How to avoid bank penalty fees

The announcement of a class action against Australia's big banks for fee gouging reinforces why customers need to scrutinise their statements.
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01.The low down on penalty fees


Are you being stung by high penalties for overdrawing your account, paying your credit card bill a day late, or making a direct debit and cheque payments that bounces due to insufficient funds in your account? You’re not alone. This year it emerged that banks are raking in almost $1 billion per year in fees from consumers, and that doesn’t include similar fees that other financial institutions like building societies, credit unions and non-bank lenders are charging.

Some of these contract penalties — for exceeding your credit card limit, overdrawing your account and having a direct debit dishonoured, for example — are excessive (they seem to be a lot higher than the problem costs the bank) and therefore unfair, and probably legally unenforceable. See our Banking section for ideas on how you can get a better deal from your bank, in particular our story on how to switch to a low-fee transaction account.

Our campaign to help you reclaim the fees and to put pressure on banks to reduce them has had some great successes. Thousands of consumers have downloaded our information to help reclaim unfair penalty fees, while public pressure has seen all of the five major banks announce fee reductions. The table below shows the new fees that apply, in some cases from December (see table notes).  

BankDishonourOverdrawn accountCredit card late paymentCredit card over limit
$6 (A)
$6 per day (A)
$20 (A)
$20 (A)
National Australia
$5 (B)
$0 (B)
St George

Table notes

  • Source: the banks’ websites.
  • Dishonour fee applies to periodic payments, direct debits and cheque payments from your account that are rejected due to insufficient funds.
  • (A) From 15 December 2009.
  • (B) From 4 December 2009.

Current fees from the big banks shows account penalties from the five largest banks that continued to apply until October 2009. These are the fees charged on standard accounts (some banks have reduced the penalty fees on concession and basic accounts).

What needs to change

CHOICE wants urgent action to address the problem of penalty fees, including:

  • Banks should provide justification for their penalty fees — even in cases where they’ve been reduced. Without that, we don’t know if the penalty bears any relation to the costs incurred by the bank.
  • Inward cheque dishonour fees should be eliminated by all institutions. It’s clearly not your fault if someone writes you a cheque when there isn’t enough money in their account to cover it.
  • Direct debit dishonour fees Financial institutions should give options to customers before processing transactions on accounts with insufficient funds, giving them an opportunity to avoid the fee. It’s unfair to charge the customer for direct debit dishonours — the bank doesn’t provide any service when an automatic payment like this is declined.
  • Over-limit credit card fees should either be eliminated or set at a reasonable level (these fees didn’t exist seven years ago and are now over $30). Customers should be notified that the transaction would cause their credit limit to be exceeded and be given an option to have the transaction declined at no cost, or processed with a reasonable fee.
  • All other penalty fees should be related to actual costs incurred by the institution.
  • All basic/concession bank accounts should eliminate or dramatically reduce penalty fees. You can open a basic/concession account if you have a Commonwealth Government Health Care, Seniors Health or Pensioner Concession Card — see How to avoid penalties for more.
  • The Financial Ombudsman Service (FSO) should be able to investigate consumer complaints about penalty fees and make a ruling on whether they’re excessive and legally enforceable. At present, the FSO says its Terms of Reference don’t allow it to consider the amount of a disclosed default fee. CHOICE isn’t convinced this is correct, but if it is, we think those terms of reference need to be reviewed.

Since the start of our Fair go on fees campaign, some of these fees have been reduced. You can read about developments at campaign news.



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