The “Fair Go On Fees” campaign, launched last week, advises customers how they can challenge bank fees that are incurred in instances such as when a credit card limit is exceeded or they don’t have enough money to cover direct debit or cheque payments. The fees charged by the banks in each instance can be up to $50.

Nicole Rich from the Consumer Action Law Centre said they believe the fees are probably unlawful because they are out of proportion to the costs incurred by the bank in processing the transaction.

“The legal issue is that we think these fees are penalties at law and in any case are unfair and excessive. We also think it raises other issues such as unconscionable conduct in enforcing terms that are put there unilaterally and impose excessive fees. And there’s also an argument in Victoria that the term in the contract imposing the fee would be an unfair term because we now have unfair contract term laws in Victoria under Part 2B of the Fair Trading Act which are modelled on the UK’s unfair contract terms laws. So we’ve made all of those legal arguments,” she said.

According to the Reserve Bank’s bulletin published in May, banks and credit unions charged households over $4 billion in fees last year, including hundreds of millions in penalty fees.

“If it was any other industry the company would have to write to you and say ‘you owe us these fees — pay up’ and you might have a fight at that point. But because the banks have people’s accounts they just obviously directly take it out of the account so it puts the onus on the individual customer to mount a challenge if they want to reclaim the fees. So it’s pretty hard for individuals. Who is going to run a legal action for $50 fee against a bank?,” Rich said.

Rich acknowledges ultimately a court would have to decide whether the fees were classed as penalties or not and that the potential costs of litigation make it unlikely an individual could mount a test case. However, she hopes the campaign may prompt some sort of legislative response that would give one of the regulatory bodies the power to investigate the fees.

“After the Wallace Inquiry into financial services the government set up three regulatory bodies — APRA doing prudential regulation, ASIC doing financial services regulation and the ACCC does general market competition regulation. Nobody is responsible for bank fees or fair fees or for financial affordability or any of those broader issues.

“This law of penalties is a case law principle. It’s quite well-established but nevertheless it’s common law. Government bodies tend to derive their authority from statutes and get their authority from statutes while the courts administer common law. So while consumers have the right to take their own legal action, none of the regulatory bodies has the power to do that,” Rich said.

The Family First Party has announced its intention to introduce a Bill putting an end to high bank fees.

Ian Gilbert, Australian Banker Association (ABA) director, retail regulatory policy, said he doubted the validity of many of the consumer groups’ legal arguments.

“It’s the consumer groups that are saying that all these fees are ‘penalties’ and therefore unenforceable but only a court is able to make that judgment on the facts of each case. The central point underpinning the consumer groups’ claims is that the present law doesn’t need to be changed if what they are claiming is legally correct. But what they haven’t made clear is how they reached the point of making that allegation, as a court when assessing whether the fee was a penalty would have to approach the question on the particular facts before it. For example, a court is unlikely to declare as a ‘penalty’ a term in customer’s contract that says that the bank may allow the customer to overdraw their account, which many banks do. But there may be a fee associated with that overdrawing. Examples like this expose the flaw in the consumer groups’ wide-ranging claim,” he said.

The ABA made an announcement last week saying it was committed to providing the community more information on exception fees following discussions with the Australian Securities and Investments Commission.