News

Customers feel in the dark

Most banking customers have no idea how much they are paying for banking services.

Unclear communication of fees and charges is one of the leading reasons why customers change banks.

According to the Ernst & Young 2012 Global Banking Survey, 22% of customers want their bank to improve its fees and charging structures. Respondents reported that banks could improve the transparency of their fees and charges through:

• Communication clarity (54%)
• Standard terms and conditions (42%)
• Service quality (39%)
• Personalisation (32%)

The survey revealed that transparent pricing is considered a priority across banking customers all around the globe and of all age groups.

Customers taking action

The fairness of banks' fees and charges is gaining more attention and customers are taking the issue seriously.

In March 2013, the first class action campaign was launched in New Zealand to recoup money charged by the country's major banks as penalty (or exception) fees. More than 32,000 people have registered to join the "Fair Play on Fees" campaign. ANZ is the first bank in the spotlight, however all of the major banks (as well as Kiwibank) are in the campaign's sights.

Lawyer Andrew Hooker, who is leading the campaign along with Australian consumer law firm Slater & Gordon and Litigation Lending Services, explains that customers are charged an average fee of $15 every time they overdraw their accounts, pay their credit card late or bounce a cheque, which is considerably out of proportion to what it costs the bank to electronically process the transactions.

Hooker describes the fees as "excessive, unfair and not legal". The case is based on a principle of contract law which places a limit on the amount a customer can be charged if they default on an obligation. If a default fee is higher than what it costs the other party then it is an unenforceable penalty. Hooker says banks have been ignoring the principal of contract law for years and estimates that banks have overcharged $1 billion in penalty fees over the past six years.

What the banks are saying

ANZ Managing Director Retail, Kerri Thompson, believes that ANZ has a very strong case, and will vigorously defend the claim. She says that ANZ had reviewed its exception fees a number of times, including giving a breakdown of costs to the Commerce Commission. She believes that the bank has good quality data that backs up the justification for the fees. She also describes Hooker's claim that the cost to banks is likely to be a few cents as "ludicrous".

Chief Executive of New Zealand Bankers' Association, Kirk Hope, maintains that New Zealand's banks communicate very clearly on fees, which is a reflection of our very competitive banking sector. He argues that the fees being singled out are avoidable, and that our industry has also made it easy for customers to switch banks if they feel the fees they're paying are too high.

CEO of ASB, Barbara Chapman maintains that ASB is open and transparent and its fees are very well explained. Although she too believes that penalty fees are avoidable, she says banks can always be better at transparency. She also admits that it is something that ASB is giving a lot of consideration to - regardless of who the first case is against.

Talk of legislation

The Green Party is supporting the class action and says it has offered ready legislation in the form of a Member's Bill to ensure future bank fees are fair and transparent.

According to the party's co-leader, Russel Norman, the legislation would ensure banks offer a basic fee-free banking service, that bank fees reflect the actual costs involved, and that the Reserve Bank is made responsible for the oversight of bank fee charges.

Opportunity to stand out

According to the Ernst & Young survey, 50% of respondents reported dissatisfaction with high fees and charges as the main reason for changing banks.

Regardless of whether penalty fees are "legal" or potentially regulated in the future, there is no denying that transparent communication of fees and charges is highly valued by banking customers. Perhaps this presents banks with a real opportunity to make some changes and stand out.

• "NZ banks face class suit over $1 billion in default fees", 11 March, 2013.
• "Transparency talking point in new ASB headquarters" 29 June, 2013.
• "ANZ first bank to face fee lawsuit" 18 June, 2013.
• Ernst & Young Global Banking Survey 2012.