Friday 26th of April 2024
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organised crime .....

organised crime .....

from Crikey .....

Fee gouging: banks may take it up the class (action)

Adam Schwab writes:

AUSTRALIAN BANKS, BANK FEES, MAURICE BLACKBURN

It has taken more than a decade but finally, a serious Australian legal action has been launched against 12 of Australia's largest financial institutions for alleged fee gouging. Financial Redress, which was recently acquired by ASX-listed litigation funder IMF Australia, yesterday announced that it is pursuing a class action against Australia's largest banks.

The claim is being run by Maurice Blackburn, which has acted for plaintiffs in several large class actions, including the Longford Gas explosion and GIO shareholders. Banks involved in the matter include CBA, NAB, Westpac, ANZ, Citibank, Bendigo Bank, HSBC and Suncorp.

The basis underlying the class action is that many of the fees charged by banks, including charges for late credit card payments, exceeding a credit card limit, overdrawn accounts and direct debit dishonors are not permitted under contract law (and possibly, state-based consumer legislation such as the Fair Trading Act).

It is alleged that the quantum of fees imposed by banks does not represent "a genuine pre-estimate" of the costs incurred as a result of the consumer's breach. While many fees charged by banks are about $40, according to the Wallis Final Report of the Financial System, the actual cost to financial institutions would be most likely less than $1. A similar study by the Consumer Federation of America estimated that the cost to process a dishonored direct debit was between $US48-65 cents.

Further, the bargaining position between a financial institution and its customers is not an equal one. For a start, there is a substantial inconvenience and cost for bank customers should they wish to change banks (customers have a large number of direct debts attached to their account, and the process of setting up a new account can often be time-consuming). Also, the manner in which the exception fees are applied (by direct debit to a customer's account, without any avenue of appeal) further indicates a grossly uneven bargaining position.

Financial Redress states that in 2008 alone, banks charged customers more than $1.2 billion in fees, and noted that "when a class action is commenced in the court, it will be seeking to recover all exception fees you incurred over the six years with that bank prior to the commencement of the case, together with accrued interest. Although each claim will depend on the precise level of our losses, our previous experience tells us that a typical consumer claim might be $1000-$2000 and a business claim might be $3000-$6000." While this amount sounds high, the claims of bank customers would also include interest on the fees charged.

The arguments proposed by Financial Redress will not be completely foreign to Crikey readers. In 2007, the author launched a legal claim based in the Victorian Civil and Administrative Tribunal and successfully obtained an (undefended) declaration that a penalty fee imposed by Citigroup was not lawful. A summary of that case can be found here and was based on the principle that fees charged by banks bear no reflection of the cost to banks as a result of a customer's breach. Further, for many of those breaches, such as late payment of credit card balances, banks are able to charge extraordinarily high interest rates on the amount owing regardless of the penalty fee imposed.

Since that case was heard by VCAT, it is understood that several large banks have obtained high level legal advice from leading law corporate firms as to the legality of bank fees and possibility of subsequent legal action, like that being initiated by Financial Redress (and which have already occurred in the US and Britain).

While some financial institutions reduced the quantum of fees imposed in 2009, Financial Redress stated that "the incidence of these fees is still widespread. For example, banks still have punitive 'late payment fees' or 'over-limit fees', and many personal and business account holders still pay 'overdrawn fees'. Where the banks have reduced these fees, they haven't compensated customers for the over-charging they were doing before."

The founder of Financial Redress is British-born corporate lawyer and stockbroker James Middleweek. Now based in Perth, Middleweek established Financial Redress last year. If the claims are successful, Financial Redress and IMF will impose a 25% commission on an compensation received, with the proceedings being conducted on a "no win, no fee" basis.

As a result, before administrative and legal costs, it is feasible that IMF could walk away with upwards of one hundred million dollars if the claim is successful.

Banks shares dropped by about 1% yesterday after news of the class action was reported.

 

nabbing banksters .....

More than a year and a half after Iceland's major banks failed, all but sinking the country's economy, police have begun rounding up a number of top bankers while other former executives and owners face a two-billion-dollar lawsuit.

Since Iceland's three largest banks -- Kaupthing, Landsbanki and Glitnir -- collapsed in late 2008, their former executives and owners have largely been living untroubled lives abroad.

But the publication last month of a parliamentary inquiry into the island nation's profound financial and economic crisis signaled a turning of the tide, laying much of the blame for the downfall on the former bank heads who had taken "inappropriate loans from the banks" they worked for.

On Wednesday, the administrators of Glitnir's liquidation announced they had filed a two-billion-dollar (1.6-billion-euro) lawsuit in a New York court against former large shareholders and executives for alleged fraud.

"I think this lawsuit is without precedence in Iceland," Steinunn Gudbjartsdottir, who chairs Glitnir's so-called winding-up board, told reporters in Reykjavik.

"It is about higher figures than we have ever seen," she said, adding that she expected Glitnir to file more lawsuits going forward, but that "it is unlikely any will be this big."

Glitnir said it was suing "Jon Asgeir Johannesson, formerly its principal shareholder, Larus Welding, previously Glitnir's chief executive, Thorstein Jonsson, its former chairman and other former directors, shareholders and third parties associates with Johannesson for fraudulently and unlawfully draining more than two billion dollars out of the bank."

In addition to its New York suit, Glitnir said it had "secured a freezing order from the High Court in London against Jon Asgeir Johannesson's worldwide assets, including two apartments in Manhattan's exclusive Gramercy Park neighbourhood for which he paid approximately 25 million dollars."

Gudbjartsdottir said Johannesson had just 48 hours to come up with a satisfactory list of his assets.

"If he does not give the right information he faces a jail sentence," she said.

Four former Kaupthing executives, who all live in Luxembourg, have meanwhile been arrested in Iceland in the past week and Interpol has issued an international arrest warrant for that bank's ex-chairman, Sigurdur Einarsson.

Former head of the bank's domestic operations, Ingolfur Helgason, and former chief risk officer Steingrimur Karason were arrested late Monday on arrival from Luxembourg, just days after former Kaupthing boss Hreidar Mar Sigurdsson, along with Magnus Gudmunsson, who headed the bank's unit in Luxembourg, were taken into custody.

Bankers jailed, sued as Iceland seeks culprits for crisis

the usual suspects .....

from Crikey .....

It's always fun to read about American fraudster Bernie Madoff - mostly because he's one of the few headline acts of the GFC who didn't get away with it.

This week's piece in New York Magazine gave us a glimpse into Bernie's South Carolina jail cell. Based on interviews with Madoff's fellow inmates, NY Mag reports that the billion-dollar conman is now a prison "celebrity" who is "past apologising" for his crimes:

He does maintenance work for 14 cents an hour, shares a dinner table with an obsessive-compulsive criminal named Muscles and pays a fellow prisoner to do his laundry for $8 per month.

One fellow convict, bank robber KC White, claims Madoff is scornful about those who lost money in his corrupt Ponzi scheme.

"F-ck my victims," Madoff is alleged to have declared at one point. "I carried them for 20 years and now I'm doing 150 years."

That contempt reminds us of something... Oh that's right, this headline - Banks gorged during crisis:

"As the sagging economy left many Australians in tough circumstances, the banks managed to extract an extra 9 per cent in fee income from consumers and businesses in the 12 months to June 30 last year.

"Reserve Bank data released yesterday showed fees charged to households rose by 3 per cent to $5 billion. Businesses were hit harder, with a 13 per cent jump in non-interest fees to $7.7 billion over the same period."

Anyone for a banana?

for the greedy details .....

More ammunition for the gathering class action against Australian banks over fees, especially exception fees, with the Reserve Bank today issuing its 2009 survey of banking fees.

The survey covered 18 institutions, which the RBA said account for about 90% of the total assets of the Australian banking sector.

"For those banks participating in the survey, total domestic fee income grew by 9% in 2009 to $12.7 billion, with fee income from businesses growing much faster than fee income from households.

"As has been the case since 2002, growth in fee income was slower than the growth in banks' balance sheet assets.

"Consequently, the ratio of fee income to assets has continued to decline."

The bank said that income from exception fees, which are charged by a bank when a customer breaches the terms of a banking product -- typically by making a late payment, overdrawing a deposit account or exceeding a credit limit -- was little changed at $1.2 billion in 2009. (Although that should be lower this year as most banks have either reduced, eliminated or altered how these controversial fees are charged and paid).

The RBA said that more than half the fees were paid by business, up 13% in 2009 to $7.6 billion.

"As was the case in 2008, most of the growth in business fee income resulted from growth in fees from loans and bank bill facilities, while fees on business deposit accounts were little changed."

Fees paid by households rose 3% to $5 billion in 2009, which was the slowest rate of growth since the survey was started by the RBA in 1997.

The RBA said, however, that was not the full picture: with "strong growth in housing loan fee income partially offset by a decline in deposit account fees. Fee income from housing loans increased by 17% in 2009, much higher than the average annual growth of 7% recorded between 2003 and 2008, and broadly in line with growth in housing lending.

"Fee income from personal loans grew by 14%, which is attributable to both an increase in account-servicing fees and an increase in exception fees .

"Credit card fee income increased by 8% in 2009, well below the average annual growth of 17% over recent years. Within total credit card fees, other fees (mainly exception fees) grew most strongly at 10%, consistent with growth in the value of non-performing credit card loans over the year .

"Account-servicing fees rose by 5%, driven by a slight increase in the number of cards and an increase in the annual fees on no-frills cards. Credit card transaction fees (such as cash advance fees) also grew by 4%."