Are bank fees excessive?

Cross-posted from DFA blog.

Today the Federal Court ruled on the class action against ANZ relating to the bank’s penalty fees. The core of the case was that fees charged for exception transactions were higher than the costs of providing the service. ANZ was found to have charged excessive fees on late payments made to credit card holders. The $35 charge for paying late was seen as a penalty rather than a fee for service, when the costs involved might only be $3. However, other fees including those relating to overdrawing accounts were not penalties and therefore permissible.

If the findings were applied to all the banks, it is estimated by some that as much as $200m may be refunded from credit card late payments.

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Looking at the fees picture more broadly, households paid a total of $4bn in 2012, the last year for which data from the RBA is available, a reduction from over $5bn in 2009. The fall is largely attributed to Nab’s initiative to reduce fees in 2009, when others followed, plus a lowering of exception fees.

This translates into an average of about $500 per household per year. That said, there are more than 200 individual fees which might be charged across the wide range of bank services and the list is long and complex. These fees are for retail banking services, and is above the $18bn charged by the wealth management industry.

Businesses paid $7.3bn in 2012, and fees have been growing steadily in recent years. Banks are benefiting from significant fee hikes especially to smaller businesses, perhaps seeing them as softer targets. This is one reason why many SME’s are on the edge!

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Turning to exception fees, we see a reduction in value for both households and businesses. This is partly a reflection of changes to bank attitudes ahead of the ANZ case mentioned above.

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The core debate around bank fees is whether they should be aligned to the costs of providing a specific service, or whether they are a service which can be priced at a market rate, irrespective of costs of delivery.  The ruling today suggests it depends on the service, which is a confusing result, but one which mirrors recent events in the UK.

It is unlikely we will really get to know how much the profit element loaded onto individual services is, and what is more, the banks probably do not know either! That said, we should acknowledge consumer bank fees have dropped from their previous levels higher levels. Last time we bench-marketed fees in Australia against other countries they were higher here, but I suspect they are now line ball.

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Comments

  1. I joined the class action so depending on the ruling i hope to get something back from the blood suckers)

  2. “The ruling today suggests it depends on the service…”

    This is correct. If the “service” is not really a service at all, but rather a penalty for breaching the contract, then the fee must not exceed a reasonable estimate of the costs incurred due to the breach.

    The wording of the legislation is, “a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract;”

    A late-payment pee is a penalty for breaching the payment terms of the contract, so the decision went the way it did. Other fees, such as overdraft fees, are seen as a fee for service so are not caught by this term in the Act.

  3. Short answer: Yes.

    The privatisation-for-profit of the national currency is unjust, unethical, immoral, and unjustifiable. It is also the root cause of all economic problems. As recorded human history well evidences.

    That these evil f***ers “earn” (JHC! don’t make me laugh) fully 1/3rd of their multi-billion-dollar “income” from “fees and commissions”, for acting as “intermediaries” in (what should be) an absolutely essential public service, is far beyond merely disgraceful.

    Which of course brings us to why MB is looking only at the 1/3rd component of bankster parasitism, and never at the rationale and full spectrum of corrosive dynamics relating to the other 2/3rds of their “income” … ie, the 36% profit margin (by the ABA’s own figures) the banksters “earn” from the base bankstering practice of usurious “money” creation.

    • migtronixMEMBER

      It’s so so so much worse than that. I know for fact that interbank transactions are down to T+0, instantaneous – but they sit on it overnight and clip a ticket then change you a f***king fee! Aaaarrrgggghhh

    • “Americans have been trained by media to go into Pavlovian giggles at the mention of ‘conspiracy,’ because for an American to believe in a conspiracy he must also believe in flying saucers or, craziest of all, that more than one person was involved in the JFK murder” – Gore Vidal

      Alas, I think the same is true for those that question the fundamentals of modern currencies, money creation and banking systems.

      • migtronixMEMBER

        Or the veracity of climate change ideology? It’s all a crock with the financiers/CIA/MI6 in charge.

      • It’s all a crock with the financiers/CIA/MI6 in charge.

        If one were prepared to entertain the notion that generations of climate change science were some sort of elaborate shell game, why would one not apply Occam’s Razor and conclude any group with that degree of foresight and global influence could achieve their goals (whatever it might be – the actual motivation for these grand conspiracies always seem a little wanting) in a much faster and more direct fashion ?

  4. What we really need is a class action with punitive damages set against some of the dodgy superannuation practices.

    They wait for the super to be lost, then move the account onto higher fee-charging products until it evaporates.

    In many instances, the annual costs of running a superannuation account ring up to more than the annual costs major banks charge to run a mortgage loan. How can that be?