Major bank to pay $10m for unconscionable conduct

Australia and New Zealand Banking Group Ltd (ANZ) has agreed to pay $10 million in penalties after the Federal Court of Australia approved its agreement with the Australian Securities and Investments Commission (ASIC) to settle court action relating to the charging of fees.

After ASIC took the case to court, alleging that the bank had engaged in unconscionable conduct and breached its obligations as a financial services licensee, ANZ had sought to settle the matter.

The Federal Court of Australia has now approved the agreement for the bank to pay a $10-million fine and pay $1 million towards ASIC’s costs as part of the settlement.

What the case entails

The case revolves around ANZ charging certain fees to personal and business customers between August 2003 and September 2015.

According to ASIC, ANZ charged for periodic payments that could not be made due to insufficient funds in the customer’s account (non-payment fees) and also charged transaction fees for successful periodic payments.

However, under the relevant terms and conditions, ANZ was not entitled to charge non-payment fees or transaction fees to customers where the periodic payment was made between two accounts held in the same customer name (same-name fees).

ANZ admitted that from around 11 July 2011, as a result of receiving communications from its external lawyers, it knew there was a risk it was not contractually entitled to charge same-name fees to non-loan retail and commercial customers (affected customers).

ANZ’s charging conduct affected approximately 69,000 customers.

It was found that, despite knowing this risk, prior to December 2013, ANZ did not determine whether it was entitled to charge the same-name fees and continued to charge them to the affected customers until September 2015. 

The court declared (and ANZ admitted) that by charging same-name fees to the affected customers between 26 July 2013 and 24 September 2015 (when ANZ lacked any contractual entitlement to charge those fees and when ANZ knew that there was a risk it was not contractually entitled to charge those fees), the bank had:

• engaged in unconscionable conduct on 327,895 occasions, in contravention of s12CB of the Australian Securities and Investments Commission Act 2001 (ASIC Act);
• breached its general obligation to comply with the financial services laws, in contravention of s912A(1)(c) of the Corporations Act 2001 (Corporations Act); and
• failed to do all things necessary to ensure that the financial services covered by ANZ’s Australian financial services licence were provided efficiently, honestly and fairly, in contravention of s912A(1)(a) of the Corporations Act.

Further, by not making remediation payments after 11 December 2013 to the affected customers who had been charged same-name fees between 11 July 2005 and 31 December 2007 (relating to approximately 175,000 fees totalling around $3 million), the bank had further engaged in unconscionable conduct on two occasions and breached its general obligation to comply with the financial services laws.

It also failed to do all things necessary to ensure that the financial services covered by ANZ’s Australian financial services licence were “provided efficiently, honestly and fairly”, the court found.

It was found that the total value of fees that ANZ charged these customers without contractual entitlement was approximately $3.1 million. ANZ has already started making remediation payments to some of those affected customers, totalling approximately $2.5 million.

The remediation amount includes repayment of fees charged without contractual entitlement as well as further amounts by way of compensation on account of the time that had passed.

ANZ has also admitted that it did not, or could not, pay a further $637,901 in remediation payments to the remaining affected customers, which has been or will be paid to ASIC as unclaimed moneys or to charity.

The Federal Court has now ordered ANZ to pay pecuniary penalties totalling $10 million for engaging in unconscionable conduct in relation to the charging conduct and the remediation conduct.

‘A strong deterrent message’

ASIC deputy chair Daniel Crennan QC said the outcome and penalty imposed by the court was “a strong deterrent message and reflects ASIC’s position that ANZ lacked contractual entitlement to charge these particular fees”.

He continued: “ASIC, through its Office of Enforcement, has held ANZ to account for this conduct.

“ASIC acknowledges the cooperative approach taken by ANZ to this litigation, which allowed the matter to be efficiently resolved by the court. It is in the public interest that parties to regulatory litigation cooperate where possible.”

The big four bank released the following response: “ANZ has previously conducted a remediation program in relation to periodical payment fees charged over the period since 1 January 2008 and, since 2016, has made or will make payments totalling over $49 million. 

“Certain periodical payment fees were also the subject of a class action which was settled in December 2018, with ANZ paying approximately $760,000.”

It continued: “ASIC had pursued ANZ in respect of 1.3 million occasions of fees being charged. In the settlement, ANZ admits to contraventions in respect of 327,895 occasions, relating to fees totalling approximately $3.1 million. ANZ also admits to six other related contraventions.  

“As part of the settlement, ANZ will pay $10 million and $1 million towards ASIC’s costs.”

[Related: ANZ to refund $28.8m in fees]