Exception fees are not penalties, court rules

Banks may have reduced their exception and penalty fees by just enough to ensure they withstand legal challenges.

In a ruling that could influence other courts, the Magistrate's Court in South Australia has ruled against a customer who demanded the repayment of exception fees levied on her transaction account by Police Credit Union.

The deputy chief magistrate of South Australia, Andrew Cannon, took four months to consider the matter before producing a fairly lengthy written judgement with reasons on October 12.

Supported by a web-based legal operation called BankBeaters, the customer, Mrs Sedlaczek, argued that the fees were penalties at common law, that the charging of the fees was unconscionable conduct under the Fair Trading Act (SA) and the ASIC Act, and that the charging of the fees amounted to misleading and deceptive conduct.

Cannon ruled that the plaintiff had failed to prove that the fees were so disproportionate to the actual costs incurred by the credit union as a consequence of the breaches as to amount to penalties. He also found that while the account terms were not negotiable, there was no pressure upon the plaintiff to choose the credit union.

Cannon wrote that the credit union's contract terms and fee structures were "available and quite easy to understand."

The fees in question were for overdrawing a transaction account with no credit limit. The account's terms and conditions stated that the customer should not overdraw the account, but that if a transaction did overdraw, the credit union could choose to honour it and charge a fee. The fees charged averaged $17.50 for each event.

However Cannon also wrote that if a fee was "too disproportionate to the cost to the institution then clearly they would be a penalty."

The credit union's legal representative Shannon Adams of Langes argued that the fees were not charged as a penalty but in relation to the services that the credit union provided.

"We agree with the court's decision of course but we don't agree with how he got there," said Adams yesterday.

"The actual fee was charged for honouring the payments, notwithstanding the overdrawn account, and then writing to the customer informing them of what had happened.

"The amount of the fee was obviously a big factor, but you can't lump all these fees together. There are different types of fees on accounts and credit cards, this relates to just one type of fee on a transaction account."

Currently Westpac have set their exception fees for accounts and credit cards at $9.
Commonwealth Bank have lowered their exception fees on accounts to $6 and $10. Credit card exception fees are $25.

From December, ANZ's account exception fees will be $6 and credit card fees $20.
After January 22, NAB will charge only $5 for a late payment on a credit card. Other exception fees have been abolished.