Banks do not have the right to enforce excessive fees charged as penalties for minor infringements, according to a consumer protection law expert at The University of Western Australia.
Senior law lecturer and director of UWA's Centre for Advanced Consumer Research Eileen Webb urged Western Australians to be vigilant in checking fees charged to their account each month, after two key court decisions in the United Kingdom and Victoria challenged banks on fee-charging.
"The enforceability of bank fees is questionable where the fee is effectively a penalty that is out of proportion to the bank's loss," Ms Webb said.
"A $40 penalty fee for being $1 overdrawn or because you are a day late in paying your credit card is exorbitant; such fees simply cannot be justified."
"If such fees are charged the consumer should contact the bank and ask that the fee be reversed. They should not be afraid to ask for their money back."
Ms Webb said pro-forma letters were available on the CHOICE website http://www.choice.com.au/
"Some requests may be denied but you will be surprised how often the fee will simply be refunded," she said.
Ms Webb said WA consumers could take heart from recent court decisions in Victoria and the United Kingdom about the enforceability of bank penalty fees but said there was still some way to go before the burden of bank fees was eased.
"The bank fees issue has major ramifications for banks. They are very reluctant to see the matter progress through the courts," she said.
Recently, the Victorian Civil and Administrative Tribunal ruled that a $40 late payment fee contravened the Fair Trading Act 1999 (Vic). The bank concerned has decided not to appeal the decision.
In a landmark UK decision, the High Court held that unarranged overdraft charges could be scrutinised under laws prohibiting unfair contract terms. This decision opens the door for the UK regulator, the Office of Fair Trading to determine whether bank fees are unfair and unenforceable under UK legislation.
"The decisions are a tentative, but significant step towards determining the enforceability of bank fees," Ms Webb said. "A finding of unfairness sends a clear message to banks as to the legal, let alone moral, status of their fees."
The recent decisions were made in jurisdictions which have laws prohibiting unfair terms in consumer contracts. Although WA does not have unfair contracts legislation, the legality of bank fees can be challenged at common law, according to Ms Webb.
"It is important to note that it is not the existence of the fees but the amount of the fees which is of concern. Like any party to a contract, banks have a right to recoup losses when a customer is in breach of their agreement with the bank.
"The issue is whether the fees represent a genuine pre-estimate of the bank's loss. If the fee can be justified in this way, it is legitimate. However, if the amount charged is excessive it is regarded as a penalty and is thus unenforceable."
A Senate Economics Committee, due to report in September 2008, is investigating the legality of bank fees.
"To date, despite very real questions as to the legality of bank fees, uncertainty regarding the powers of the Australian Securities and Investments Commission (ASIC), has prevented the regulator pursuing the matter in the courts," said Ms Webb.
Ms Webb said Family First Senator Steve Fielding recently introduced a private members' bill into the Federal Parliament which, amongst other measures, ensures that penalty fees are limited to the costs of recovery.
"I hope that the Senate Economics Committee will find it is necessary to enhance ASIC's power to monitor fees, investigate complaints and obtain information from the banks to assess whether the fees charged truly reflect costs incurred. This will permit the regulator, rather than individual consumers, to take action," she said.