The National Australia Bank Ltd (ASX: NAB) share price is down 0.6% to $28.57 amid a Federal Court ruling of "unconscionable conduct" after the bank knowingly charged customers erroneous fees.
The Federal Court has ordered that NAB pay the maximum penalty available under the law.
NAB share price dips as bank cops maximum penalty
In a statement published by the Australian Securities and Investments Commission, ASIC deputy chair Sarah Court said the bank took more than two years to stop overcharging its customers.
Court said:
NAB continued to charge fees when it knew it lacked any entitlement to do so and omitted to tell its customers of that wrongful charging.
It took NAB over two years to stop charging these incorrect fees, which was clearly unacceptable.
The Court concluded that the central cause of NAB's wrongful charging was the bank's inability to manage its own computer systems and its unwillingness to apply sufficient resources to remedy the problem in a timely manner.
Court said the ruling and $2.1 million fine sent a message to other organisations.
She added:
An unconscionable conduct ruling, penalty and resulting remediation program demonstrates the consequences that come from not resolving an issue in a timely way.
If systems have let customers down, we expect all financial institutions, especially our banks, to act quickly to reduce consumer harm.
What type of fees were charged?
The court case relates to fees that NAB charged over the period of January 2017 and July 2018.
The fees totalled $139,845 and affected 2,888 personal banking customers and 513 business banking customers.
These fees were called period payment fees.
They were applied when customers made payments to other accounts.
A fee of $1.80 was applied for periodic payments to other NAB accounts, and $5.30 was charged on payments to external accounts.
The court found that NAB charged customers who were entitled to an exemption.
It also charged some customers $5.30 when they should have only been charged $1.80.
The bank then took too long to fix the issue and advise their customers of the error.
Customers' rights a 'low priority' in corporate culture
In his judgement, Justice Derrington said:
[NAB] deliberately and cynically took advantage of its customers' unawareness, and was prepared to allow the overcharging to continue whilst it searched, admittedly in good faith, but without any great diligence, for a solution.
Such moral dereliction would seem to reflect an inherent sense of entitlement, possibly precipitated by a view that no real harm would come to the bank even if its conduct was detected.
It is, perhaps, also a product of a corporate culture that places a low priority on the observance of the law and on respect for its customers' legal rights.
He commented that the $2.1 million fine was "woefully insufficient in the circumstances".
He noted that the fine is now higher for breaches of the ASIC Act occurring after March 2019.
The minimum fine is now $15.65 million.
ASIC said NAB has already paid approximately $9 million in remediation to customers incorrectly charged periodic payment fees from 1 August 2001.
NAB stopped charging periodic payment fees in February 2019.
