ANZ class action: Internal memos show bank raked in millions from fees as customer anger grew

Updated

Federal Court documents show the ANZ bank knew as far back as 2006 that it would need to adjust the fees it charged customers, or risk being exposed to legal action and growing consumer anger.

The internal ANZ documents, which include emails and board meeting minutes, were obtained by lawyers representing the claimants of the biggest class action in legal history.

Maurice Blackburn is representing 38,000 customers who are disputing the fees they were charged over a seven-year period.

The central claim is that the excessive fees charged would be considered penalties and therefore would be illegal.

The bank is alleged to have charged exorbitant fees of between $20 and $45 for services that would only cost a matter of cents or a few dollars to administer.

Although some parts of the documents have been redacted because they are commercially sensitive, they reveal the private deliberations of ANZ's executive management team and board.

The documents trace the growing public campaign by consumer groups and media reporting about the fees, and the legislative changes that would cause the bank to change its fee structure.

One of the internal documents outlines the concerns the bank had about adjusting its fees. The revenue raising options to offset losses included increasing account servicing fees.

In a document titled Exception Fees Strategy September 2008, the executive summary says:

Recent events overseas and in Australia are generating heightened focus and increasing the risk of regulation on bank fees, in particular exception fees Focus on strategy is to source additional income streams to offset the potential loss of exception fees due to regulation Actions to address political concerns and improve customer experience include - new exception fee-free account, new ATM warning message and low-balance text alerts Strategies to cover revenue gap include - changing the mix of honour and dishonoured transactions, increasing the monthly account service fee.

The same document outlines "long-term strategies" to make up for any loss in exception fees.

If exception fees were regulated/capped to cost recovery, the approach would be to: Increase monthly account service fee ($0.13 for every $ reduction in per item fee applied on all active accounts or $0.25 for every $ in reduction if applied on fee paying accounts only) Increase proportion of dishonour transactions to over 50% Change exception fee charging methodology

Documents from 2006 outline the profitability of fees, and discussions on how revenue would be affected if fees were reduced.

The confidential papers show how reliant the ANZ was on fees to boost its profit margins. A discussion paper from 30 June 2006 shows the bank raked in millions on fees alone.

'Exception fees represent a significant part of the Transaction Banking P&L.' (profit and loss) Exception fees currently: * Consumer Honour Fees - $58m * Consumer Dishonour Fees - $23m * Consumer PP Non-Payment Fees - $12m Total $93m Fees in context * Transaction Banking Earnings before Provisions - $208m * Account Service Fees - $50m (Honour Fees are charged when a payment is presented against an account with insufficient funds but the bank allows the payment to go through. Dishonour Fees are applied in the same circumstances but when the bank decides not to allow the payment to go through.)

Even chief executive Mike Smith was carefully monitoring the fallout from the banks fees policy, as was noted in the minutes of a management board meeting in 2009.

At a meeting he chaired on September 7, it was acknowledged the fees had become a major focus for "media, lobby groups and politicians so change on consumer customers is mandatory".

The minutes went on to state that change would not be good for the bank's bottom line, as regulatory change that would hamper its ability to charge fees loomed.

Recommended changes would remove revenue of $160m in Retail and $9.5m in Commercial. Changes will be required to fees anyway due to the changes in the regulatory environment come 1 Jan with the introduction of the Unfair contracts legislation. We are taking into consideration what is the highest fee we can charge when these changes come into effect. Total exception fee income in Australian (sic) is $300m and we are giving up ~50% of these in this recommendation.

Final submissions have been made in the court case and both parties are awaiting a decision by Federal Court Judge Michelle Gordon.

Do you know more? Contact investigations@abc.net.au

Topics: banking, industry, business-economics-and-finance, courts-and-trials, law-crime-and-justice, australia

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