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Full Court backs ANZ appeal on "penalty" fees

Contract Law News | June 2015

The decision in had held that credit card late payment fees charged by the ANZ Bank in banking contracts were excessive and not a legitimate reflection of the damages incurred by the bank when a customer is late paying their credit card debt, the fees were classified by the court as "penalties". Penalties are invalid in contracts such as the contract between a bank and a customer, and excessive late fees were ruled as invalid, and the ANZ was not entitled to claim these late payment fees, at least not at the rate charged to the customer.

The ANZ Bank appealed the decision. In relation to the question of the late fees, the Full Court of the Federal Court, on appeal, found that the original plaintiff in the 2014 proceedings had not proven that credit card late payment fees charged by ANZ were extravagant or unconscionable and therefore could not be characterised as being a penalty. The Full Court found that the ANZ was entitled to charge the late fees that they had charged. The Court's decision in this case upholds freedom of contract and the enforceability of contractual provisions entitling banks to charge various fees. As a result of this decision it will be more difficult for customers to prove that late payment fees and other fees are penalties.

Whilst financial institutions and telecommunications companies, who charge similar types of fees, are likely to welcome the Court's decision, there is a possibility that the case may be further appealed to the High Court.

This decision also raises the question of whether the restating of the penalty doctrine in Andrews v ANZ (2012) 247 CLR 205 will have the momentous impact on commercial contracts previously predicted.

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