In Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28 the High Court of Australia dismissed appeals by the bank’s customer against the Federal Court Full Court’s decision that the Late Payment Fees charged by ANZ on Mr Paciocco’s consumer credit cards were not a penalty at common law.
The late payment fees were charged by the bank on consumer credit card accounts if the “Monthly Payment” plus any “Amount Due Immediately” shown on the statement of account which the ANZ issued was not paid by a specified date. The fee was charged regardless of the amount of the Monthly Payment outstanding.
The High Court also decided that the imposition of late payment fees did not contravene statutory prohibitions against unconscionable conduct, unjust transactions and unfair contract terms.
The late payment fee was $35 before December 2009, after which it was $20.
The majority of the High Court (4-1) held that the Full Court was correct to characterise the loss provision costs, regulatory capital costs and collection costs as affecting the legitimate interests of the Bank and which therefore could be taken into account in calculating the fee. The fee need not be limited to direct costs.
Does the decision mean that banks can charge any amount of fees they wish? No.
The following observations of Mr Justice Keane are helpful in analysing the effect of the decision:
“it should be understood that a rejection of the case which the appellants did advance does not mean that there is no limit to the extent of fees and charges that banks might lawfully charge. Such a concern might be met by invoking laws which are directed to prevent the abuse of market power or dishonest conduct in the market…
currently in Australia, no legislation authorises the application by the courts of a standard of reasonableness to determine the lawfulness of bank charges; and it is not suggested that the common law has developed such a standard….
The strength of the appellants’ case lies solely in the finding by the primary judge that the cost actually incurred by ANZ in consequence of each failure by Mr Paciocco to pay his credit card account on time was of the order of $3. That amount can be contrasted with the amount of the late payment fee actually charged by ANZ: initially $35 and later $20. The large disparity between the late payment fee charged by ANZ and the expenses actually incurred by it in each case of late payment is the focus of the appellants’ case. That disparity may well mean that the late payment fee could accurately be characterised as an example of profiteering by the bank. But whether a late payment fee is to be characterised as an unenforceable penalty is not to be determined by asking whether the enforcement of the fee will produce profits, even large profits, for the bank. The case advanced by the appellants was that the late payment fee was to be characterised as a penalty because its purpose was to punish Mr Paciocco for breaching his contractual obligation to make timely payment or to deter him from choosing not to perform his contractual obligation. And the appellants sought to make this case good by evidence which showed that the late payment fee exceeded the expenses actually incurred by ANZ on each occasion of default by Mr Paciocco. The disparity was said to be so great that the late payment fee could be seen to be out of all proportion to the bank’s interest in recovering the expenses actually incurred by it.
To argue from these premises that the contractual purpose which characterised the late payment fee charged by ANZ was the punishment of its customers is fraught with difficulty once it is accepted that the bank’s legitimate interests are not confined to the reimbursement of the expenses directly occasioned by the customer’s default. The maintenance or even enhancement of ANZ’s revenue stream, for the purpose of making a profit, is one explanation of the late payment fee. Indeed, it is the most obvious explanation because, generally speaking, it is the purpose which informs all the terms on which a bank makes its facilities available to its customers. And although interest payments are the primary source of reward to a bank for financial risks involved in the provision of financial accommodation to its customers, there is no legal reason why a bank’s fees and charges may not serve the same purpose. In short, the late payment fee is readily characterised by the purpose of ensuring that ANZ’s revenues are maintained at the level of profitability required by its shareholders. And the appellants did not seek to advance a case that the pursuit of this level of profitability was itself, in some way, not legitimate…
there is no reason to regard Mr Paciocco’s choice to incur the fee as other than a rational economic choice on his part. A voluntary and self-interested choice of this kind is the opposite of the rational response which one might expect to be generated by a penal provision, given that the characteristic purpose of a penalty is to deter non-compliance.”
