In brief: Banks and service providers have won
a significant battle over late credit card payment fees of up to
$35 following a recent High Court decision.
What you need to know:
When addressing whether a fee is a penalty, the High Court
affirmed that a service provider should assess the fee against the
greatest loss that could conceivably flow from a
Customers should review the terms of their service provider
contracts carefully before entering into them and raise any
concerns about the amount of default type fees before they enter
Marking the end of a three year class action against the
Australia and New Zealand Banking Group Limited (ANZ), a High Court
ruling has confirmed that the ANZ bank was entitled to charge late
payment fees of up to $35 to its customers.
Mr Paciocco, an ANZ bank customer, held two consumer credit card
accounts with the ANZ. The terms and conditions of the accounts
required Mr Paciocco, following receipt of a monthly statement of
account, to pay a minimum monthly repayment. If the minimum monthly
repayment plus any amount due immediately was not paid within a
specified time, a late payment fee was charged. The late payment
was $35 before December 2009 and $20 thereafter. Mr Paciocco was
charged a total of 26 late payments fees.
Mr Paciocco commenced proceedings against the ANZ in the Federal
Court of Australia in 2013, in which he alleged that the late
payment fees, and various other fees charged by the ANZ, were
unenforceable as penalties. He also claimed that the late payment
fees were unconscionable and unfair under the Fair Trading Act
1999 and unjust under the National Credit Code.
Federal Court's decision
At the hearing, expert evidence was adduced as to the losses
suffered by ANZ upon Mr Paciocco's failure to pay amounts owing
on his accounts by the due date. Mr Paciocco's expert focused
on the amount needed to restore ANZ to the position it would have
been in had Mr Paciocco paid the amounts on time. Contrary to this,
ANZ expert evidence was directed at the costs that could
be incurred as a result of Mr Paciocco's late payment, which
included loss provision costs, regulatory capital costs and
The primary judge agreed with Mr Paciocco's expert and held
that the late payment fees were penalties because, amongst other
things, they were extravagant and unconscionable in comparison with
the actual loss suffered by ANZ.
On appeal, the Full Court of the Federal Court overturned the
decision of the primary judge and held that the late payment fees
were not penalties because, amongst other things, the costs
incurred by the Bank were affected by loss provision costs,
regulatory capital costs and collection costs.
High Court's decision
Mr Paciocco's appealed the Full Court's decision to the
High Court in 2015. However, the High Court dismissed the appeal
and agreed with the Full Court that the relevant costs to be
considered included loss provision costs, regulatory
capital costs and collection costs.
The principles of this case can apply to other service
providers, including energy and telecommunication companies who
charge similar default type fees to customers.
Customers should review the terms of contracts carefully before
entering into them and any concerns about the amount of default
type fees should be queried at the outset.
Service providers should also act cautiously when calculating
any default type fees, and ensure that the fees are a realistic
estimate of the actual and potential costs that may be incurred if
the customers default continues.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.Madgwicks is a member
of Meritas, one of the world's largest law firm
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