Good chance ANZ will lose to class action promoters

Stephen Franks

I think there is a good chance ANZ will  lose to the class action promoters.

That will not be the best outcome for bank customers generally.

But the banks have largely themselves to blame.

Early in my commercial law career I was a banking law specialist. I liked it partly because I got to present papers to banking law conferences.  They were memorably held in places like Surfer's Paradise and Adelaide Casino. I could take Cathy (and infants) so I could redeem some of the debits building up in my matrimonial account from working enormous hours.

But I also liked banking law because it was mostly still the work of great judges and law drafters of the 19th century. It was certain, very sensible and clear.

Rob Ogilvie also has deep in his CV lots of lending documentation, enforcement, standard form design, unit trust formation and seminar presentations to bank staff. So Franks & Ogilvie has kept up our interest in the field, though the law is now encrusted with complications created by recent decades' less perspicacious lawyers.

The foundation of the action against ANZ is a general contract law principle, not a specific banking law matter. It claims that the banks have been penalising unauthorised overdrafts and other breaches of contract, instead of just charging what they have cost the bank to deal with. I think the action is more likely than not to succeed because our law has always been against penalties in contracts. You can agree in advance on what happens if a contract is breached, if it is a genuine pre-estimate of the likely costs of fixing the breach. But if it is just a penalty, ancient law says that provision is not enforceable.

It is actually an  inefficient rule that probably costs consumers more than it saves them. Penalties are a standardised disincentive. The cost of handling thousands or millions of actual calculations of what an overdraft limit breach might actually cost the bank could be huge. And in the long run such costs become part of the overhead that is charged to everyone, those who do not breach as well as those who do.

If the banks and the country's business organisations had been investing in getting the law up-to-date and efficient, they would have had a firm like ours draft and promote a sensible change to that law years ago. Now they'll spend millions on a court case, instead of the fraction of that they could have spent on a stitch in time.

Former ACT MP turned National Party candidate Stephen Franks is principal of commercial and public law firm Franks and Ogilvie. He blogs at

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Surely the banks could replace this with a feature "for $25 we may honour a transaction that takes the account into overdraft however..." (or something actually worded to work).


Before this claim even gets to court there is going to be an important test of the right of access to justice that representative actions bring.

That will occur at the Supreme Court where Credit Suisse has one last crack at persuading our highest court on an argument that the Court of Appeal threw out on its ear.

In essence, Credit Suisse argues that every represented party should have to file their own papers and have their own interlocutory arguments. The High Court and COA decisions have said that does not work for anyone except Credit Suisse.

The interlocutory processes in the Feltex IPO case have already taken over 5 years, including two visits to the Court of Appeal. If Credit Suisse succeeded on its argument it would be the end of the teachers' representative claim on behalf of 18,000 professionals who have been mucked around by Novapay and want some compensation. The 18,000 filing fews would be problem enough - let alone managing the court process.

One objection to so-called USA-style class actions is that they are driven by large law firms who create a legal argument and them set about finding clients to sell it to on an opt-out basis. Extensive research reveals that typically about 1% opt out - and they are parties usually closely related to the defendants.

That is not what has happened in the Novapay and Feltex debacles.

The teachers have a legally incorporated and well-funded association to lead the charge for their members and cover any costs and downside.

The Feltex IPO investors gathered themselves together around a website whose start up was funded by Invercargill investors N&I Investments Limited. Within a month 100 investors had helped pay for electronic shareholder lists of their fellow potential claimants.

Within 9 months the group exceeded 700 and their contributions exceeded $438,080. Eric Houghton agreed to file a claim in February 2008 and applied to represent his fellow IPO investors. Opt out was tested and thrown out by Justice French, who ruled that Houghton could bring a claim representing up to 8500 other investors, and that his action in February 2008 had saved time for all who chose to opt in.

As of Friday, when that opt in finally closed, over 3500 investors had asked Eric Houghton to help them get their Feltex subscriptions back. If the Supreme Court agrees with Justice French and her colleagues at the Court of Appeal, where she most deservedly now sits, then the 3500 will have their access to justice in Wellington before Justice Dobson in March and April 2014.


This from the man who thought all Chch citizens were state dependants.


Stephen you say, "
The cost of handling thousands or millions of actual calculations of what an overdraft limit breach might actually cost the bank could be huge. And in the long run such costs become part of the overhead that is charged to everyone, those who do not breach as well as those who do."
If that is the case then surely the bank has a chance of beating this?
Also, what about natural justice like; When adults sign a contract with eyes wide open, that contract is binding on both parties? No?
Also, surely it is not "justice" that the responsible should pay the costs of the irresponsible?
I thought that sort "income redistribution" nonsense was just for local and central Governments ?


But do they sign a contract with their eyes wide open.
Many employers require you to have a bank account and I understand that if you are beneficiary you must have a bank account. Does one really have a choice when all banks are charging roughly the same exorbitant fee?
For that matter how did it come to pass that they all saw fit to overcharge AND overlook a basic principal of law all at once? Co-incidence parhaps?


Franks may well be correct but this reads like blatant self and firm promotion. Was a bank unpleasant to him at some time?


Stephen's on the money.

Some of these fees (say, a $20 dishonour fee) may well have made sense in the days when actual staff time was involved in processing transactions, filling out forms, speaking to a manager about how to proceed, etc. There may well have been a genuine estimate of loss/cost.

But these days its all electronic, with little human intervention. The costs have dropped, but the charge has not. So they now find themselves with a very lucrative income stream that will probably not stand up to challenge.


I hope the banks win this case, people can avoid these fees and choose to not understand how to budget to ensure funds are in the accounts to cover payments.
Another example of people with their hands out rather than looking at themselves and getting it right.
I am also sure that when banks have to chase clients for funds, etc, it does cost them money, unlike what the highly paid lawyers believe.


Frankly, I look forward to ANZ (and then the other banks) getting a slap in the wallet for this matter. I care not the righteous few who bleat on about the contract and agreement we make with the banks. The simple truth is they are rapacious and set up a system to profit excessively from simple mistakes and the complex manner of how they set up the accounts are designed to clip the ticket when we forget to move funds around the system from interest bearing to non-bearing, etc. The banks forget that it is these small insults, pocket money in the scheme of things, that destroy our goodwill and one day some of us will move accounts because of the way we are treated. Trouble is loyalty be damned they are all as bad as each other it seems.


"I care not the righteous few who bleat on about the contract and agreement we make with the banks." So you mean that you don't care about the law and the legal backing contracts have. Who is the criminal now?


As a former banker my comment is this: customers who exceed their limit create a lot of exception reporting and follow-up, involving additional staff time and therefore significant cost. Why shouldn't the customer pay for this? The bank could just automatically bounce the offending cheque or other form of debit, in all cases, but customers tend to resent this!


If I were a banker that is exactly what I would do. The bleating and carry on by people who can't manage their bank accounts properly is ridiculous. It will serve them right if they win their case against the banks and the banks then bounce every transaction that is outside their agreed banking arrangements.


Come on now, let's tell the truth about what is happening here.

Large corporates with massive customer bases - eg, telcos and utilities - routinely charge them $10 here and $50 there because they can. It costs a $50 filing fee at the disputes tribunal and a day out of your life to overturn that.

The only hope for the little guy is to gather together and corporatise their position in the negotiation. In the bank fees case Litigation Lending services is paying corporate lawyers and experts in this field, Slater & Gordon, to assist the little guy.

In response, the banks are having to be reasonable and to invite disgruntled customers to pop in, try to find someone to discuss the issue with, and be fair or face the loss of a customer.

That's got to be a good thing.

The other reason banks charge these fees is because part of the exception fee attracts GST. This allows the bank to recover around 25% of their inputs, because there is no GST on their main revenue stream, interest.

Yes, it is that cynical.


Dead right, Mr Ferguson.
Lots of people have from time to time "fallen behind". But most of us know it is going to happen and speak to our bank about a way through.
Those who refuse to manage their affairs and simply "surprise" their bank deserve to pay. How else are they to learn to keep their bank informed about what is going on and honour contracts they have signed.

It is just that easy.


Let's not forget, most of these charges aren't for an overdraft, they are for an unarranged overdraft. A huge difference.

So anyone, anywhere under any circumstances, if you utilise someone else's money / funds under the commercial contract you have agreed to then you're responsible for the cost(s) you agreed to when signing the contract - regardless of how little or how long.

There are costs you will incur using someone else's money without prior approval. The interest rate will likely be higher and there will probably be other fees attached for your unauthorised overdraft you have helped yourself to.

God save us. Next we'll have politicians claiming power companies shouldn't charge us as much as they do because they generate plenty of electricity and single users only use a fraction of the total so they should charge less. Ridiculous!


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