Caution for bank customers over 'some measure of danger' in litigation funder led bank penalty fees cases

"I'm a lawyer but I believe as few things as possible should find their way into a courtroom. There are a lot of other ways that things can get dealt with, and speaking to your bank would be a starting point."

ASB, BNZ & Westpac off the hook, at least for now

Fair Play on Fees includes New Zealand lawyer Andrew Hooker, Australian law firm Slater & Gordon and Australian litigation funder Litigation Lending Services. Representative actions have been filed against ANZ and Kiwibank, which Fair Play on Fees says are on behalf of about 14,700 and 7,000 customers, respectively. Both banks have responded with statements of defence saying, among other things, customers acquiesced to the fees by failing to avoid them.

Fair Play on Fees also wants to take action against ASB, BNZ and Westpac, but is focusing on the initial two cases, at least for now.

A spokeswoman for Fair Play on Fees said following the recent related Australian court ruling, (see more on this further down this story), Fair Play on Fees has decided its best approach is to focus on the first two cases rather than have five cases running simultaneously.

"Then if the case against the banks are successful it opens the opportunity for customers to lodge larger claims than initially first thought, possibly back decades (rather than six years)," the spokeswoman said.

Penalty, or exception, fees in dispute include unarranged overdrafts (account out of order fees), rejected payments on deposit accounts (dishonour fees), exceeding credit limit (over limit fees) and late payment fees. Fair Play on Fees reckons the major banks have raked in about $1 billion through "excessive" charges on such fees over six years.

The group says banks have recently been charging up to $20 dollars a pop (and more in the past) for fees covering events that probably actually cost them no more than a dollar. ANZ has disputed this, saying it has mathematical calculations backing up the basis of its fees.

'Clients protected'

Litigation Lending Services is funding the case, having tipped in between $3 million and $4 million. It stands to keep 25% of any of any money won through the legal action, as well as recover its costs. Hooker is being paid an hourly rate of $318 and stands to have this topped up to $425 on completion of the case. Slater & Gordon said its lawyers charge different rates depending on their seniority.

"The fees we are entitled to deduct from any judgment or settlement must be approved by the court, so the clients are at all times protected," said Hooker.

Fair Play on Fees' spokeswoman said tasks are allocated as appropriate, with no one lawyer working full time on the case.

"The number of lawyers on the case varies depending on the workload. It is important to note that the amount of lawyers working on the case, or how the legal team chooses to divvy up the work, bears no relationship to the cost to the clients," the spokeswoman said.

Shortall said there can be "some measure of danger" for people signing up to a representative action where a litigation funder is involved.

"People need to fully understand what they're signing up to when funders are involved. They (funders) have their place. But people need to understand what the terms of that arrangement are, what they themselves are going to potentially receive versus what the funders and lawyers may receive, so everyone goes in knowledgeably," she said.

Given Fair Play on Fees has brought the case, they have to provide the evidence to show the merits of the case.

"They (Fair Play on Fees) are the ones bringing the case so they're the ones that have made the allegations and the burden sits with them to establish that this case does in fact hold water. So they've alleged claims and they will need to put on evidence to establish those," said Shortall.

"I'm not in a position really to comment on that (the merits of the case) because I don't know what the underlying facts are. And that's important for (bank) customers to keep in mind too."

"At the moment we are hearing, by virtue of what the plaintiffs' lawyer and funder announced at a press conference which is an interesting strategy in itself, and then what they have released into the public arena. We're hearing one side of a story," Shortall said.

"I understand there have been some statements of defence (from ANZ and Kiwibank) filed. But they'll be fairly bare bones at this point. The obligation is not on the defendant to come forward and tell all of its story at this part of the case."

"So I don't know what the merits of the case ultimately will be and no one does. I think that's important to keep in mind," Shortall added.

She also noted most of these types of cases tend to result in settlements, before they get to court.

"The banks have said they intend to vigorously defend the litigation. And based on what I understand the facts to be, that makes absolute sense to me that that would be the defence strategy."

"Whether or not that ultimately results in some discussion at some point in the future that leads to a resolution short of trial, it's always possible. The US experience is certainly that cases do tend to settle, class actions in particular. Not because of the merits always of the claims, but for very logistical, practical, commercial reasons around the expense of defending the claim, distraction of management time and personnel time dealing with it, the reputational consequences, commercial consequences," Shortall said.

However, she said it was too soon to tell whether the Fair Play on Fees cases might result in some sort of settlement.