How to beat the bank... Avoiding late payment / overdrawing fees

There is a general principle in law that a penalty in a contract is unenforceable. There is currently a test case in the UK as to whether the late payment and overdrawing fees that most banks apply are penalties or not. And here in Australia, VCAT (the Victorian Civil and Administrative Tribunal) has just released this decision which confirms that a $40 bank late payment fee is a penalty and unenforceable.

This does not mean that any fee your bank charges you, or the entirety of a fee charged, will be considered a penalty, but

• A fee charged by a bank must be a reasonable reflection of the loss the bank has suffered as a result of the customer’s breach;
• A fee of $40.00 for failing to pay an outstanding credit card balance (as it was in this case), as well as interest charges approaching 20%, is not a reasonable estimate of the bank's loss – rather, the fee is a profit for the bank as a result of the customer's breach of contract; and
• The relative bargaining positions of the parties is grossly uneven, with the bank able to charge any fee it likes without any course of appeal or mitigation by the customer.

Unfortunately VCAT decisions do not set a precedent, but the decision was well reasoned and based on this semi-official report, which is well reasoned and finds that bank fees are too high.

You can see the application that was made to VCAT here.

And on a related note, a colleague of mine, with four overdrawing fees, challenged the fees with the bank and two were immediately reversed. I passed him on this story, he took it to the bank, they thought about it for a day and then reversed the other two.