Cost of a slip-up: 4700 pc interest

By SIMON COLLINS

An accountant whose bank account went over her overdraft limit without her knowledge for 12 days was charged "honour fees" which were the equivalent of an annual interest rate of over 4700 per cent.

The accountant, who wants to stay anonymous, went beyond her limit in January when distracted by a sick friend. By the time she realised a month later, the ANZ had charged her $195 in fees to "honour" her payments.

She had been above her overdraft limit on 12 days during that month, by an average $123.85 a day.

If the bank had charged her $195 in interest on that average excess over the 12 days, the interest rate would have been 13.1 per cent a day, or 4789 per cent a year.

"I have never seen a loan shark who got away with that. That is terrifying," she says.

The "honour fee, " introduced last year, is $15 for every "payment" which the bank pays out on transactions above a customer's overdraft limit, with a maximum of two fees ($30) a day. The only banks charging the fee are the ANZ and the BNZ.

The accountant says the fees are really a form of interest because the "payments" the bank was "honouring" were not actually cheques which she might have expected the bank to "honour."

Apart from one automatic payment to another party, all the "payments" which pushed her above her limit were either transfers to another account she held at the same bank, or her own cash withdrawals at money machines or for Eftpos purchases.

In effect, the bank chose to lend her the money when it could have simply programmed its computer not to let her withdraw above her overdraft limit. And it did this without any warning either that she had gone above her limit or that it would charge "honour fees" every time she withdrew more money beyond that point.

She believes it may be illegal under the Credit Contracts Act to charge what is effectively interest without at least programming the money machines to give a warning.

A spokeswoman for the ANZ, Samantha Shaw, says "honour fees" are intended to be a "disincentive" to stop people going over their limits - not a new form of interest. "The idea is that by being charged a fee it would cost you as much as an overdraft for a year, so we hope to see people keeping closer tab on their account balances or increasing their overdraft limits."

She says that when the fee was introduced, all customers were sent a letter and a brochure explaining how they could avoid the fee by better management.

A Consumer Affairs Ministry spokeswoman, Judy Cochrane, says there is no legal requirement to warn people when they are exceeding their overdraft limit.

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