Debt Before Dishonour

Sydney Morning Herald

Wednesday October 3, 2007

By John Kavanagh

Consumer groups welcome a review of bank penalty fees.

Consumer groups have welcomed moves by several banks over the past few months to reduce penalty fees. Banks have reduced charges for late payments, overdrawn accounts and dishonoured cheques and have cut penalty fees altogether for some groups of customers.

Welcome as the changes have been, consumer groups want the banks to go further. Gordon Renouf, policy manager at the consumer group Choice, says some fees should be abolished altogether while others are still too expensive.

The issue of penalty fees - what the banks prefer to call exception fees - arose in May when the Reserve Bank published its annual review of bank fees. The Reserve reported that penalty fees had risen sharply over recent years - more so than any other type of fee the banks charge their retail or business customers.

The average charge for spending over the limit on a credit card increased five-fold, from $6 in 2001 to $30 in 2006. Late payment fees on credit card accounts rose 55 per cent, from an average $20 to $31 over the same five years.

Foreign currency conversion fees rose from an average of 1 per cent of the transaction in 2001 to 2.4 per cent last year. The cost of using a credit card to withdraw a cash advance from either another bank's automatic teller machine or an overseas ATM has increased threefold, from 0.4 per cent of the transaction value to 1.4 per cent.

Choice attacked these increases, arguing the banks would be hard pressed to demonstrate the cost increases reflected movements in their own costs. Since then the banks' responses have varied.

In July, St George Bank cut its dishonour and honour fees to $8 for customers who hold Concession Cards. For other customers, those fees are $45 for a dishonour and $38 for an honour fee (when the bank honours a payment even though the account is overdrawn).

The bank cut its inward cheque dishonour fee altogether. This fee was charged against the account of a customer receiving a bad cheque and was the fee most heavily criticised by consumer groups.

St George has a system of email and SMS alerts. Customers can elect to receive notification of the balance on a nominated account at the beginning of each day. They can also use the service to monitor their direct debits.

Renouf says more banks should have this type of service. "We make more and more direct debit payments and banks need to do more to help us keep on top of those payments," he says.

National Australia Bank's review of fees has been more extensive than most. Last year the bank made changes to its Concession Card Account, removing all exception fees, transaction fees and monthly account fees.

In September, NAB announced it would remove the over-limit fee on credit card accounts held by customers with Concession Card Accounts. The bank said it would withdraw the ability to overdraw the card on electronic purchases.

This month the bank will launch a suite of new transaction accounts. A feature of all the new accounts will be a waiver of the account service fee if a minimum of between $2500 and $5000 (depending on the account) is deposited each month.

NAB's new Gold Banking account will provide free access to any ATM. Another of the new accounts, Clear Banking, has no penalty fees; users of the account will be prevented from overdrawing.

NAB says that early next year it will cut its dishonour fee from $50 to $30, reduce its periodical non-payment fee (charged when a periodic payment is deferred because of insufficient funds) from $35 to $30 and cut out the inward dishonour fee altogether.

Renouf says NAB has made a good move, giving customers a trade-off between accounts that allow them to overdraw and pay a fee or avoid paying fees in return for having tighter access.

In August, ANZ announced customers would be given the option of switching off the ability to overdraw their accounts. That option will be given to credit card and transaction account customers from December 1.

The bank has also reduced exception fees for low-income earners on ANZ Access Basic Accounts from $35 to $10. From December, it also will cap exception fees at $10 on credit cards held by ANZ Basic Account holders.

In August, Westpac reduced its outward dishonour fee from $25 to $10 and its account overdrawn fee from $20 to $10 for customers with a Westpac Basic account and selected student and youth accounts.

From November, Commonwealth Bank will remove the overdrawn fee on its Pensioner Security account. The bank dropped inward dishonour fees in June.

More changes are in the wind. Commonwealth says it will revamp its Basic bank account early in 2008.

Mike Pratt, Westpac's group executive for consumer financial service, says the bank is doing more work on exception fees.

Renouf says the banks must do three things: demonstrate that penalty fees are priced to recover costs rather than generate revenue; develop services to help customers keep track of account balances; and they must give their customers choice.

© 2007 Sydney Morning Herald

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