Banks trade on customers' inertia, institute says

The Consumers' Institute says banks rely on customers not checking their fees to milk big profits.

The claim comes after ANZ National Bank pleaded guilty yesterday in Auckland District Court to 45 chances of breaching the Fair Trading Act of fees levied for offshore credit card transactions.

The court fined the bank $1.325 million and ordered it to refund $10 million in fees to its customers.

Seven other financial institutions are under investigation by the Commerce Commission and could face similar charges, amounting to tens of millions of dollars.

"Consumers don't necessarily understand their fees in a way to alter their behaviour and reduce their fees," Consumers' Institute chief executive David Russell told National Radio today.
"Fees have been introduced, almost in an insidious way over the years and many bank customers...have just quietly accepted the fees.

"Banks do rely on the inertia of the consumer."

David Tripe, head of Massey University's Centre for Banking Studies, said the fine sent a "stern message" to banks about fee disclosure.

Mr Russell said the seven other banks should now look at refunding their customers, ahead of a court ruling.

"I would strongly recommend that those other institutions accept what will almost certainly be the inevitable and save the Commerce Commission a whole lot of time and trouble of taking them through the courts.

"They should step up and make an offer that's in line with what has been decided by the court for the ANZ National case."

Mr Russell said the amount of money involved would certainly be "tens of millions" of dollars.

He said he was "very encouraged" that ANZ National Bank's customers were being compensated to the tune of $10 million.

"It sends a very clear signal to any trader who misleads or deceives a customer that the courts are now taking breaches of the Fair Trading Act very seriously and a very substantial penalty has been handed out."

The $1.325 million fine was the highest ever imposed under the Fair Trading Act. It dwarfs the previous highest penalty imposed on a single company -- a $60,000 fine imposed on EcoWorld in 2005.

In yesterday's case, ANZ National Bank had imposed charges of between 2 and 2.5 per cent of the total transaction on foreign currency transactions made on credit and debit cards, but did not inform customers they were being charged.

The bank pleaded guilty after an investigation by the Commerce Commission, which said it was also pursuing prosecutions against Bank of New Zealand, Westpac, ASB, TSB, American Express, Diners Club and The Warehouse Financial Service.

The commission said the fees were not shown on bank statements, in the transaction schedule, and in some cases were not mentioned in the bank's terms and conditions or fee schedule.

ANZ National Bank chief executive Graham Hodges said the bank would contact all affected customers.

"I apologise to both ANZ and National Bank customers. We accept that the way in which we disclosed the cost of currency conversion a few years ago was inadequate. This should not have occurred, and we want to put it right."

- NZPA