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.