Opinion & Analysis
Over the past week I have lead the launch of the 'Fair Play on Fees' campaign, which is building towards class action litigation against the banks for unfair default fees.
OPINION: The response to the campaign has been terrific, with around 20,000 registrations of interest at fairplayonfees.co.nz so far.
The launch has also, quite understandably, prompted some public debate about the case.
I'd like to contribute to that debate and explain a bit why we've launched the campaign.
In one opinion piece, Claire Matthews of Massey University raises some concerns about the likely success and value of the case and claims it will 'send the wrong message' to New Zealanders about how they operate their bank accounts.
A subsequent piece by Damien Grant takes the argument one step further. Grant unfairly characterises those affected by the fees as a 'plague on the wider commercial community' and admits that he is 'pleased' when people are stung.
The overwhelming feedback from the hundreds of calls and emails we've received from claimants to date is that they have a message of their own for the banks - it's the fees themselves which are the plague on our community.
Banks have been setting their fees at excessive rates for years.
There is no argument over the fact that a bank is a business, not a charity.
However, there is a clear principle of contract law which forbids banks from charging punitive fees. This applies regardless of the terms and conditions the customer may have signed up for when they opened their account.
Much to Grant's dismay, banks aren't allowed to punish people for their banking activity. That responsibility is rightly left to the Government and the courts.
We believe the discrepancy between costs incurred by the bank to process default transactions and the crippling fee they then pass on to their customers is unfair.
Not only do we believe that banks shouldn't be setting and then enforcing their own laws, we say the law will protect the average person from being lugged with fees that simply can't be substantiated by the banks.
As Matthews writes, the bank fee class action cannot simply be a cut and paste job from Australia to New Zealand. The fees are different, as are our civil procedure rules.
We released research last week demonstrating that the fee levels for New Zealanders are, on average, significantly higher than the Australian counterparts, often two or three times as much.
While the laws available to bring a class action in New Zealand are less advanced than Australia they are by no means prohibitive. Before the law changed in Australia to facilitate class actions, Slater & Gordon was still able to bring successful group actions under court rules that mirror the ones currently in operation here in New Zealand.
Bringing a bold legal action by utilising strength in numbers is the best way to level the playing field. The fact that class action reform in New Zealand is long overdue does not make this action premature. In fact, it is likely to bolster the case for change.
Matthews also asserts that the proposed litigation underestimates how much it costs banks to process fees. She is right to note the uncertainty surrounding the true cost of defaulting transactions to the bank.
We currently operate in an information vacuum and the lack of transparency needs to be addressed. Until now, banks have been sitting in a privileged position. Customers have had a weak bargaining position with respect to challenging the basis for the fees.
There is scant publicly available information revealing the precise cost it is to banks to process such overdrafts. What is clear is that while the banks might have to charge a small nominal amount for a customer's default, the impact of excessive fees over time just doesn't add up.
One of the main problems with this discrepancy is that there is no explanation offered by the banks on how that fee is fixed.
If New Zealand banks are not generating profits from penalty fees then they should have no qualm in releasing that data.
Based on the information we do have, we estimate that banks are incurring costs of merely a few cents to process the fee. These are electronically administered transactions managed by a computer.
If we are wrong, the case will be lost and it's the litigation funder that loses, not registered Fair Play on Fees clients.
Unsurprisingly, the banks have avoided making public comment about the case, thereby avoiding the inevitable question on what the true transaction costs are.
Instead, they have sent Kirk Hope from the New Zealand Bankers Association out to bat for them in the public domain, and we read a response from banking law firm Chapman Tripp, neither of whom can address this central question.
What we do know is that New Zealand isn't alone. There has been a pattern of banks setting unreasonably high fees across several countries and not revealing the true cost of the default to them.
Over the last few years attention has focused on banks in the United Kingdom, Australia and in the USA asking why and how banks can charge so much for what costs them so little.
This has been reflected in several reports both in Australia and overseas, finding that banks are using fees to generate their own profits.
In Australia, the Reserve Bank has conducted a survey on bank fees each year since 1997. Its most recent survey (published in June 2012) indicates that at least $7 billion in exception fees have been collected from Australian customers over the past six years.
Further, the Consumer Action Law Centre calculated in its 2004 report Unfair Fees that Australian banks could be charging between 5 to 16 times what it costs them.
At the end of the day, for most people the bank fees don't ring true. We believe that it is ultimately up to the customers to decide if they are unhappy and whether they feel like they've been treated unfairly.
The overwhelming message we've received from the 20,000 people is clear: they are, and they do.
- Andrew Hooker is the lawyer leading the 'Fair Play on Fees' campaign. To find out more about the case, visit fairplayonfees.co.nz.