'Avoidable' fees bring in more than $1 billion for banks

By Vanessa Tripodi

No one likes having credit card debt, but most Australians are able to manage their repayments, know the interest rate they're being charged, and are generally responsible credit card holders. Or so they thought.

A recent report released by the Reserve Bank of Australia has shown that banks have profited to the tune of $1.15 billion, money raised at the expense of their customers from fees on their credit cards and overdraft accounts -- fees that should have been avoidable. These avoidable fees are also known as exception fees, and are disclosed in the terms and conditions of your credit card or overdraft agreement. They include default and dishonour charges, as well as overdraft fees, whcih are charged if an automatic payment amount is short.

Unfortunately for everyday Australians, the majority of these bank fees were paid by households, accounting for $954 million, while business only paid $201 million in fees. Of the household fees paid, half of those went toward overdraft and default or dishonour fees on transaction accounts, accounting for $475 million of the collected fees. While this amount may seem high, these exception fees have actually fallen as a proportion of household debt over the last five years.

This percentage of avoidable fees is just a small portion of the $11.6 billion in overall bank fees paid by Australian households and businesses in 2008. However, even in the overall fee charges, Australia households still account for 83 percent of those fees, compared with 15 percent attributed to businesses.

With many banks and financial institutions offering packages on transaction accounts linked with credit card accounts, even credit card exception fees can be avoided. For example, make use of your bank's online or phone banking services (usually online services will be free, where phone services will attract a fee) and check your account regularly, to make sure you don't attract fees when payments or charges bounce. It can also be helpful to try to keep a buffer amount in your bank account to avoid forgotten purchases or direct debits pushing your account over its limit. Some financial institutions even offer a notification service if your balance drops below a certain amount.

Whether it is the differing accounts and fee schedules offered to Australian businesses, or because corporate Australia is more fee savvy, a Trade Practices Amendment (Australian Consumer Law) Bill 2009 has been drafted with the aim to regulate unfair contract terms, including those terms which impose unfair fees.

Until this legislation is passed, Australian consumers and businesses will need to remain vigilant in understanding their credit card and overdraft account terms to avoid another year of juicy fees for the banks.

Article by Vanessa Tripodi

Published: July 29, 2009