It’s official: the millions of dollars of late penalty fees the banks have been gouging over the years are unlawful and exceeded the true cost by up to 7000 per cent.
The finding, handed down in the federal court today against ANZ Bank, also scrapped the six-year statute of limitations on late penalty fee claims, allowing customers to claim compensation as far back as they like.
It will open up the floodgates to the other six banks sitting in the queue and according to Hugh McLernon at litigation funder IMF – which is bankrolling the action - it could open bigger floodgates than the banks.
“There are utilities that charge penalty rates for late payments that are sometimes out of all proportions. These organisations will now need to look at what they are doing as their customers are entitled to compensation,” he said.
But it was a bittersweet victory as four of the other fees that were put up as part of the legal action, were struck out.
Put another way the court effectively said that honour, dishonour, non-payment and over-limit fees weren’t penalties and therefore not excessive or unlawful or unfairly charged and therefore compensation claims don’t apply.
Over six years, ANZ and the other banks combined raised an estimated $6 billion from these five types of fees.
It explains why ANZ Australia’s boss Philip Chronican was crowing in a press conference: "We are pleased that today’s decision by the Federal Court found that honour, dishonour, over limit and non-payment fees were not penalties.”
It was never going to be an easy fight, with the banks fighting tooth and nail to defend themselves since the first action was filed on September 22, 2010 against ANZ.
The case hit a big hurdle in 2011 when the judge found that late payment fees were capable of being penalties, but found for ANZ on other fees. This prompted an appeal against the findings in the High Court, which found in September 2012 the fees could be considered penalties.
At the end of the day justice Michelle Gordon stuck to her original decision but widened it to scrap the statute of limitations.
Now it is up to IMF to decide whether to appeal the decision or set it aside and go after the other banks and lenders that have similar class actions lodged against them.
The federal court found that ANZ’s late fees of $20 and $35 exceeded the banks “true costs” of deal with late payments – ranging between 50 cents and $5.50, by up to 7000 per cent.
ANZ is in the gun for a claim size of $57 million, according to Maurice Blackburn, BankSA, $2 million, Bankwest, $11 million, Commonwealth Bank $60 million, NAB, $9 million, Westpac $40 million and Citi, which includes Bank of Queensland and Suncorp credit card customers, $19 million.