The Australian high court has handed a victory to 38,000 ANZ Bank customers who were seeking compensation for fees paid to the bank for overdrafts and late payments.
The High Court overruled a December 2011 decision by the Australian Federal Court on the issue of bank fees, strengthening the hand of the plaintiffs seeking more than A$220 million ($283 million) in fees from eight banks.
The court said the fees charged by ANZ potentially qualified as "penalties" although they didn't breach a contract between the bank and its customers.
"The court held that the fact that particular fees were not charged by the respondent, Australia and New Zealand Banking Group Ltd, upon breach of contract did not render the fees incapable of being characterised as penalties," the ruling said.
The decision was welcomed by James Middleweek of Financial Redress, the specialist arm of litigation funder IMF.
"It's a fantastic win," said Middleweek. "We're firmly on the front foot and the onus is on the banks to show, if they can, how if you go a A$1 over your limit in your account the bank can justify charging A$35 in fees."
The decision now clears the way for the case to return to federal court. The 38,000 Australian ANZ customers have sued for about A$50m, part of a larger class action against seven other banks also including Westpac-owned BankSA, CBA-owned Bank West, and Westpac-owned St George Bank in what is the biggest class action suit in Australian history.
ANZ warned that the outcome of today's decision "effectively expands the law of penalty with implications for many Australian businesses".
"This action is still at the preliminary stages and today's judgment does not provide a resolution for the class action participants," ANZ Bank Australia chief Philip Chronican said.
He said the High Court had not determined whether ANZ's fees were penalties.
Neither lawyers from Maurice Blackburn nor ANZ Bank were immediately available for comment.