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Wednesday, May 19, 2010

So we're suing the banks. Where to next?

Sooooooooo, the latest big news in the Aussie finance world is the class action against the banks, on behalf of “ordinary Australian” customers who have been “gouged” by “excessive” and “unconscionable” fees imposed by the banks - when those customers breach their banking contracts.

And customers have been signing up to the “no win-no pay” case in droves. At one stage last week it was more than 1,000 per hour.

I told you that this had sparked a heated battle between myself and my Accountant partner Mick (yes an Accountant and Financial Adviser together – such an exciting couple). So I wrote down my take on the situation, and sent it to Mick for his “right of reply”. Below is the full and unabridged version :) Please let me know who you think the winner is!

Caren says: I wonder if bank shareholders – many other “ordinary Australians” – will be happy if the case gets up and their dividends are slashed? And have any of them been caught up in the hype and signed up to the class action without fully understanding the consequences?

Mick says: I’m sure many “ordinary Australians” have indeed been caught up in the hype, perhaps without thought to the impact on dividends… But in many cases I believe it’s simply a case of “why not?” IMF are funding the court case, so it doesn’t cost anything to participate. From a personally selfish perspective they may even get a win from the case and we may still get our dividends, albeit potentially lower dividends…. I’m not convinced the dividend will be too much lower given that the amount they are asking represents around 2% of one year’s earning….

Caren says: The basis of the case seems to be a Queen’s Counsel opinion that because the actual cost of dealing with the breach of contract is much lower than the fee charged, then the banks had no contractual right to impose the fees. This is despite the fact that the customer overdrew their account, wrote cheques that bounced, paid their bill after the due date etc. I’m not sure any of us can claim that we didn’t realise we’d get penalized for these actions.

Mick says: Under the terms and conditions of operating an account (the big fat book you get every time you open an account; but no one reads), yes you are agreeing to the fees and charges and part of that includes penalties when you even slightly breach the terms – eg. overdraw your credit card limit or business account.

However, the Australian Securities & Investment Commission (ASIC) the regulatory body that governs these matters determines that the fee or ‘penalty’ must fit the cost for the bank. The argument is that when the banks have set their fees, they have applied an “arbitrary cost” across the board to all customers, regardless of the size of the breach.

So as an example you go over your credit card limit by $5 and receive a $30 penalty. You can’t tell me that the cost to the bank to remedy the over-draw is $30! Especially with technology. That’s the principle of the court case - make the penalty fit the crime… That’s the basis of our court and legal system, and Caren you should know that seeing you’re always throwing legal principles at me to win an argument.

Also seems odd that 6 months or so ago, the fees were voluntary reduced by the banks, with NAB leading the charge. For example to be overdrawn now costs $5 for many banks, not $30 which is more realistic and commensurates with the cost of remedying the breach. How coincidental. Perhaps they had wind that this class action was afoot….

Caren says: Hey, that was way more than your alotted space! I should point out, I’m not arguing against the fact that the banks might be ripping people off with these fees, I’ve certainly copped a few in my time, but it makes you wonder where it could lead. Will lawyers sue on behalf of all plasma buyers who purchased before the price fell? Presumably the manufacturer’s cost was much lower than the retail, even wholesale, price - particularly in the early days. What about blue-ray DVDs?

Mick says: Change in prices is just simply market forces, not a breach of law. It’s Economics 101 - “supply and demand”… There’s no law against making money and the margin will always be what the market will bear. Too much competition will lead to lower margins, and not enough competition will lead to higher prices because of higher seller margins… You can’t outlaw or sue over that… Unless of course you are the government and think a “Resource Super Profits Tax” (RSPT) is a good idea ….

Caren says: Oh, don’t even start me on the resources tax. I think you have some valid “technical” points Mick, but I still think the whole thing is conceptually ridiculous. Instead of suing the banks (who were always completely up-front about their penalties), shouldn’t we be suing ASIC as the regulatory body for not stepping in and putting a stop to the over-charging earlier? It will be interesting to follow and see what happens, and to see whether the case actually gets to court. Of course, I’ll keep you posted.

Talk soon,
PS. Happy to take a poll on whose argument you feel is most compelling! Just post your vote in the comments section below and I’ll tally the result.


  1. Banks are hardly up front about anything! I say stick it to them and am happy to sacrifice a few bucks out of my dividends to keep them in check!


  2. Sorry Caren, but I am with Mick. I was talking about this with my friends last night and the general feeling was that we all understand there are fees when we overdraw but our biggest problem was that the bank lets us use EFTPOS and overdraw and then charges us a huge amount for them letting us overdraw without knowing it. So I think sue the bank and see how it goes.

  3. Oh poppycock! The customer ain't always right. And in this case the customers did the wrong thing, and now they're grizzling about having to pay the price. Don't know how much is in your account - then check the balance. So the bank let you overdraw - would you rather they bounce you at the checkout and have to put the trolley load back? Puuuleeeese, just do the right thing, or cop it sweet.

    John H

  4. Lets get back what we can, the fees are over the top.

  5. I vote Mick (having been stung with a $45 overdue account fee!)

  6. Hi Guys, sorry Caren but I'm also with Mick. I understand fees are unavoidable but $30 accross the board was a bit to much.

  7. The days of money in your mattress are far gone, the truth is we need banks. I have to agree that some fee charges are out of control but I’m not sure if ‘suing’ the banks is the answer.
    Everyone knows there are fees for late payments and overdrawing an account, the money has to come from somewhere. You don’t see Coles or Safeway letting you take your weekly groceries with the promise to pay it back on pay day. However, if they did I’m sure their fees would equal the banks.
    Then again, is mass media and taking legal action the best way to fix the problem?

    I’m afraid I’m going to have to take a seat on that all too familiar fence and announce I'm Switzerland. There are equally strong points on both sides and I am sure that the best course for a better result may only appear with hindsight.


  8. Hi Caren,

    I haven't seen Mick getting this fired up since his basketball days!

  9. I vote Karen, this suing for anything & everything is getting beyond the pale, the solicitors are having a ball. I'm afraid I think if you do the wrong thing you should cop the penalty (although I do think the penalty was unfair across the board as it was)