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Australia's big banks increased their penalty fees take on loans in the past year after more people fell behind in payments as the economy slowed.
Despite restructuring fees and charges, banks had a 9 per cent increase in penalty fees on loans to $536 million as borrowers fell into arrears, Reserve Bank figures have revealed.
And the banks are under pressure to recoup more than $1 billion annually from other areas, analysts said.
ANZ became the first of the banks to be hit with legal action on fees. Customers lodged a $50 million class action in the Federal Court yesterday alleging it wrongfully charged hundreds of millions of dollars in penalty fees in the past six years.
The action, which is widely seen as a test case, could extend to as many as 12 banks.
ANZ acknowledged exception fees were unpopular, but said it would defend the legal action. "It's a big leap, however, for a fee to go from being unpopular to being unlawful. ANZ will be defending this claim vigorously," said ANZ's Australian operations chief executive, Philip Chronican.
ANZ restructured its fees and charges in December.
Banking analysts said the loss of fee income was a blow for the sector already feeling the squeeze from a sharp rise in wholesale funding costs.
Exception fees on credit cards make up the largest share of penalty fees paid by households.
For ANZ, a potential $50 million payout represents little more than 1 per cent of this year's expected profit. But analysts said the impact on its bigger rivals could be larger.
In the past year, the big four have sought to head off the threat of a regulatory clamp on fees, by voluntarily removing the equivalent of $1 billion in penalty charges.
Westpac will be the biggest hit, losing $300 million in annual exception fee revenue, translating to $210 million in lost earnings. Commonwealth stands to lose $200 million in revenue, translating to a $135 million hit to earnings. The annual revenue impact for ANZ and NAB is also about $200 million.
In an analysis of bank fees, the Reserve said total fee income from households rose by 3 per cent to $5 billion last year, mostly due to deposit products and credit cards.
Analysts have said the removal of the fees is pushing banks to recoup lost earnings from other areas of their business.
The Australian Bankers Association yesterday declined to comment.
Central to the legal action against ANZ is that the bank had been ''unjustly enriched'' by the penalty fees at the expense of those customers paying the fees.
The action also alleged exception fees were paid by customers ''in the mistaken belief they were under a legal obligation to pay them or that ANZ was legally entitled to collect them''.
After legal actions were launched against bank fees in Britain and the US, analysts said it was only a matter of time before momentum for such an action would gather here.
Two years ago, NAB became involved in a legal battle with the Office of Fair Trading in Britain over bank charges.
NAB's Clydesdale Bank was one of seven British lenders that had challenged the ability of the OFT to investigate whether overdraft fees were fair under laws governing the terms of consumer contracts.
While the consumer watchdog won its initial legal bid to investigate the fairness of charges, this was later overruled by a higher court. The equivalent of $4.6 billion in annual revenue was at stake had the Office of Fair Trading won.
Recently, Australian banks argued against the introduction of rules banning ''unfair terms'' in contracts, a measure that would reduce their ability to enforce fees.
Source: Banks get more in penalties
Despite restructuring fees and charges, banks had a 9 per cent increase in penalty fees on loans to $536 million as borrowers fell into arrears, Reserve Bank figures have revealed.
And the banks are under pressure to recoup more than $1 billion annually from other areas, analysts said.
ANZ became the first of the banks to be hit with legal action on fees. Customers lodged a $50 million class action in the Federal Court yesterday alleging it wrongfully charged hundreds of millions of dollars in penalty fees in the past six years.
The action, which is widely seen as a test case, could extend to as many as 12 banks.
ANZ acknowledged exception fees were unpopular, but said it would defend the legal action. "It's a big leap, however, for a fee to go from being unpopular to being unlawful. ANZ will be defending this claim vigorously," said ANZ's Australian operations chief executive, Philip Chronican.
ANZ restructured its fees and charges in December.
Banking analysts said the loss of fee income was a blow for the sector already feeling the squeeze from a sharp rise in wholesale funding costs.
Exception fees on credit cards make up the largest share of penalty fees paid by households.
For ANZ, a potential $50 million payout represents little more than 1 per cent of this year's expected profit. But analysts said the impact on its bigger rivals could be larger.
In the past year, the big four have sought to head off the threat of a regulatory clamp on fees, by voluntarily removing the equivalent of $1 billion in penalty charges.
Westpac will be the biggest hit, losing $300 million in annual exception fee revenue, translating to $210 million in lost earnings. Commonwealth stands to lose $200 million in revenue, translating to a $135 million hit to earnings. The annual revenue impact for ANZ and NAB is also about $200 million.
In an analysis of bank fees, the Reserve said total fee income from households rose by 3 per cent to $5 billion last year, mostly due to deposit products and credit cards.
Analysts have said the removal of the fees is pushing banks to recoup lost earnings from other areas of their business.
The Australian Bankers Association yesterday declined to comment.
Central to the legal action against ANZ is that the bank had been ''unjustly enriched'' by the penalty fees at the expense of those customers paying the fees.
The action also alleged exception fees were paid by customers ''in the mistaken belief they were under a legal obligation to pay them or that ANZ was legally entitled to collect them''.
After legal actions were launched against bank fees in Britain and the US, analysts said it was only a matter of time before momentum for such an action would gather here.
Two years ago, NAB became involved in a legal battle with the Office of Fair Trading in Britain over bank charges.
NAB's Clydesdale Bank was one of seven British lenders that had challenged the ability of the OFT to investigate whether overdraft fees were fair under laws governing the terms of consumer contracts.
While the consumer watchdog won its initial legal bid to investigate the fairness of charges, this was later overruled by a higher court. The equivalent of $4.6 billion in annual revenue was at stake had the Office of Fair Trading won.
Recently, Australian banks argued against the introduction of rules banning ''unfair terms'' in contracts, a measure that would reduce their ability to enforce fees.
Source: Banks get more in penalties
