The big four Australian-owned banks - BNZ, ANZ, Westpac and ASB, along with state-owned Kiwibank - are being sued for a collective $1b in a massive class action lawsuit announced today.
Auckland-based lawyer Andrew Hooker, Australian consumer law firm Slater & Gordon and Litigation Lending Services, a litigation funding firm, are seeking plaintiffs to join a class suit against New Zealand's registered banks to reclaim fees charged when customers overdraw their accounts, pay credit card bills too late, or bounce a cheque.
"The reason for this class action is the unlawful overcharging of kiwis for many many years," Hooker told media in Auckland. "Under contract law in New Zealand, default fees must reflect actual costs to the party charging those default fees."
Hooker claims the banks have breached contract law by charging a fee that is higher than what it costs them when the payment defaults. The action will go back over six years.
The group says bank customers are being charged around $15 every time they overdraw their accounts when they estimate it only costs the banks a few cents when the transaction occurs.
Up to one million Kiwis may be eligible to sign up for a slice of the overcharged fees, it said.
Hooker said Kiwis could be paying up to $1500 more a year than they should be.
"After they have taken the money it is up to the customer to fight them."
But few people would take their bank to court for $15, he said. "The banks rely on this."
The New Zealand action comes after a similar suit across the Tasman, where ANZ is being treated as test case.
Hooker said the market share of the local banks would probably be representative of their share of the suit, with the Australian-owned banks and state-owned KiwiBank the biggest offenders.
Michelle Silver, managing director of Litigation Lending Services, said the action has a minimum threshold of 10,000 people to proceed and she expects at least 50,000.
The funding firm stands to gain a 25 per cent commission if successful on a no-win no-fee basis, while Hooker expects his legal costs and disbursements to be $3.5 million.
The proceeding comes as Justice Minister Judith Collins works on legislation to enable faster, better and cheaper class suit actions. That policy work was expected to be done last year.
Shares in Australia & New Zealand Banking Group edged up 0.03 per cent to $36.21 on the NZX, while Westpac Banking slipped 0.1 per cent $38.77.
A website has been launched for people who want to be part of the lawsuit to register.
The website - "Fair Play on Fees" describes that action being taken like this:
"When your account balance runs low or you are late with a credit card payment, the last thing you need are extra fees; yet for years that's exactly what the banks have been hitting you with.
They're called 'exception fees', and you're charged them when your account goes into unexpected overdraft, you exceed your credit card limit or make a late payment. Even if the bank doesn't allow a payment to go through, they'll still charge you a 'dishonour fee' for the so-called service. We estimate that New Zealanders have paid the banks around $1 billion in these fees over the past six years.
We think that these fees are unfair and should be challenged in court. Although the amounts ($15 to $35) sting you, because litigation is expensive it has not been worth taking the banks on by yourself. In Australia, lawyers have launched class actions valued at about $280 million to recover these fees. We think it's time for New Zealanders to band together and stand up to the banks.
Claimants are being told that "there is nothing to lose, and no upfront cost."
The lawyers involved said that if anyone had been "hit by one or more of these fees over the past six years, all you need to do is sign up."
"Unlike the banks, we're not about to charge you fees for no obvious gain. Instead, Litigation Lending Services (NZ) will fund all the legal costs, in exchange for a right for them to be reimbursed if the claim succeeds along with 25 per cent of the compensation."
What fees are included?
*honour fees when there are insufficient funds in an account to meet a direct debit payment or cheque. The bank pays the money but then charges a fee.
*dishonour where person is charged for going into overdraft which has not been previously arranged with the bank
*Late payment fees on a credit card
What fees are not included in the court case?
*standard monthly account fees