The days of shelling out big bucks in fees for bounced cheques and overdrawn accounts may be numbered if New Zealand banking customers have their way. Australian consumer law firm Slater & Gordon, in conjunction with Sydney-based Litigation Lending Services and New Zealand barrister Andrew Hooker, yesterday announced an $800 million class action suit against New Zealand-based banks, including Australia?s ?big-four?; National Australia Bank (ASX: NAB), Commonwealth Bank (ASX: CBA), Westpac…
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The days of shelling out big bucks in fees for bounced cheques and overdrawn accounts may be numbered if New Zealand banking customers have their way. Australian consumer law firm Slater & Gordon, in conjunction with Sydney-based Litigation Lending Services and New Zealand barrister Andrew Hooker, yesterday announced an $800 million class action suit against New Zealand-based banks, including Australia’s ‘big-four’; National Australia Bank (ASX: NAB), Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC), and ANZ (ASX: ANZ), as well as New Zealand government-owned Kiwibank.
The suit, titled ‘”Fair Play on Fees” claims fees charged by the banks in New Zealand over the past six years are excessive and do not reflect the cost of customers defaulting on their obligations for things like overdrawn accounts, late payments on credit cards, or bounced cheques. It is thought up to one million Kiwis will be eligible to take part in the suit. Investors appeared to take the news in stride with three of the four Australian-owned bank shares closing higher yesterday.
While not insignificant, the total amount attributable to each individual bank could be comparatively small. The largest of the four, for example, Commonwealth Bank, announced a first half profit of $3.78 billion in February, with CBA’s New Zealand brand ASB brining in NZ$348 (AU$279) million, up 7% on the prior year. NAB recorded a full year profit of $4.98 billion in 2012, and December quarter earnings for 2013 of $1.45 billion. However if successful the suit would require the banks to re-price such fees going forward, which may have a subtle impact on long-term earnings and may set a precedent for legal cases in other countries.
The impact of the legal action will still pale in comparison to the mammoth compensation paid out by BP (NYSE: BP). In the wake of the 2010 Deepwater Horizon disaster, BP has made more than US$32.8 billion in payments directly related to the accident and oil-spill, while profit for 2012 was US$11.5 billion according to the company’s 2012 financial summary.
Shares in Australia’s big-four banks have been on a rocket trajectory since about November last year, many of which are flirting with all-time highs. The class action being filed in New Zealand may be a timely reminder for investors that the apparent golden-geese of the ASX are not riskless.
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