When is a fee not a fee? ANZ pays the penalty

As foreshadowed by Lord Acton, the battle of people versus the banks is well upon us. And it seems the good money is with the people.

In September 2012, 38,000 customers of the ANZ Bank were delivered a victory by the High Court in Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 (Andrews). The court unanimously found that certain fees charged by ANZ to its customers could be characterised as penalties, and were therefore likely to be unenforceable and refundable to the bank's customers.

The fees concerned were various honour, dishonour and non-payment fees charged in respect of various retail deposit accounts and business deposit accounts, as well as certain over-limit and late payment fees charged in respect of both consumer and commercial credit card accounts. In a number of instances, which may be sadly familiar for many bank customers, the fees charged by the bank to its customers bore little proportion to the cost incurred by the bank. For example an account overdrawn by $1 could give rise to a dishonour fee upwards of $30.

The High Court has found that fees imposed by the bank were capable of being characterised as penalties, and therefore not enforceable under the relevant contract. Contracting parties should specify that certain fees exist in exchange for the performance of additional specific services to minimise the risk that the fee be characterised as penalty. Pending class actions involving other banks are now likely to be settled, but it is not yet clear whether the doctrine will be applied to other types of contact such as liquidated damage clauses or standard form contracts.