03.But the bank says...
Many consumers have contacted us, saying their bank has contested the points raised by our campaign, particularly that the penalty fees are unfair and unlawful. So we’ve put together some answers to the banks common statements for those consumers who wish to pursue their financial institution further.
So how do you respond when the bank says…
1. “The case law relied upon by the fair fees campaign states fees can be charged provided they are not unconscionable or extravagant. Our bank fees are in line with industry practice and are reasonable.”
Just because the whole industry charges extravagant fees, this does not mean they are reasonable. This just indicates the lack of competition among institutions charging these types of fees.
2. “The amount of the fees and the circumstances in which they were charged were fully disclosed upfront.”
Whether fees are disclosed upfront or not has nothing to do with whether they are considered a penalty. Disclosure does not excuse unlawful conduct.
3.“The fair fees campaign relates to an overseas court case, and it is not relevant to Australia.”
It is incorrect to say that our unfair fees campaign relates solely to overseas court cases. The case law that is discussed in the Unfair Fees Report is Australian law.
The UK regulator, the Office of Fair Trading, ran a test case against a number of banks and financial institutions in the High Court of England and Wales in relation to unauthorised overdraft fees. The Court found that the fees were not penalties in the context of the contracts with the banks. The banks appealed one issue to the UK Supreme Court which also found in favour of the banks under the English unfair contracts terms legislation, which is similar but not identical to the Australian law.
4. “The fees were not charged because of defaults, but because there were insufficient cleared funds in your account. This is not a default or breach of your contract”
Recent case law is very unclear on this question and the New South Wales Court of Appeal has indicated that that the matter may not be settled until the High Court has an opportnity to decide on it (Interstar Wholesale Finance Pty Ltd & Anor v Integral Home Loans Pty Ltd (2008) 257 ALR 292, per Allsop J.). Some decisions indicate that even if the conduct that gives rise to the fee is within the contract (and therefore not technically a breach), the limit on penalty fees may still apply (eg Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656).
5. “The fees were charged in accordance with the terms of your account, and are therefore valid and lawful. They are merely fees for service.”
As outlined above, this point is not settled. However, it is likely that the court would look to the substance of the matter, not the form of the contractual terms. Though a term may require payment as a “fee for service”, if it relates to non-compliance of an obligation of one party, and it is out of all proportion and unrelated to the loss suffered by the other party, then it is likely to be a penalty and unenforceable.
6. "The High Court of England and Wales and the UK Supreme Court have confirmed that the fees are not charged for defaults but are merely fees for service, and are not covered by unfair contracts legislation."
While these decisions can be argued to support the case that the bank fees are not penalties, they do not apply directly as precedent in Australia and they are based on the contracts and arrangements in the UK, not Australia.
7. “Customers should check their account status before making a transaction.”
Consumers should point out to banks the difficulties in checking account status before making a transaction. This is particularly true in relation to periodical direct debits, when a consumer does not know what time of day the payment will be debited.
Consumers should ask their bank or financial institution to introducing systems to provide a greater range of options and real-time information to consumers where there are insufficient funds to make a due payment. These might include simply declining payments without charging a fee, an automated system to notify consumers by email or text message (or perhaps for concession card holders without electronic facilities, by phone), or by automated message via the ATM or EFTPOS system, before the payment is processed.