniture, but once its dodgy legal underpinning was exposed, the racket was bound to end.
NAB read the wind and made a virtue of necessity, gaining some competitive advantage by being the first to cut the odious fees, the rest of the gang of four gradually following suit to a greater or lesser extent.
Charge of the class action brigade
So, with the battle fought and pretty much decided, along come the class action brigade, corral some aggrieved parties on the promise of something for nothing – or perhaps not much for nothing. By the time the litigation funder takes a fat profit and the law firm takes fatter fees, the members of the class (maybe only a minority of all the people who have paid penalty fees of one sort or another over the years) divvy up what’s left.

This is what I said to ABC radio yesterday:

Professor Davidson says competition between the banks is what will bring fees down.

“But it will charge what they think they can get away with, but if there’s push-back from customers they will lower their prices.

“That more or less happens all the time.

“That’s what we’re seeing here and the competitive policies will actually keep so-called excessive charges in check.”

The problem is describing these as ‘penalty fees’ as opposed to simply being a fee for service. If you don’t like the service take your business elsewhere.

Update: Legal Eagle has her say here. She sets out the legal position and argues that it is simplistic to argue – as I have – that competition would drive down prices. We’ll each have to accuse the other of being simplistic and that’s fine. Read the whole thing – but this is an important point (emphasis original)

Finally, as a remedies and restitution lawyer, I have no problem whatsoever with the proposition that if the bank has illegitimately charged customers fees, then they should be made by the court to pay those fees back to customers (subject, of course, to defences). Isn’t that what law is all about, surely?

That statement is true as far as it goes and LE has emphasised the word ‘has’. I would emphasise the word ‘illegitimately’ – that is the point – I don’t think that the banks have illegitimately charged anyone. Now I fully understand that the law may have a different view on that but when the ABC phoned me up they weren’t looking for a legal opinion they wanted an economic opinion.

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65 Responses to The law abhors a penalty

  1. Legal Eagle says:

    The problem is this: if no one had blown the whistle on the fees, the banks would never have removed them. Thus, the market required someone to point out that the fees were technically speaking illegal before the banks would pull their heads in.

    I think I am going to have to write a post on this explaining how lawyers view this, because I’ve just written about five paragraphs… Suffice to say that (a) you’ve inspired me to explain the way the law views this; and (b) the rule against penalties is a very long standing common law rule, and in my opinion, the banks are likely to have contravened it.

    I’m pleased that the whistle was blown on this practice, and I’d like it to be blown in regard to the practices of mobile phone companies too. The question I have for you is: if there’s no lawyer to blow the whistle, and if all the banks charge penalties – where do I go with my money?

  2. Penndragon says:

    For once I am going to completely disagree. The law of contract facilitates commerce not issues involving crime and punnishment. Commercial law should not facilitate punishing customers. A fee for service is acceptable, damages as compensation for breach of agreement is acceptable but an agreement imposing a penalty that is way out of proportion to the damage (many times higher) is and always has been abhorrent to the law and so it should be.

    This has been the law for hundreds of years and it is wrong to allow banks to use their superior bargaining power to rip people off and ignore the law as they have done blatently for years. Why should commercial law support it? I have hoped for several decades that a way would be found to challenge this money gauging practice but the legal costs of a challenge were always a problem. It’s a little later than I hoped, but at last someone is picking them up on it and reminding them that they should obey the law as they expect their customers to do.

    What if Qantas imposed a contract term imposing a $5000 fine on old ladies who turned up late or passengers who snored? How many people have been hit with a charge for exceeding a credit card limit because the bank puts it over with an interest charge? Or a penalty for late payment which then triggers a separate over limit charge?

    This sort of thing is wrong and will continue if only a small group are affected, particularly if the penalty relates to some minor transgression that can be used as justification. Economics and markets will have limited effect if at any one time only a small group is affected. The long law breaking history of these charges shows that market forces are especially inefficient in protecting small groups from small pernicious penalties masquarading as fees.

  3. Sinclair Davidson says:

    Banks are for-profit organisation and you guys want something for nothing.

  4. Gab says:

    No, banks are a charity. /sarc

  5. candy says:

    There’s good credit unions around, it’s not all banks, shop around.

  6. Sinclair Davidson says:

    Next thing people will be challenging library book overdue fees.

  7. Gab says:

    Or a penalty for late payment which then triggers a separate over limit charge?

    Funny thing about that, it’s avoidable. I know, who knew, right?

  8. Gab says:

    Next thing people will be challenging library book overdue fees.

    And late payment fees for utilities.

  9. Jarrah says:

    “you guys want something for nothing.”

    Not nothing, just a reasonable sum.

  10. Sinclair Davidson says:

    Jarrah – sure. But that just begs the question “what is reasonable?” As I said to the ABC, Banks will charge what they think they can get away with.

  11. Penndragon says:

    “Banks are for-profit organisation and you guys want something for nothing.”

    No, not at all. All we want is a charge that reflects the real cost to the bank plus a reasonable profit element. In short, a fair commercial bargain which gives each party a reasonable result.

    In addition I would like to have a bank that is a law abiding citizen and not one that just pretends to be. Alternatively, perhaps we could in return be allowed to unilaterally waive the contract law requiring repayment of loans?

    The same applies for library overdue fees, but I note that there is signifcantly more cost involved in managing the retrieval or replacement of overdue books. It is not just the cost of an extra automated computerised account entry.

    I might add that the recent reduction in some of these fees is probably not so much due to market forces but a realisation that this case is likely to be lost by the banks and if not then additional regulation may result if the legal system does not sort out this annoyance. At the same time banks seem to have also increased services to remind people of overdue payments to justify these charges and thereby keep them.

    At the end of the day Wayne Swan may rush in to placate voters and make the naughty banks behave. It should be worth a few desperately needed votes if accompanied by a bit of bank bashing and class warfare language.

    Sometimes the banks are their own worst enemy.

  12. Splatacrobat says:

    And late fines for videos.

    183,000 Queenslanders have been barred from video stores after not paying late fees worth over $23 million.

  13. Jarrah says:

    “But that just begs the question “what is reasonable?””

    Courts face this question every day.

  14. Sinclair Davidson says:

    Penndragon – so prices have to reflect costs. Why don’t we just go to the full socialist model?

  15. Sinclair Davidson says:

    Courts face this question every day.

    … and?

  16. JC says:

    Sometimes the banks are their own worst enemy.

    Transact in cash then and atop the whining. Your socialist model is a crock of shit.

  17. candy says:

    The credit unions are good like I said and if you get over the feeling that you must only deal with one of the big four banks, it’s all good, and gives a fright to the big banks.

  18. Penndragon says:

    “Penndragon – so prices have to reflect costs. Why don’t we just go to the full socialist model?”

    We are dealing with law developed in a time of early and relatively unrestricted capitalism and it works fine. The problem is the difficulty of persuading some large and powerful institutions to obey these laws, when they have found a way around them.

    In other words markets need rules to function and participants should obey those rules. The problem is in implementing market rules in practice.

  19. Sinclair Davidson says:

    So paying your bills on time isn’t a rule?

  20. Penndragon says:

    “So paying your bills on time isn’t a rule?”

    It is a term of an agreement for the breach of which the rules provide a range of remedies. The remedies do not include punishment, but focus on repairing the damage done or in some cases termination of the agreement and repairing the damage. Punishments are the focus of the criminal justice system

  21. Jarrah says:

    “… and?”

    And therefore the fact it needs to be asked doesn’t mean it can’t be answered.

  22. dover_beach says:

    I’m with Penndragon on this.

  23. twostix says:

    It is a term of an agreement for the breach of which the rules provide a range of remedies. The remedies do not include punishment, but focus on repairing the damage done or in some cases termination of the agreement and repairing the damage. Punishments are the focus of the criminal justice system

    What absolute garbage.

    Do outrageous “penalty” rates that exist in so many enterprise agreements constitute a “punishment”?

    By your logic they do and so are illegal.

  24. oil shrill says:

    What absolute garbage.

    Do outrageous “penalty” rates that exist in so many enterprise agreements constitute a “punishment”?

    By your logic they do and so are illegal.

    Penndragon is referring to the law of contract, not industrial law.

    Under industrial awards, penalty rates are not “penalties” in the normal meaning, they are additional payments to compensate employees for the inconvenience of working longer or unusual hours.

  25. twostix says:

    Under industrial awards, penalty rates are not “penalties” in the normal meaning, they are additional payments to compensate employees for the inconvenience of working longer or unusual hours.

    Or in other words “penalty” rates are designed to “penalise” the company for requiring the workers to work outside of the agreed upon or “contracted” hours or conditions.

    You’re right, nothing like a “penalty” for violating a contract.

    Lets try this though:

    Bank fees are not “penalties” in the normal meaning, they are additional payments to compensate banks for the inconvenience of people not paying their bills or for overdrawing their accounts.

  26. Troy says:

    What makes you say that banking in Australian is a ‘competitive market”? I mean, four pillars policy n all, I would think that this is the result of a non-competitive market where they don’t have to worry too much about losing customers

  27. Driftforge says:

    Having been caught out a few times with this when I was a student, I’d have to say that this practice pissed me off no end. If you are going to charge $40 or so for an overpayment, you can afford to give me a bloody phone call and see if there is a way to sort it out. half the time there was money is a second account that could simply have been transferred over to cover the bill. Still annoys me years later.

    Even worse, they often charge the other party as well.

    It’s an absolute crock of shit, and one of the main reasons I did move away from the big banks at that time.

  28. johanna says:

    The difference is that in a normal civil contractual dispute, the aggrieved party has to prove a case before they can avail themselves of your money. With the banks, they just take your money and then you have to prove that they didn’t have the right to do it.

    I don’t think that ‘excessive charges’ is the issue here. The point is that we have no option but to deal with them – you can’t get your wages paid in cash these days in the legal economy. You can’t pay most of your bills in cash either. If you want a non-loan-shark loan, you have to deal with a bank.

    It is all very well to say that customers agree to the terms, but as someone who gets booklets every couple of months with thousands of words in legalese announcing the latest ‘variations to the terms and conditions’ from the banks I deal with, it is just unrealistic to claim that there is anything approaching symmetry between banks and their average punter customers.

    In this case, the big 4 cartel had a manifestly illegal penalty system on the go, and pulled back only when forced to. In this case the banks are both the judge and the prosecution – they just take your money (because they have access to it) and it is up to you to demonstrate that they shouldn’t have. That is hardly in the spirit of free contractual arrangements. No other business can do that.

  29. Driftforge says:

    What we have isn’t really a free market. It’s played asymmetrically, on whatever field has been set. Over time the tendency is for the field to get manipulated so that advantage lies with parties with connections to power.

    This sort of thing is just taking advantage of those without position. It’s graceless. Sometimes you need to choose not to do the things you can simply because its not appropriate, even if it is legal.

    This sort of thing is why people passionately hate banks.

  30. Gab says:

    No other business can do that.

    utility suppliers and credit card companies, hire car companies – these do the same, charge penalties for late payment or charge for ‘damage’ or overcharge for petrol if the tank is not full on return. I’d consider these in the same category and yet there’s no class action taking place.

  31. johanna says:

    Gab, I am not disputing the right to charge penalties for breaches of contract. What I am disputing is the right to take your money unilaterally because they claim you have breached the contract.

    Your examples are salutary. Hire care companies are notorious for ripping off customers after cars have been returned for purported damage, to the point where it is recommended that you take photos of the car before you leave and when you get back. Some hotels have rackets going where they take a few hundred dollars of ‘safety deposit’ off a customer’s credit card, to be returned at their leisure – which can result in the unwitting customer exceeding their limit.

    None of this has anything to do with free contractual arrangements, and everything to do with companies who have access to your money having a free lend (or deduction) of your funds without your having any contractual reciprocity.

  32. Gab says:

    Thanks, Johanna. I still don’t see the difference then between what the banks do and what the ones mentioned above do, including utility companies charging for late payment fees. We’ll just agree to disagree.

  33. John A says:

    Penn and LegalEagle, a pox o’ both your houses!

    The law abhors a penalty, but lawyers love a victim.

    Over the last century or less, we have shifted from a sense of duty (thank you, Pirate Captain) to a whinging sense of entitlement and victimhood.

    Commercial penalties for failure to fulfill one’s responsibility/ies were never an issue until someone came up with a legally plausible case of victimhood.

    Such penalties had a most salutary positive effect – a public good – in that they provided strong incentives towards doing the right thing rather than the wrong thing. [More philosophy: these days people even argue about defining “right” and “wrong”! Where will it end? “Meaningless, meaningless, says The Preacher”]

    Those exorbitant fees kept us up to the mark in meeting our obligations, because the penalty for failure was too severe to bear. The ultimate penalty for such failure was bankruptcy, and look at how hollow THAT is these days.

    And as to penalties for breach of contract, are they not usually discernible from the terms of the contract? It is not necessary for courts to become involved – EXCEPT that no-one wants to pay up, and a plaintiff has to drag a defendant before a supposedly independent tribunal to get an enforceable ruling.

    It might be possible to eliminate those fees as a matter of law, but that still doesn’t make it right (Yum-Yum).

  34. Pingback: Skepticlawyer » Yes, the law really does abhor a penalty

  35. coz says:

    Sinc – This argument is a bit hard to take. When you begin a banking relationship you normally sign a contract that includes the fees that you’ll pay for various services including the fee you pay for late payments or overdrawing etc. etc. This is a straight-forward contract.

    Contracts aren’t binding unless they meet basic fairness guidelines. I can force someone in a weak position to sign anything, that doesn’t mean whatever ‘contract’ I’ve devised is lawful. ‘Full disclosure’ (ie honesty) is a given. The banking ombudsman doesn’t oversee every contract with every consumer, it takes a complaint, and people should complain more.

    Not my special subject but usury principles are very old. I’m always successful in a phone call challenge on basic ‘fairness’ stuff over bank charges, despite their seeming one sided right to vary the contract at any time – try it sometime, you gullible numpties.

  36. Driftforge says:

    What breach of contract? The banks sting simply for insufficient funds to make a transfer. No contract need be involved.

    Nah, this is just legal theft. For refusing to conduct a service, the banks get to dip both parties. Screw that.

  37. bobby b says:

    From a different country, but an essentially identical value-of-the-individual western-world system of moral-values-turned-law as yours, so I think this applies:

    From contract law back when Shakespeare was writing nice things about lawyers, when you are damaged by someone who breaches a contract made with you, you are entitled To Be Made Whole. Legal term of art, meaning a court should ensure that you come out just as you would have had the contract NOT been breached.

    Anything beyond that is considered to be a penalty, and we don’t have the legal right to impose penalties upon one another, even by agreement. Right or wrong, slackard-reward or not, there we are.

    Unless . . . . (there’s always an “unless”) . . . unless, right in the contract, the parties agree that it would be next to impossible to figure out an exact amount by which my breach of our contract causes damage to you, but we do agree that my breach WILL cause damage to you, and so we mutually agree on some arbitrary figure that bears a reasonable relationship to what one would expect such a breach to cost to repair. Such “liquidated damages” are the closest to a penalty that our contract laws allow us to impose on each other.

    Some banks have contract clauses that call these fees liquidated damages. Some don’t. Should be fun to watch.

  38. bobby b says:

    Those exorbitant fees kept us up to the mark in meeting our obligations, because the penalty for failure was too severe to bear.

    Similarly, thieves in certain Islamic countries get various body parts hacked off when they get caught, which is a powerful disincentive to steal again, plus it helps to encourager les autres to stay honest, too.

    But even good ideas can be overworked.

  39. Nick Ferrett says:

    I think it’s really hard to rest simply on the proposition that the free market should prevail on this topic. Ultimately, the person trying to enforce a contractual provision is calling on the power of the state to assist him. He is also relying on the resources of the state which, in large part, he has not paid for. The state says, in response, “we will assist you to recover a loss, but we won’t assist you to kick the crap out of someone because they didn’t do what you want.” that seems like a fair, rational response to me.

    The state provides plenty of other mechanisms to allow private interests to protect capital and guarantee performance of contracts (eg guarantees and mortgages) so I don’t really see why the exclusion of penalties is any great threat to freedom of contract or free trade. In any event, it depends on your view of freedom of contract. The English idea of contract is that some promises ought to be kept and that the value of those promises ought to be paid if they aren’t kept. It is difficult to see how arbitrary penalties fit into that paradigm.

  40. Nick Ferrett says:

    Contracts aren’t binding unless they meet basic fairness guidelines. I can force someone in a weak position to sign anything, that doesn’t mean whatever ‘contract’ I’ve devised is lawful. ‘Full disclosure’ (ie honesty) is a given.

    These sentences are almost completely incorrect; especially the bit about full disclosure.

  41. coz says:

    So a sex slave who is forced into signing a contract, that’s lawful is it? You feel it is lawful to deceptively enter into contracts, that those contracts are binding?

  42. Penndragon says:

    “183,000 Queenslanders have been barred from video stores after not paying late fees worth over $23 million.”

    So if the those barred knew a thing or two these penalties cannot be recovered. I would expect such a collective boycott may breach the pro competition provisions of what used to be known as “The Trade Practices Act.” The boycott arrangement will probably make it harder for the traders to negotiate a settlement, if they have not already sold the largely (in reality) worthless debts.

    183,000 queenslanders might have been prepared to pay the extra rental and might still be renting from these businesses. Now most of them probably have moved to renting on line or by mail earlier than they would have done, so these doomed rental businesses (because of on line rental etc) have cut off trade and inconvenienced customers.

    Every one has lost out because of their greed and law breaking. The market will ultimately fix it but it could have been much more painless for all involved if the rental businesses had just obeyed the law instead of illegally gauging money from customers. The less said the better about those who think this kind of behaviour is alright and readily paid these imposts …

  43. Nick Ferrett says:

    So a sex slave who is forced into signing a contract, that’s lawful is it? You feel it is lawful to deceptively enter into contracts, that those contracts are binding?

    A contract with the object of sexually enslaving someone would be void because it would be illegal. If sexual slavery was legal, the contract would be fine. The question isn’t one of fairness.

    Whether I feel it is lawful to deceptively enter into contracts is irrelevant. More importantly, that is not what you said. You said:

    ‘Full disclosure’ (ie honesty) is a given.

    It isn’t. It is okay to withhold information when negotiating a contract unless the law imposes an obligation to speak, and it doesn’t always do that. Full disclosure is not a given. It is anything but.

    There are mechanisms in the law for avoiding contracts where people have been misled, but they do not rise to the level that you suggested.

  44. . says:

    No, everyone has benefited as thieving customers have learned a lesson about non-payments.

  45. . says:

    How do banks NOT give out full disclosure? They are regulated to do so. If they don’t fully disclose then some fools at APRA and ASIC ought to get fired with their superannuation revoked.

  46. Nick Ferrett says:

    Sorry, I thought you were talking about contracts generally. Banks are required to disclose fees, and they do.

  47. Pedro says:

    The banks do not give out full disclosure. They do give extensive disclosure of the contract terms. But that is irrelevant to whether a late fee is a penalty.

    Coz, words fail me.

    I agree with everything Nick says. This debate is stupid. It surprises me that anyone should think the law would be in the business of supporting oppression.
    Not all late fees will be oppressive and so they are not automatically penalties.

    Take the video shop as a comparison to a bank. The bank is in the business of lending money, if your repayment is late it will be a drop in the ocean so the extra fee is hard to justify. It is different for the video shop because they are also concerned to protect their goodwill be managing demand for movies. There is a second cost to the shop, which is the disappointed customer who is waiting to get the movie next.

  48. . says:

    So what about maintaining bank solvency, is that important?

  49. coz says:

    ‘Full disclosure’ (ie honesty) is a given.

    It isn’t. It is okay to withhold information when negotiating a contract unless the law imposes an obligation to speak, and it doesn’t always do that. Full disclosure is not a given. It is anything but.

    Isn’t that ‘dishonour’. So if you are proposing marriage to someone but conceal the fact that you have a lover you intend to keep for the duration of the marriage, you don’t see anything wrong with that?

    There are mechanisms in the law for avoiding contracts where people have been misled, but they do not rise to the level that you suggested

    How idealistic.

  50. Nick Ferrett says:

    Coz, I think we’re at cross purposes. When I say that full disclosure is not required, I’m not talking about whether I think that’s okay. I’m simply saying that the law doesn’t require full disclosure.

    As for the suggestion that I’m being idealistic, again, I’m simply giving my understanding of what the law actually says, not what I want it to say.

  51. Nick Ferrett says:

    And Pedro is right about the video shop thing. When a video shop charges a late fee, it’s charging what it could have rented the video out for if it had been returned on time. That is a reasonable pre-estimate of damages as distinct from some arbitrary punishment for failing to return on time.

  52. coz says:

    The point of full disclosure and honest contracting is that it prevents injury and thus the need for courts, lawyers and judges. Lawyers quite like unfair contracting because it creates work for them.

  53. . says:

    I’m more shocked by “resident lawyers” having a snooty attitude to cromulent bank solvency!

  54. papachango says:

    I’m not sure about business to consumer, but in business to business contracts you can get around the issue of penalties / liquidated damages being subject to a court interpretation of actual costs incurred.

    You avoid any references to those two phrases and write a ‘service level agreement’ instead, and specify ‘service credits’ to apply if expected service levels aren’t met.

    So for example, say you’ve got a contract to outsource your call centre. One contractual service level might be that 90% of calls are answered within 30 seconds, or no fewer than 2 % of calls are abandoned. It would be difficult if not impossible to determine the cost to your company of a missed call (lost sale opportunity) caused by someone who was put on hold and gave up.

    So you agree with the supplier that if they miss the above target you’ll take 5% off the monthly invoice. It’s an arbitrarily negotiated figure rather than a pre-estimate of loss, but you could argue it’s a penalty, especially if that word is used in the contract. You could argue that the actual contract price is less and that you’ll pay them a 5% bonus if they meet the targets, but you want to set the expectation that they need to meet this target. So, you call the 5% reduction a ‘service credit’ instead of a ‘penalty’ and effectively structure the contract so that you’re paying different agreed rates for different service specifications.

    I don’t think the courts can overturn this, and it’s subject to negotiation, which is subject to market competition, so that service credits generally aren’t excessive. Even if you’re a big buyer and have lots of bargaining power, the point of a service credit is to encourage supplier performance, not to send them bankrupt, which often just as bad for the buyer. If they really underperform you put in other contractual mechanisms to terminate the agreement early.

    Disclaimer – IANAL, but I work with corporate lawyers to draft these sorts of agreements. Skepticlawyer correct me if I’ve gotten anything wrong.

  55. Driftforge says:

    Lawyers representing the customers today argued charges for overdrawing accounts, worth up to $45 per breach, were designed purely to enrich the bank.

    What has this to do with contracts at all? This is the bank refusing to perform a service because the preconditions for that service haven’t been met.

    They should not be able to help themselves to money they hold on your behalf simply because they refuse to perform a service.

  56. Nick Ferrett says:

    I think the key is in the extract from the ANZ case published by LE on skepticlawyer. The judge points out that a dishonour fee is not charged in response to a breach of contract but rather in response, effectively, to a request that the bank extend credit to the customer. The bank considers whether to exercise the discretion and decides against it. There is some artificiality in that given that the bank is not exercising discretion in a particular case but instead applying rules across a large number of cases, but it nevertheless points to the availability of drafting methods to get around the problem.

    In my view, there would be no problem with a contract for a call centre service which said you are entitled to be paid $x if you deliver service at quality level 1, and $y if you deliver service at quality level 2. Delivering quality level 2 would not constitute a breach of the contract, merely a failure to establish an entitlement to remuneration at the higher level. Same thing with bonus schemes for employees. The employee doesn’t breach his employment contract by performing at a mediocre level, he just doesn’t establish his entitlement to be paid a bonus.

  57. johanna says:

    Disclosure in agreeing contracts is complicated. In the pure sense, ‘full disclosure’ is impossible, because a party never has perfect knowledge, nor can they anticipate everything the other party wants to know. OTOH, deliberate deception or misleading (if proven) can render a contract partly or wholly void.

    Further, when the bank sends me one of its booklets of ‘changes to terms and conditions’, being 5,000 words of legalese in small type, every few months, if I am an ordinary punter (as opposed to, say, a large corporation with legal advice on tap) I can argue that it is unreasonable for me to have grasped that sub paragraph 17(e) on page 27 means that I have agreed to pay a $5000 penalty if I overdraw my account by a few dollars.

    In that case, the bank has broken two rules – one about reasonable disclosure and another about imposition of harsh and unreasonable penalties.

    Banks are a special case because not only can they take your money without your knowledge or permission, they have given themselves the right to raid other accounts you hold with them if they decide you have done the wrong thing WRT one account. At least the hire care shonks et al only have one way of screwing you – via a single credit card or nominated account.

    That’s why I keep my few shekels spread across different banks. So far, they haven’t figured out how to raid my accounts with another bank if they feel like it. But, I bet they are working on it!

  58. Driftforge says:

    that competition would drive down prices

    The thing here is that no bank is looking to attract customers by driving down these charges. They are looking to dissuade customers who are going to be a hassle by this means. Dropping the charges would be counter-productive.

    There is little ecomonic gain to be had from this class of customer, so no benefit to driving down prices.

  59. Pedro says:

    “So what about maintaining bank solvency, is that important?”

    So Mark, you want the Courts to fret about bank solvency when considering the law of contract?

    Legal Eagle, don’t forget that in Ringrow, the Court was pretty clear that you could have a penalty without it being a Penalty. More is required than just recovery in excess of likely damages and a degree of freedom of contract is allowed.

    Yes Nick, but the old higher lower interest two-step you mentioned on skepticlawyer is pretty artificial in most cases.

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