Local version of Aussie class action against banks over fees won't launch without new govt legislation

By Gareth Vaughan

As litigation funder IMF Australia pushes ahead across the ditch in its class action over bank fees, here in New Zealand a law firm keen to make the same case against the big banks won't go ahead unless Parliament enacts a new law, one a select committee recently recommended, clearing its path to do so.

The Federal Court of Australia yesterday ruled in ANZ's favour over four of the five types of fees subject to the class action brought by IMF on behalf of about 34,000 of the bank's customers over an estimated A$50 million in fees. But the judge found late payment fees were capable of being characterised as a penalty, in a move IMF says means ANZ will have to "adduce evidence", if this exists, that these fees of typically A$35 a time represent a genuine pre-estimate of damages.

'Exception' fees

The IMF action was brought over so-called exception fees, or avoidable penalty and late fees charged in circumstances such as when customers are overdrawn on the available limit in their account, are late in repaying their account or overdraw on credit cards.

According to The Sydney Morning Herald, late payment of credit cards is the biggest part of the class action, worth about A$18 million of the A$50 million claimed. After yesterday's ruling these late fees will be the subject of a trial set for next year and IMF says it will issue proceedings against a number of other banks, expected to include ASB's parent Commonwealth Bank of Australia, BNZ's parent National Australia Bank, CBA's BankWest, Citigroup and Westpac in coming weeks.

Here in New Zealand interest.co.nz reported last year on how Christchurch-based law firm Wakefield Associates wanted to take the same type of action, on behalf of customers, against ANZ, ASB, BNZ, the National Bank and Westpac over exception fees. However, Wakefield Associates' Garry Wakefield told interest.co.nz yesterday that although the firm would like to run a case, it won't unless the government passes the Class Actions Bill which has been "sitting with the Minister of Justice" for at least two years.

Wakefield also acknowledged, however, that the number of bank customers who had expressed interest in being part of any action was "too small to warrant an action" although the firm hadn't proceeded with its marketing of the potential case. In July last year he said Wakefield Associates' potential case had attracted interest from “hundreds” of bank customers without properly soliciting it.

Class Actions Bill could be an avenue for finance company investors to try and recover some of their losses

In October the Lianne Dalziel chaired Commerce Select Committee called on the new Parliament in place after November 26's election to show some urgency and finally pass the Class Actions Bill, noting doing so would provide investors in failed finance companies with another avenue to try and claw back some of the billions of dollars they've lost.

Meanwhile, Wakefield says without legislation enabling class actions, any fee case against the banks would have to be through a representative action. This would be much harder to pursue because bank customers would have to sign up individually with a law firm or litigation funder. If a customer didn’t know the action was being taken and that there was a cut off date they had to sign up by, they would miss out.

In contrast under the proposed class action legislation, a litigant merely requires seven people’s support to bring proceedings. The court then controls the litigation and it becomes a class action in the sense that anyone who believes they have suffered loss and meets the criteria becomes eligible to potentially benefit from the litigation.

Last July a spokesman for Justice Minister Simon Power said the government would consider and progress the Class Actions Bill as other priorities allowed. Although a National Party led government will continue in office after victory on November 26, there will be a new Justice Minister with Power having quit Parliament for a job as head of Westpac's private bank.

Commerce Commission rhetoric & action on credit card fees

Last year the Commerce Commission investigated the “unreasonableness” of credit card exception fees and warned credit card providers not to charge customers late payment fees of more than NZ$15. And in 2007 the Commission ended three year action over undisclosed and inadequately disclosed overseas transaction fees on credit cards, securing NZ$24 million in compensation for customers from nine financial institutions including American Express International (NZ) Ltd. They pleaded guilty to breaching the Fair Trading Act by failing to properly disclose currency conversion fees.

The Commission action was also against ANZ, BNZ, Westpac, Kiwibank, ASB, TSB, The Warehouse Financial Services and Diners Club. Then Commission head Paula Rebstock described the case as a landmark investigation that sent a "very strong" message to the banking industry that banks must not be misleading about the existence and extent of fees.

"It has resulted in changes to the way banks and credit card companies disclose that information," Rebstock said.

"The breaches uncovered by the Commission affected many thousands of credit card users, and as a result they have received refunds of the fees not properly disclosed. The cumulative effect of these nine cases has been a significant win for consumers."

"Competition results from informed consumers. Not only were consumers paying fees they did not know about, but banks were not motivated to compete on fees while they remained hidden," said Rebstock. "In that context, these cases have wide implications across a range of industries. The Commerce Commission will continue to place a priority on enforcement action where fees are not fully disclosed."

When news of the IMF case broke in Australia, banking industry lobby group the New Zealand Bankers' Association (NZBA) released a statement on behalf of its members saying New Zealand has a different legislative framework to Australia where fees are concerned. The NZBA said the Credit Contracts and Consumer Finance Act provides "strong protection" for New Zealand bank customers with the combination of fees and interest rates customers pay here "fair and reasonable."

(Update adds detail of Commerce Commission action on overseas transaction fees on credit cards).

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