Banks boost penalty charges

Bank penalty fees have soared in the past four years, and consumer groups argue they may be illegal if they have outstripped the real cost of processing late payments or overdrawn accounts.

The Australian Consumers Association calculated that the average late payment fee has risen by 50 per cent, while penalties for exceeding a credit card limit have jumped from nil to $29.

Consumers complain that the fees are often higher than the default amount, and often there is no warning.

The Consumers Association and the Consumer Law Centre of Victoria want the Government to investigate what proportion of bank penalty revenue is profit.

"Many of these fees may not be legal, as the penalty does not relate to the loss suffered by the bank," said the association's general manager of policy and campaigns, Gordon Renouf.

"Despite these concerns, government and regulators have not investigated the charges."

National Australia Bank is writing to customers after recently discovering it had over-charged fees of $62 million to 200,000 mortgage and business account holders, over a 20-year period.

Anna Stewart, acting executive director of the Consumer Law Centre, said the errors uncovered by National Australia Bank highlighted the need for an investigation into fee income.

"There are issues around transparency in how these fees are being levied. We found it was extremely difficult to get concise, clear information on how they are calculated and when they are levied," she said.

An analysis by the law centre estimated that banks were charging consumers cheque dishonour fees at five to 16 times what it cost to process a cheque dishonour. Direct debit dishonours were said to be charged at 64 to 92 times the real cost of processing.

However, the Reserve Bank has declined to investigate the issue, saying it does not have regulatory responsibility.

The chief executive of the Australian Bankers' Association, David Bell, denied the fees were penalties, and said customers could avoid them. "We always act ethically and in a law-abiding fashion," he said.

The bankers' association said it was mandatory for banks to disclose their fees to customers, and this happened in a variety of ways including published fee tables and information services.

But Ms Stewart said: "Often it is in the fine print. When opening an account not many people will read a 10-page booklet. They need to be upfront."

Mr Bell said: "There are many ways of checking the state of your account - ATM balance enquiries, telephone banking, the internet, asking at your branch and bank statements." The bankers' association has resisted calls for an inquiry into fee income. Mr Bell said banks' costings were commercially sensitive and "every business in Australia has the right to keep certain information private".

But Mr Renouf said that until an investigation by the Reserve Bank or Australian Competition and Consumer Commission took place, "it is difficult for consumers to know if they are being charged unfairly by their bank".

The Banking and Financial Services Ombudsman's 2004 annual report found systemic problems with banks incorrectly charging fees to thousands of accounts. In one case the ombudsman's office found a bank had incorrectly charged a $20 overdraft fee to its customers as well as a cheque dishonour fee for six years.

OVER THE LIMIT FEES