Statistics released by the Reserve Bank today reveal major banks have recouped the income they lost after cutting transaction account penalty fees, such as overdrawn account fees and direct debit dishonours, with new penalty fee revenue from credit cards and personal loans. Household income from penalties, known in the industry as “exception fees”, has been maintained at approximately $1 billion per year.
“There was a shift in household exception fee income away from deposit accounts towards loans,” the RBA report states. “Exception fees on credit cards continue to make up the largest share of exception fees paid by households, growing by 10 per cent over the past year. Exception fees on personal loans also grew significantly.”
Overall, bank fee income (including penalties) from households increased by 3% to $5 billion in the year to 30 June 2009. Table 2, below, shows this was due to housing loan fee income increasing by 17%, which was much higher than the average annual growth of 7 per cent recorded between 2003 and 2008, and broadly in line with growth in housing lending. “The increase in housing fee income was driven by establishment and early exit fees, with the available information suggesting that break fees on fixed-rate loans accounted for a significant proportion of the overall growth in fees,” the RBA states. “Fee income from personal loans grew by 14 per cent, which is attributable to both an increase in account-servicing fees and an increase in exception fees.”
In what has become customary at this time of year, the Australian Bankers’ Association (ABA) also released a fee report today, in which it attributes a 1% increase in the average cost of bank fees for households, estimated at nearly $600 per year, to people using their banking services more frequently. “Customers are completing more transactions on more accounts, taking out more loans and are buying more products and services from banks,” the ABA states. “At the same time, banks have cut some fees on transaction accounts, reducing the cost of those accounts. The result of these two factors combined - increased volumes of business and fee cuts - meant that the average cost of banking per transaction has fallen for households.”
The RBA figures relate to the year ended 30 June 2009. Since then, some positive changes have been made, including penalty fee reductions on transaction accounts as a result of our sustained fair fees campaign. These improvements are likely to be reflected in statistics for 2010 when released next year. But that won’t change the real issue to emerge from the RBA’s release today, which shifts consumer focus to personal loans and credit cards, where penalty fee income has offset any reductions in transaction account fees.
CHOICE Director of Policy and Campaigns, Christopher Zinn, says the statistics show that penalty fees are still as important an issue for consumers as ever. "Some credit cards have lower penalty fees than the $30-$31 average," he says. "Our previous research found that at $5 and $0 respectively, NAB's late payment and over-limit credit card penalties are the lowest of the big five banks. Consumers should make sure they find the best value card."
Table 1: Penalty fee income from households, source RBA.
|2008 ($, million)
||2009 ($, million)
|- other deposits
| - housing
| - personal
| - credit cards
Table 2: Banks' fee income from households, source RBA.
||2007 ($, million)
|| 2008 ($, million)
|| 2009 ($, million)
|| Growth 2009 (%)
Average growth 2003-08