Bank Credit Card Fees and Bank Fee Discontent in the Community

Tuesday 1 April 2014 @ 12.03 p.m. | Corporate & Regulatory | Torts, Damages & Civil Liability | Trade & Commerce

Electronic Funds Transfer at Point of Sale (EFTPOS) provider Tyro Payments (Tyro) is reported in the media as leading the push for an inquiry into why small to medium size enterprises (SMEs) are paying millions of dollars more than the big businesses end of town in credit card transaction fees to banks, in yet another example of the general community disquiet over the whole issue of the fees charged by Australia's big banks.

The Australian reports that "[i]n a strongly worded submission to the Financial System Inquiry, Tyro lists nine examples of alleged anti-competitive behaviour" by the "big banks" and accuses them of "anti-competitive sales practices in the payments processing market".

Tyro's Claims

SmartCompany reports that research by Tyro has revealed that SMEs are paying around $400 million more than big businesses in fees each year and that the interchange fee on Visa and MasterCard credit or debit card transactions is 53 cents for each transaction, as against big businesses, which Tyro is reported as saying, only pay around 16 cents for the same transaction.

Tyro is reported to have said in its submission to the Financial System Inquiry, announced by the Treasurer last year (23 December 2013), that:

"the oligopolistic structure of the nation’s banking system is stifling business, particularly the ability of small-to-medium businesses to compete".

Reports state that Tyro takes the view that the Australian financial system does not encouraged innovative, start up growth companies and does not provide "open access to a level playing field".

Tyro, in its submission, says that instead SME's are "locked out" and that many companies like Tyro instead of "starting and scaling up in Australia" opt for Silicon Valley or place where the situation is different. The effect of this is that new fast growing companies that would contribute to higher productivity and growth of Australian businesses, especially in the SME category are held back.

The four key recommendations to the Financial System Inquiry made by Tyro are:

  1. an Australian Competition and Consumer Commission (ACCC) inquiry;
  2. a review of the Australian government's procurement policies and procedures with a view to promoting competition and innovation through an open panel tendering of payment services;
  3. creation of an “engaged regulator” to open up the payment system to new regulators, while maintaining market supervision; and
  4. a review of the “overcharging and cross-subsidies” which disadvantage SMEs.

Other Developments Class Actions on Bank Fees

Following the decision in Paciocco v Australia and New Zealand Banking Group Ltd [2014] FCA 35 (5 February 2014), it is reported that law firm Maurice Blackburn has lodged an appeal over the results in its class action case against the Australia and New Zealand Banking Group (ANZ) over its bank account fees. The class action against ANZ is reported as being "the largest in Australian history" and relates to late fees and other like fees charged by ANZ to more than 43,500 customers. The action was part of a larger proceeding against a total of eight banks and the fees they charged their customers. The action was also novel because it was funded by publicly listed litigator Bentham IMF.

The Paciocco case was seen as a test case ahead of action being taken against the other seven banks. The decision by Justice Gordon found ANZ had charged late payment fees to its customers illegally, however Justice Gordon also ruled that honour and dishonour fees and over-limit fees were lawful. An outcome which has lead to the appeal by Maurice Blackburn.

The main grounds of appeal lodged by Maurice Blackburn is are reported to be as follows:

  1. If the wording of the contracts with bank is analysed, there is a reasonable chance that a full court will agree with the submission that those contracts in fact mean that ANZ was not allowing its customers to overdraw and that therefore, those fees were payable only on breach of contract.
  2. The fees were as a result of penalties and illegal, and that illegality, is evidenced by ANZ's failure to set the fees by reference to a genuine pre-estimate of damage.
  3. In relation to the statutory courses of action which deal with unconscionable conduct and unfair contract terms, a proper consideration of the disparity between the amount of the fees and the underlying costs leads to a conclusion that those fees were "unconscionable and unfair under statute".

Even if only a partial victory the late fee component of the decision is reported to make up about a quarter of the total $57 million claim in the class action or around $15 million. At last report the ANZ was said to be still considering its position and whether to appeal against the ruling on late fees.

Meanwhile, just in, news of another class action case over bank fees on credit cards. A class action lawsuit alleging Canada's major banks and credit card companies are engaged in a "civil conspiracy" involving credit card fees, which is reported as being certified allowed to proceed, by the British Columbia Supreme Court. The Canadian class action is reported to have been filed by a Vancouver furniture retailer alleging the fees charged by 12 separate financial institutions, including Visa, MasterCard and Canada's big banks: "unlawfully interfered with the economic interests of merchants."

The suit alleges that merchants are forced to accept every Visa or MasterCard presented by customers, including premium cards, even though merchants are charged a much higher fees for those premium cards while at the same time, merchants are not allowed to charge more for accepting them. The applicant in this case is seeking to recover the fees that the credit card companies and banks allegedly "have collected illegally from merchants". The case is reported as being similar to a US class action last year in which Visa, MasterCard and the banks settled a similar lawsuit for (US)$7 billion in what was reportedly, the "largest class action settlement in US history", read more.

What Next?

It would be a good guess to say that class actions of the type described above, as well as government and regulator inquiries requested by the likes of Tyro into the banking and financial system, are only likely to be a growing feature of the legal landscape, going forward, unless a more transparent approach is adopted by the banking industry into the levying of its fees and charges on accounts and credit cards.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products.

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