Over the past decade or so, attention has intensified on the validity of a range of
'exception fees' charged by the banks. The most notable of these fees are:
- Deposit account honour or unarranged overdraft fees;
- Deposit account dishonour fees;
- Credit card over-limit fees; and,
- Credit card late payment fees.
Lawyers in Australia have launched litigation against the banks to have these fees refunded. Last year
they achieved a major victory on a key issue in the Australian High Court which we think will
be an important precedent in New Zealand.
The banking environment in New Zealand is similar to Australia. Indeed, the sector is dominated
by the same four banks; Westpac, ANZ, ASB (Commonwealth Bank in Australia) and BNZ (NAB in Australia).
The Penalty Doctrine
The source of your power to challenge the banks' fees is a rule, originating in the late 16th century,
called the 'penalty doctrine'. Until the rule was implemented, penalty clauses were used by financiers
as a major income source; they would lend money out expecting the borrower to fail to keep strictly
to the bond's terms. A trivial default by the borrower (repaying one day late, or failing to have
the original bond document redeemed) would result in the lender collecting an amount much larger
than the original sum.
Over time, a principle emerged that the amount recoverable under these clauses must be proportionate
to the loss suffered by the other party; the fees were no longer a source of easy profit. This was
used to overrule unfair bond arrangements, before expanding into unfair contract terms. The doctrine
essentially forbids a party to a contract from 'punishing' the other party.
Large scale group litigation, or 'class actions', is an emerging practice in New Zealand. Unlike most
jurisdictions in Australia, New Zealand is yet to introduce a special regime for these cases (a draft
bill has been with the Ministry for Justice for the past 4 years). Despite this, representative
proceedings are still possible under the current High Court Rules, which are similar to those which
were in place in the early days of class actions in Australia.
A major development in class actions over the past decade has been the introduction of litigation funding.
Litigation funding enables the costs of the proceeding, and any adverse costs risk, to be met by a
third party. This gives claimants a convenient and risk-free ability to pursue their claims. In
exchange, the litigation funder takes a percentage of any compensation which arises from the litigation.
The claims will only be run on behalf of those individuals who sign up (including signing the necessary agreements). To participate in any litigation
claiming back exception fees from your bank, register here.
You will be sent an email containing the necessary agreements and a summary of the next steps.