Customer fury rises over bank charges

Banks are moving to dump unpopular overdraft charges as complaints against them skyrocket. Photo / Richard Robinson

Complaints against banks and their fees have doubled in number in the past year.

Break fees on fixed-rate home loans and unpopular bank charges have topped the list of grievances for unhappy customers.

The BNZ broke ranks last week to be the first to axe $35 overdrawn account penalty fees - but other banks haven't yet made their moves, despite the rising number of complaints.

Banking ombudsman Liz Brown received 1900 complaints in the year to June 30, compared with 949 the previous year, according to figures released to the Herald on Sunday.

Complaints about break fees on fixed-rate home loans helped make misrepresentation the largest single complaint category, at 27 per cent.

Brown said dropping interest rates were driving customers' worries about break fees. The charges are applied when customers try to change a fixed-rate mortgage to take advantage of falling interest rates.

The Commerce Commission is looking into whether the break fees comply with appropriate laws, including the Fair Trading Act.

Banks can recover their losses when a customer repays the loan early or breaks the terms of the loan, but the fee must be based on a reasonable estimate of loss.

In April, the commission said ASB, SBS Bank, BNZ and National Bank fee calculations were appropriate, and no further action would be taken. But investigation into fees charged by ANZ, Kiwibank and Westpac are still continuing.

Brown said there was also a general rise in debt-related complaints from customers who had fallen on hard times.

The second-largest complaint category - at 18 per cent - was bank fees and charges.

The industry was taken by surprise when BNZ announced it would stop charging customers when payments are dishonoured ($35), when an honoured payment pushes a customer into overdraft ($20) or when an internet payment is missed ($5).

The change will cost the bank $25 million a year, but BNZ said there would be no other fee increases to make up the revenue loss.

Some parent banks in Australia are already working on removing the fees, and other New Zealand banks may look to follow the BNZ's lead.

Kiwibank spokesman Bruce Thomson said the issue was being looked at. "We are aware that fees are a major issue for customers."

Thomson said fees played a role in helping people keep their accounts in check, and customers received text alerts to allow them to correct a missed payment before being charged. Fees also helped recover the cost of chasing up missed payments.

An ASB spokeswoman said a routine review of charges and fees had been underway before the BNZ announcement this week, but would not be ready for four to six weeks.

Westpac spokesman Craig Dowling noted the fees were avoidable. "We've put a lot of attention in the past into helping customers minimise those fees with text alerts and email alerts."

Dowling said changes to fee structures might also prompt "poor behaviour, like people extending further into debt than they otherwise might, because there is no cost they face for doing so".

But Consumer NZ chief executive Sue Chetwin said the cost of the penalties far exceeded the costs to banks. Many complaints related to customers who weren't overspending, but "maybe the payment went out the day before the salary went in".

BNZ chief executive Andrew Thorburn said figures showed the fees didn't work as a deterrent. Instead, the fees made it harder for customers to get back in the black, once they were in trouble.

* Break fees explained

Break fees apply if you want to change your fixed interest rate before the set term ends.

The fees can include administration costs and a reasonable estimate of the loss in lending the money at the lower rate.

Break fees also apply if you repay your loan early.