Banks closer to penalty fee cuts

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Pressure is mounting on banks to cut huge penalty fees after Westpac said it would slash them for its Australian customers from October 1.

Westpac's move is the second salvo in a gathering fee war on both sides of the Tasman as banks begin to bow to public and political pressure to reduce or eliminate fees charged for dishonouring cheques and automatic payments, or allowing an account to become overdrawn.

Bank of New Zealand said last week that it would axe penalty fees of up to $35 from September 1 for personal and business customers, after its parent, National Australia Bank, said it would scrap the fee for personal accounts.

Westpac in Australia will not end its penalty fees of up to A$40 (NZ$50.60), but will reduce them to A$9. The reduction will also apply to penalties for late credit card payments and breaches of credit limits.

Westpac New Zealand has not immediately followed suit, but is expected to announce this week that it will at least match the Australian reductions.

A spokesman would say only that the bank was "conducting a detailed review" of its penalty fees.

The fees earn the big four banks an estimated $100 million a year in New Zealand, most of which goes straight to bottom-line profits.

ASB Bank, owned by the Commonwealth Bank of Australia, is the only other New Zealand bank to have indicated it will cut fees, with a new structure expected to be announced in five weeks.

ANZ National, the country's biggest bank, said last week that it worked with customers to help them avoid penalty fees, which were always under review.

State-owned Kiwibank said it had been caught "unawares" by the BNZ's decision. Kiwibank spokesman Bruce Thompson said fees reflected competitive pressures, the effect they had on customers and measures available to help customers avoid fees. "At this stage we are looking at the situation."

Westpac defended the decision to maintain a fee, even though the cost of rejecting a transaction is estimated at $1.

Head of retail and business banking Peter Hanlon said: "It is appropriate that we continue to apply a fee for the service as there is a cost every time the bank honours a transaction on an overdrawn account, or processes a bounced cheque.

"It also ensures we don't encourage customers to overdraw their accounts and pay additional interest rate charges."

A new law in Australia will force banks to justify the actual costs of their charges if directly challenged by customers.

- © Fairfax NZ News

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