Are some bank fees unenforceable? - Paciocco v ANZ [2014] FCA 35

Date: Oct 06, 2014
Document Type: Article

Bank customers in Australia are eagerly awaiting the outcome of ANZ’s appeal to the High Court after the Federal Court’s decision in February 2014 decided that the fees ANZ charge for the late payment of credit cards are unenforceable. The decision will have a huge impact on the banking industry. If the Federal Court’s decision prevails on appeal, it is likely that many of the fees charged by all the big banks will be challenged.

Everyone has been stung by bank fees at one time or another. There seems to be a fee for everything. You can be charged for withdrawing from a different bank’s ATM, exchanging currency, overdrawing your account or failing to pay your credit card debt on time, to name a few. Although each fee may seem insignificant in itself, they can add up quickly. However, despite this decision, it is important to remember that not all bank fees will be unenforceable.

What is a penalty?

In contracts it’s common to have conditions which require the payment of an agreed sum if certain contractual stipulations are breached or to ensure the performance of an obligation under the contract. This is meant to reimburse the other party for the loss they will suffer due to the breach or non-performance. It is not intended to punish the other party or intimidate them into complying with the contract. If the agreed sum is extravagant and unconscionable compared to the likely loss that will be suffered by the breach, it will be regarded as a penalty which is unenforceable.

For example, in a contract for the delivery of goods at a certain time, the supplier agrees to pay $50 for every hour they are late in delivery. This is a genuine pre-estimate of the loss, because it covers the hourly wage of the worker who will have to stay late to receive the goods. If the amount was $5,000 for every hour this would be considered a penalty because it is exorbitant and unconscionable compared to the loss that will likely be suffered. 

Facts of Paciocco

Since the losses suffered by a person due to these types of bank fees are too insignificant to warrant individual litigation, the case was run as a class action involving about 180,0000 people.

The action challenged the legality of many of ANZ’s fees, the main one being the late payment fee for credit cards. Customers with credit cards are obliged to pay a minimum amount at a certain time each month. If they breached this stipulation, they were charged a late fee of $20 or $35, regardless of how late they repaid. It was estimated that the loss suffered by ANZ as a result of late repayment is between 50 cents and $5.50. The class also challenged the honour, dishonour, non-payment and over limit fees charged.

The issue was whether these fees amounted to penalties and are thus unenforceable. There was also an issue about whether the action was limited by statute to fees that had been incurred in the last six years.


The court found that the late fees were penalties and thus unenforceable. The court decided that the fees were not a genuine pre-estimate of the loss ANZ would suffer as a result of the late repayment and were extravagant and unconscionable compared the loss actually suffered.

However, the court decided that the other fees levied by ANZ including honour fees, dishonour fees, overlimit fees and non-payment fees were not penalties. The court found that these fees were levied to provide an additional service which justified their amount. For example, a customer who overdraws an account is essentially requesting an extension of credit from the bank, which is considered and either accepted or declined by the bank. This additional service justifies the fee which is not otherwise extravagant or unconscionable.

In addition, the Court held that the action was not limited by statute to fees paid in the last six years. Instead, the limitation period was held to commence 6 years before 10 September 2010, when an earlier related proceeding commenced.

ANZ is currently appealing the decision to the High Court and the class is cross-appealing the decision regarding the status of the other fees.


Before you run to the banks to demand all your hard earned money back, it is important to realise this decision does not mean just any bank fees, or even all late repayment fees are penalties, no matter how unfair they may seem to you. As can be seen from the decision, only one of the fees challenged amounted to a penalty. There are still many ways in which banks can justify high fees charged for their services.

However, it is still important to be vigilant when it comes to checking what your bank charges. Despite this decision, many banks continue to charge similarly large fees for late payment of credit card debt. We have evidence that as recently as September 2014, at least one of the big four banks continues to charge a $20 late fee for credit cards. Until the matter is heard in the High Court, the decision of the Federal Court stands and charges like these may be penalties. You are well within your rights to question your bank when such fees are charged.    

This article was prepared in October 2014 and the law may have changed when you read it. 

If you require any assistance, please do not hesitate to contact us.

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