ASB settles card suit out of court, faces huge payout

The Commerce Commission is also pursuing prosecutions of several other banks.

The ASB bank is offering to repay millions of dollars in hidden credit card fees instead of defending Commerce Commission allegations.

It is the first bank to initiate settlement talks with the commission to refund the undisclosed fees rather than fight the charges of breaching the Fair Trading Act.

Seven other financial institutes are facing multimillion-dollar payouts after the Auckland District Court last week ordered the ANZ and National Banks pay back $10 million to 300,000 customers.

Both banks pleaded guilty to 45 charges of breaching the Fair Trade Act by failing to declare hidden fees on credit cards between 2001 and 2004.

Sources close to the case have since revealed ASBis offering to settle rather than enter into a protracted legal battle.

However, New Zealand's second largest bank, Westpac, has indicated it will defend the charges, saying it had adequately disclosed the fees.

Based on ANZ National's 40 per cent share of the market, another $30 million could be refunded by the seven banking institutes.

The commission alleges banks misled customers with promotional material, fee schedules and bank statements which hid fees charged on credit-card transactions made in foreign currency.

On top of repaying the $10 million, ANZ National was also fined $1.3 million, the largest imposed under the act, and ordered to pay court costs of $160,000.

An independent auditor will contact each overcharged customer and money will be refunded by the end of September.

Those who used credit cards to make a purchase or withdraw cash while overseas or who shopped online from an international site could be eligible for a refund. Customers would receive between 80 and 90 cents for every $100 spent on a foreign transaction between 2001 and 2004.

Dr David Tripe, Massey University's director of banking, said though banks had extensive customer records, finding every affected customer in the next six months would not be an easy task. "The cost will be immense," he said.

A case for transparency

The successful Commerce Commission case against ANZ National's hidden credit card charges appears to have had the desired effect.

ANZ and National are reshuffling credit card fees to become more transparent and foster competition between the two, despite their merger in 2004.

From Friday National Bank will lift its currency conversion rate from 1 to 2 per cent of the total purchase amount, and ANZ will follow suit from 1.5 to 2.5 per cent. A 1.1 per cent margin charged by MasterCard to customers will no longer apply, to offset the difference.

Merged into one, the two separate fees were at the centre of legal action brought against ANZ National by the Commerce Commission.

ANZ National pleaded guilty to 45 breaches of the Fair Trading Act by failing to declare hidden transaction fees on credit cards.

The banks were fined $1.3 million and ordered to pay $10 million to affected cardholders, who must be tracked down and refunded by the end of September.

Banking Ombudsman Liz Brown said the changes were linked to the litigation.

"Amalgamating two charges into one is more transparent and that can only be good."

Colin Carruthers QC, legal counsel for the commission, said the case had pressured banks into competing against each other.

However, ANZ spokesman Craig Howie said the timing of the rejigged credit charges and the Commerce Commission court case was simply coincidental.

Mastercard was charging the 1.1 per cent margin directly to banks rather than customers, which was then passed on to cardholders.

"It certainly has nothing to do with the disclosure of fees," Mr Howie said. 

- HERALD ON SUNDAY