ANZ's uneasy fees conquest

The major banks will be applauding ANZ Bank for a major, if not complete, victory in a legal stoush in which they have hundreds of millions of dollars at stake.

There is a lot on the line in the class action brought against ANZ by litigation funder IMF and law firm Maurice Blackburn over the contentious exceptions fees charged by banks, with IMF representing 34,000 customers in the action and with tens of thousands more in the wings waiting for similar actions against 11 other banks.

Given that IMF has estimated that, with the claims able to go back six years, the exceptions fees involved could amount to more than $6 billion, the action against ANZ has the potential to evolve into the largest class action campaign yet mounted.

Both sides were claiming victory in the wake of today's Federal Court judgement, with Maurice Blackburn describing the outcome as a "great leap" for consumers but ANZ welcoming Justice Michelle Gordon's findings.

On simple numbers, it certainly appears that ANZ had the better of the judgement, with Justice Gordon ruling in its favour on 13 of the 17 fees and four of the five fee types on which the action was based.

The class action litigants' case, unless they appeal today's judgement, will now be focused only on fees for late payments on credit cards. Stage two of the action – the main trial to determine whether or not the customers were actually over-charged – will be heard next year.

The complex and lengthy judgement opened with Justice Gordon providing a prcis of five centuries of evolution in the law of penalties as contract law became overlaid by equity law. In essence the case revolves around whether the exception fees reflect a fee for a service and are proportionate to the costs involved or are simply a penalty.

Justice Gordon ruled that honour fees, dishonour fees, over-limit fees and non-payment fees charged by ANZ were not penalties but that late payment fees on credit cards were capable of being characterised as penalties.

ANZ has made it clear it will argue the fees – $35 at the time – are reflective of and proportionate to its costs, including the technology, infrastructure and the collections team that deal with late payments. It also argued before the court that late payments affect its credit risk.

The class action relates to the period before National Australia Bank unilaterally decided to abolish a range of the most unpopular exception fees in 2009 and forced the other major banks to follow suit. ANZ abolished 27 fees on personal accounts and reduced others, including the late payment fee on credit cards, which was cut to $20.

It argues that the decision to cut the fees relates to competition and the unpopularity of the fees with bank customers rather than an admission the banks were over-charging.

NAB's action on the fees wasn't popular with some of its peers, given that it has permanently wiped hundreds of millions of dollars a year from the profitability of the system, but it did provide the foundation for the bank's very successful ‘Breaking Up' campaign. It has also probably truncated the banks' continuing exposure in future to similar actions to that brought against ANZ, or at least significantly reduced the potential sums at risk.

There have been some suggestions that the amount the class action litigants have estimated could be recovered from the late payments leg of their litigation represents about $18 million of the $50 million or so they were hopeful of winning.

The sums aren't insignificant but in the context of the size of the major banks neither are they particularly consequential – although clearly there are also reputational as well as financial exposures involved if the banks were found to have gouged their customers, and those probably significantly outweigh the potential financial losses.