Tuesday, August 12, 2014

Banks have form on credit card penalty fee promises. Are they really in touch?

Banks like to say they listen to customers a lot more these days.

If you believe the advertising across print, broadcast and social media, banks are cosy and caring members of our families.

Massive advertising and marketing budgets have been stumped up in in recent years to tweak images and to show that banks understand the challenges that both personal and business borrowers face.

For example, ANZ - a target of the latest class action announced today - proudly declares "we live in your world" .

No one wants to see an unprofitable bank, and that of course is unlikely with Australia's biggest bank, the Commonwealth, tipped to reveal a full year profit of around $8.7 billion on Wednesday.

But is it fair, lawful, moral or sustainable for banks to continue charging late fees of up to $35 when the recovery cost to the bank is estimated to be about 50 cents?

It's a long running argument that goes to the balance of personal responsibility for credit card holders and how far banks will go to recover whatever they can.

However, some messages from banks over the years are more mixed and potentially conflicting than others.

Back in 2007, I witnessed a rare event when the ANZ's chief executive at the time, John McFarlane - a straight taking, folk singing Scotsman - admitted penalty fees were probably unsustainable.

Participants at the business lunch were surprised to hear a Big Four banking boss suggest he was making a little too much money from consumers.

At the time, the ANZ and the other major banks were under fire for allegedy unfair fees and facing class actions back by litigation funders like IMF Australia.

 "It's interesting that the people who are the poorest pay the highest cost for borrowings and from money lenders and other forms of unregulated lenders. They also pay the most for their banking, you know, they're the least literate financially, and therefore they're at least capable of managing their accounts."

And Mr McFarlane even relayed a moment of personal embarrassment, that most would find unusual for a top banker on a multi million dollar salary, when his credit card was dishonoured at a checkout:

"I have to tell you it's a hell of embarrassing when you're a big shopper and you have to hand everything back at the till because they won't approve your credit card."

But more importantly, Mr McFarlane conceded that some penalty fees are not worth chasing, particularly with people who have limited or no ability to pay.

"Eventually they build up a negative balance, and all you do is write it off, so you never collect it anyway. So what is the point of upsetting everybody by charging it, when you're actually, on balance, not going to collect it."

Seven years have passed since John McFarlane signaled he was in touch with the penalty fees issue and the serious damage class actions can inflict on the carefully crafted images of banks.

Some banks have reviewed the level of penalty and dishonour fees but most still play hard in pursuing them and chief executives continue to push for record profit after record profit.

This has become more intense since the global financial crisis where banks continue to finely balance the interests of shareholders, who want greater dividends, and customers who know how to shop around.

The banks targetted by the Maurice Blackburn class action in the NSW Supreme Court will of course fight tooth and nail, especially given the partial victory inflicted on the ANZ back in 2010.

No comments:

Post a Comment

What's your view on this?