A move by National Australia Bank to settle a multi-million dollar class action could signal the demise for unfair penalty fees in banking and beyond.
NAB and law firm Maurice Blackburn applied to settle the matter on Friday, which the bank described as “a first but significant step” towards compensating about 30,000 of its customers to the tune of up to $38 million.
“NAB is doing this because we believe this is the right thing to do for our customers and our business,” chief executive Andrew Thorburn said in a statement.
The decision will pressure bank rivals and potentially other service providers to reduce or abolish excessive fees for late payment, consumer groups said.
Consumer Action Law Centre chief executive Gerard Brody told The New Daily the settlement would have “broader implications” for telcos, gas and electricity utilities and other service providers.
“I think it would send a signal to the marketplace and providers that there are real risks in charging consumers late payment fees or other fees that are way in excess of the cost to the service provider,” Mr Brody said.
An NAB spokesperson declined to comment to The New Daily on whether it would like to see penalty fees abolished beyond the banking sector, but said the company has “led the industry to make banking fairer and simpler”.
Earlier this year the Federal Court ruled ANZ had illegally imposed penalties for late payments on credit cards. Those charges – made when a customer missed a minimum credit card bill payment – were either $20 or $35, a mark-up of up to 7000 per cent on actual costs of as low as 50 cents. The bank is now appealing the decision.
Last Friday’s move meant NAB is the first of the big four banks to indicate a willingness to compensate its customers for unfair fees.
It is also the only major bank to completely abolish dishonour fees, periodical non-payment fees, and overlimit fees on credit cards, and charges the cheapest credit card late payment fee of the other big three.
A spokesperson for ANZ declined to comment on the difference between its response and that of NAB to the class actions, saying instead that “the matter involving ANZ remains before the the courts and, at this stage, we won’t be commenting on next steps pending the outcome of proceedings”.
Maurice Blackburn is suing nine financial institutions over penalty fees, including Commonwealth Bank of Australia, Westpac and St George.
While a settlement with NAB would bring about a quicker resolution for the bank’s customers, the Consumer Advocacy Law Centre hopes that not all of the cases are settled. Otherwise, consumers might miss out on a superior court ruling that would make penalty fees unlawful Australia-wide.
“It’s that sort of precedent that will have a wide-ranging impact on other banks and other service providers,” Mr Brody said, but noted that consumers would still benefit in its absence.
Consumer watchdog CHOICE, which has been campaigning for an end to excessive bank fees since 2007, agreed that NAB’s decision “sends a clear message” to other businesses to stop charging excessive late payment fees.
“We expect to see late payment fees to come down in other sectors, such as telecommunications, as a result of this decision,” said CHOICE spokesperson Tom Godfrey in a statement.
“It’s not often we see a bank take a leadership position and genuinely act in the interests of customers so it’s important to acknowledge this is positive step by NAB,” Mr Godfrey said.
ACA Lawyers launched in August a class action against Telstra on behalf of hundreds of thousands of customers who paid a late fee, and plans similar cases against Optus and Vodafone.
The Australian Communications Consumer Action Network (ACCAN) said it is opposed to late fees, which are sometimes charged even when payment is only a few hours late, and hoped telcos would become more transparent when charging them.
ACCAN chief executive Teresa Corbin told The New Daily these fees can be “quite excessive”, especially when there are legitimate reasons for late payment.
“We believe that it is important that telcos must have financial hardship policies in place and if late fees are charged by telcos that the amount remains in line with actual costs to their businesses,” Ms Corbin said.
A spokesperson for Maurice Blackburn told The New Daily that negotiations with NAB and other banks are ongoing, and so the wider implications for Australian consumers are as yet unclear.
NAB customers could receive payouts as early as next year if the Federal Court agrees to the settlement.
The Australian Bankers’ Association said it would refrain from commenting until all court action against its members is concluded, and the Consumer Utilities Advocacy Centre was unable to provide comment.