A special report for the Center for Media and Democracy by Glen Frost, Editor of The PR Report: "Class action against banks ensures 'access to justice' says Australian Minister"
According to the organizers, it's Australia's largest class action lawsuit: a case of disgruntled bank customers versus the big banks.
Financial Redress, a specialist in recovering compensation from financial institutions for excessive charges or mis-selling, and a subsidiary of litigation funder IMF Australia, is launching a class action against a number of Australian and foreign banks (with operations in Australia) who have allegedly overcharged customers for years.
The fees in question are honour and dishonour fees on overdrawn bank accounts and over-limit and late payment fees on credit cards. Financial Redress refers to these as "exception fees" and alleges that the banks have been charging customers an "unfair" amount. Customers are both individuals and businesses.
Are the banks "exception fees" excessive?
"We're being charged up to 50 dollars in penalty fees for something that may cost the bank a few cents, it's appalling," said James Middleweek, Founder and CEO of Financial Redress.
James is a former lawyer and stockbroking analyst; in the past two weeks he's been in the media promoting the class action, explaining how the process works, and encouraging Australians to join the case; see this interview on A Current Affair (the Australian ACA; just like Idol and America's Funniest Home Videos, TV shows are multinational templates, albeit fronted with local talent).
James' message seems to have struck a chord – to date 100,000 Australians have signed his online registration form. And remember, Australia's population is only 22 million. James says the campaign period of marketing the case and encouraging people to sign-up, will go for another 5 weeks. After that, James says he's budgeted A$10 million in legal fees and enlisted one of Australia's most successful class action law firms, Maurice Blackburn, to put the case before the Judge.
According to James, the total value of exception fees deducted by banks in Australia over the past six years (the maximum time period permitted under Australian law) "could be as high as A$5 billion" although he expects his class action to be in the region of half a billion dollars, as not all the people due a refund will sign up to be part of the class action group. Interestingly, one Australian bank, the NAB, has already started to refund customers.
Some of the banks in James' sights are listed on the Australian Stock Exchange (ASX), where the market's continuous disclosure rule states that when a listed company becomes aware of news that could have a material impact on the value of the business, this news must immediately be disclosed to the market (via a publicly available release to the ASX). None of the ASX listed banks have made any statement to the ASX on the impending class action, suggesting they're either waiting to see the dollar figure of James' case (to see if the dollar figure is a material amount), or like the NAB, they're refunding customers before the case gets to court.
Capitalists are fond of saying "Whoever takes the risk, gets the rewards" and this case is true to that maxim; albeit with a slight twist. Participants in the class action pay no money upfront to fund the action, and pay no money if the case loses, but risk-free justice has a price; James' fee is 25% of the total compensation if he wins the case. Here's the twist; it's not the Australian Government taking the banks to court, it's a private sector company; however the impetus for their case was based on information in a 2008 report from the Reserve Bank of Australia on fees charged by the banks. James quotes the RBA Report as stating "the banks charged A$1.2 billion for "exception fees" in one year alone."
Commenting at an IMF Australia conference, Chris Bowen MP, the Australian Federal Minister for Financial Services, Superannuation and Corporate Law said on 4/5/2010: "The Australian Government sees class actions as an important way of enhancing the community's access to justice."
Here's the irony though: if James wins the case, the court can charge the banks interest on the refund amounts due – compound interest on fees going back six years could mean the banks pay another 20 to 30% on top of the refunded fee amounts.
As James says: "Long suffering bank customers have everything to gain and nothing to lose by joining these actions."