A massive class-action suit being taken against New Zealand's big four banks and Kiwibank was announced with much fanfare earlier this week. For many Kiwis, the opportunity to claw back some of the fees they've been charged over the years seems too good an opportunity to miss.
But is the suit likely to be successful? It will definitely not be an easy win for the Fair Play on Fees campaign.
The $1 billion in fees that the campaign claims have been paid to banks over the past six years sounds about right. But that amount is likely to be well in excess of any eventual claim.
In 2009 my colleague from Massey's Centre for Financial Services and Markets, Associate Professor David Tripe, calculated that the total penalty fees charged by all banks was around $100 million per annum. The claim only covers four types of fee, and their levels have reduced since 2010.
New Zealand lawyer Andrew Hooker, who is leading the class-action suit with Australian consumer law firm Slater & Gordon and Litigation Lending Services, has been quoted as saying the cost to banks of processing late payments or bouncing cheques is just a few cents.
It is naive to suggest that there are no costs related to computer-managed processes. Technological processes are clearly cheaper than manual ones, but IT systems are expensive to establish, maintain and operate.
Whether $15 or $20 reflects a reasonable amount to recoup by the banks is at the crux of this case. In my opinion $15 to $20 seems fair for a cheque dishonour fee, but not for missing an automatic payment, which is an automated process.
Much is being made of the success of a similar class-action suit being taken in Australia. But I would caution would-be New Zealand claimants to refrain from celebrating too early. The Australian case is yet to be successful - there has been an important ruling in favour of claimants, but there is still some way to go before the case is finally settled.
The Australian suit cannot be simply translated into the New Zealand context. While the underlying law regarding contracts may be nearly identical, the banks' operations are not, despite their Australian ownership. The Australian banks were charging up to A$50 ($63) for dishonouring cheques, whereas it has never exceeded $35 in New Zealand, and most banks had a maximum charge of $30.
It's also important to remember that the three parties fronting this claim are not doing it for philanthropic reasons. The two legal firms involved are being paid, even if it is at a lower rate than usual (as claimed by Andrew Hooker in an interview on Radio New Zealand). And the funder, Litigation Lending Services, receives 25 per cent of any eventual successful claim, in addition to any costs incurred.
What it does show, however, is the three parties feel they have a chance of success. For Kiwis disgruntled with their bank, there is virtually no cost or risk involved in signing up to be part of the class-action suit. I expect large numbers to register their interest - New Zealanders aren't very fond of their banks, and the chance to "get their own back" will be very attractive.
I, for one, will be watching the case with interest. While it is too early to say which way the courts will rule, there is a large part of me that would prefer to see the claim fail.
I think banks do need to review their penalty fees, but a win for the Fair Play on Fees campaign would send an inappropriate message to New Zealanders about how they operate their bank accounts. The knock-on effect also has the potential to generate increased costs and restrictions for other customers.
Whether the class-action suit is ultimately successful or not, I would also encourage would-be claimants to seek budgeting advice. All these bank charges are completely avoidable, so for those paying large sums in fees to their bank, improving financial literacy would pay dividends as well.
Dr Claire Matthews is a senior lecturer and director of financial planning at Massey University. She is also a member of the Fin-Ed Centre (Financial Education and Research Centre) board.