Over the past few years, banks have taken at least
$5 billion in exception fees.
BANKS have been making huge profit margins of up to 14,000 per cent on controversial exception fees levied on a variety of basic transactions.
Confidential data from two banks, obtained by Your Money, has revealed the true cost to the banks when customers are overdrawn or exceed their credit limits.
These profits could well boost the chances of the class action against the banks, which aims to recover excessive exception fees charged to customers over the past six years.
More than 85,000 people have signed up to join the class action and many more are expected to sign before the case begins next month.
Ben Slade, of case lawyers Maurice Blackburn, says the outcome will rest on whether the court decides that the exception fees are deemed "fees for service" or penalty fees incurred by clients with overdrawn accounts.
Either way, some of the figures look difficult to justify.
For example, if a customer exceeds an overdraft limit by $100 for one day, they can be charged a fee of $40.
That's an annualised interest rate of more than 14,000 per cent, yet the cost to the bank for breaching the overdraft may be only a few cents.
"The courts in Australia have determined that any pre-estimate of financial damages to the bank (the size of the exception fee) must be a fair estimate of damage and not an exorbitant or extravagant fee," Slade says.
In Britain, more than £1 billion ($1.67 billion) has been refunded to customers for overpaid penalty charges, although a ruling by the High Court in 2009 has made it much harder although not impossible for customers to continue claiming refunds.
The British Office of Fair Trading won the initial case on behalf of consumers in 2007 when it argued the fees were unfair and the banks lost their subsequent appeal. But then in 2009, the new Court of Appeal upheld the banks' position.
Slade says that Australian law on penalty fees is more potent than British legislation.
"Australian legislation has developed very positively on this front and we're confident we have the right line," he says.
Over the past few years the banks have gorged themselves on exception fees, earning at least $5 billion in the past six years. These fees typically include four types of penalties: A charge imposed when a customer overdraws on an account or exceeds an agreed overdraft limit and the bank pays it out; a charge for cheques that bounce; a late payment charge for credit cards or loan accounts and a charge for overdrawing on a credit card.
The fees range between $25 and $60 on each transaction, although the size of the fees has been slashed by many banks in recent times as public outrage has intensified.
The first round of class actions will target 12 banks: ANZ, Bank of Queensland, BankSA, BankWest, Bendigo and Adelaide Bank, Citi, Commonwealth Bank of Australia, HSBC, National Australia Bank, St George, Suncorp and Westpac.
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