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Wriggling Banks not off hook yet over unfair fees
09 September 2009
Wriggling banks not off the hook yet over unfair fees
Elissa Freeman From: Herald Sun September 11, 2009 12:00AM
THE big banks revealed executive remuneration is up - again. At the same time, money earned from bank fees is up - again.
The only fees bucking this trend are penalty fees, which are on their way down.
It's not often you hear about banks cutting fees - especially highly profitable fees - but from next month that's exactly what will happen.
On October 1, some of Australia's major banks will deliver on their promises to take the knife to unfair bank penalty fees.
But what they don't tell you is that there is still another $500 million in unfair fees being charged to Australian households.
Bank penalty fees are those hefty charges that apply when you exceed your credit limit, pay your credit card one day late, overdraw your deposit accounts or fail to have sufficient funds in your account when a direct payment is due.
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The penalty fees can reach up to $50 and can be a big hit for a situation that's often outside your control.
The cuts that are coming mark a significant win for consumers, with three of the big banks finally caving in to public pressure on bank penalty fees.
NAB, Westpac and the Commonwealth Bank have either removed or slashed the level of their much-despised penalty fees.
The fee cuts announced so far are expected to slice around $400 million from bank profits - not that we're complaining.
Penalty fees generate big profits for banks because the level of the fees has steadily increased, far beyond what it actually costs the bank to process an overdraw or late payment.
Over the past decade bank penalty fees grew at an astonishing rate. Some fees, like the "over limit" fee for exceeding your credit card limit, didn't even exist in 2000, but rapidly became the norm and now range up to $35.
Last year, banks charged Australian households $961 million in penalty fees. That extraordinary figure boils down to an average of $120 a year in bank penalty fees paid by Australian households.
The story of bank penalty fees goes back a few years, to when the banks were hunting around for tricky ways to generate more fee income.
Penalty fees were an obvious candidate, because customers generally paid little attention to these fees when signing up for a bank account or credit card.
People don't expect they'll overdraw their account or overlook a direct debit payment.
Consumer groups have highlighted this trickery and tens of thousands of people have sought refunds of penalty fees.
And now this has begun to pay off. Next month about $400 million in penalty fees will be cut.
That leaves more than $500 million in fees that will continue to be charged to bank customers.
That's partly because ANZ is dragging the chain in announcing the changes it will make to its penalty fees.
If ANZ does comprehensively cut its penalty fees, we could see anything up to another $200 million saved by households.
One area ripe for action is the grossly unfair "over limit" fee. This fee is charged when customers exceed their credit card limit and is completely unjustified.
Most people expect their limit to be just that - a limit.
The bank could reject transactions that exceed the limit, but instead allow the transaction to proceed and collect about $30.
As for other penalty fees, the NAB has led the charge on bringing fees down - because it's got rid of them altogether on its transaction accounts.
But the NAB hasn't yet announced any changes to its credit card penalty fees, which will remain at $25-$30 after October 1, while Westpac will reduce penalty fees on its credit cards to $9.
With customers still facing more than $500 million in remaining penalty fees, the banks need to justify any penalty fee they continue to charge.
The banks aren't off hook the just yet.
Elissa Freeman is senior policy officer with Choice