Are banks allowed to charge penalty fees?
At CHOICE, we think banks shouldn't be allowed to charge customers more than it costs to fix a routine banking mishap such as a temporarily overdrawn account. We reckon about $5 would be fair after the bank has tried to run the transaction through a few times, not the $45 - or worse - that banks have been known to charge.
The good news is that the Federal Court has agreed, calling for ANZ to reimburse about 43,000 customers for penalty bank fees as high as $45 (in this case it was penalties on late credit card payments). Customers have also sought to recoup unfair fees from BankSA, Bankwest, Citibank, Commonwealth, NAB, St George and Westpac.
The argument from consumer rights advocates like CHOICE – as well as legal professionals – is that banks shouldn't be allowed to impose fines on customers. Bank penalty fees have come down considerably in recent years, but there are still high ones out there – and they're as unfair as ever. We are cautiously optimistic that the era of high penalty fees is coming to an end, but in the meantime you can take a few basic steps to make sure you don't get stung.
What kinds of penalty fees should I watch out for?
- Periodic payment dishonour: You ask your bank to make regular payments to another account (for example to pay your rent or a bill) but when the payment is processed your account has insufficient funds and the transaction is declined (similar to direct debit dishonours).
- Overdrawn account: You write a cheque or authorise a payment from your account but the transaction causes your account to be overdrawn.
- Cheque dishonour (outward): You write a cheque; when it's presented for payment your account doesn't have enough funds for the cheque to clear, so the cheque is dishonoured and you're penalised.
- Cheque dishonour (inward): You present a cheque to your bank and it's dishonoured by the bank of the person who wrote the cheque.
- Stop cheque: You write a cheque but then ask your bank to cancel it and stop payment. You may be charged another fee if the cheque is subsequently presented for payment by a third party.
- Late payment fee: You don't pay the minimum amount by the due date. These penalties are sometimes even applied more than once in a statement period. Some credit unions charge $15 every seven days until a late payment is received. Remember, just paying the minimum (for example, 4% of the remaining balance) means you're charged interest on the other 96% of your debt.
- Over-limit fee: You exceed your credit limit, even by a small amount. With some credit cards the same penalty can apply whether you're $1, $1000 or $10,000 over your limit, but some will charge incrementally (imagine a speeding fine that increases according to how far over the speed limit you were travelling!)
How can I avoid penalty fees?
- Choose an account that doesn't charge penalty fees, or an account that charges lower penalties. It's a no-brainer, but it's the best approach. Simply check the bank's fee schedule on its website (or check the Product Disclosure Statement).
- If it's too late for that, contact your bank and ask for penalties to be reversed. Many consumers have been successful at getting their penalty fees reversed or waived.
- Know your account or card. Be familiar with how penalty fees are applied so you have better odds of avoiding them.
- Know your incomings and outgoings. Check that expected payments have been made into your account, and be aware of the timing of direct debits, so that you have enough in your account to cover them.
- Arrange for automatic payments to your credit card. They can be handy to ensure you at least pay your minimum monthly amount due each month, to avoid late payment fees.
- Open a basic account. If you're eligible for a concession account, you can lower your general transaction fees, and some banks reduce your penalties too. Check what your financial institution offers. A number of banks have lower penalties for concession accounts.