Bank Fees Branded 'outrageous'

AUSTRALIA'S big five banks, which last year posted record profits, have been accused of charging customers higher fees than the real cost of transactions.

Family First senator Steve Fielding said while banks should be able to charge fees, they should only be for cost recovery.

"Bank penalty fees are outrageous," the senator said.

"Not one MP could justify the bank penalty fees in Australia. I'm appealing to their conscience and common sense, because these fees hit the people who can least afford it."

Senator Fielding said he hoped legislation on bank fees he proposed late last year was taken up by the Rudd Government when Parliament resumed next month.

He criticised the Howard government for not taking the issue of bank fees seriously.

"They (the banks) have just been let run loose. The previous government wasn't prepared to rein them in. I'm hopeful the Rudd Government is wanting to act on this."

Consumer Action Law Centre spokesman Gerard Brody also called for a new inquiry after a Senate inquiry on bank fees was closed when the federal election was called last year.

"We think the Government should undertake a market study to find out what the costs are to banks, and whether it's fair to consumers," he said.

Mr Brody said it should be modelled on the inquiry conducted by the UK's Office of Fair Trading, which was able to examine exactly how the industry operated as it was given sweeping powers to elicit information from the banks.

When the major banks raised mortgage rates above the official RBA rise, Treasurer Wayne Swan told consumers to vote with their feet and move to another bank.

However, consumer advocacy group Choice said last week that competition in mortgages was being undermined by financial institutions charging customers high fees.

Choice that said in 2006 Australian households paid $820 million in mortgage fees, with consumers paying more than borrowers in the UK, New Zealand and Canada. The figures were released the same week it was announced that all five major banks would charge customers $2 every time they withdrew cash from an ATM that was not owned by their bank.

Consumer groups said the fee was excessive - about double what it cost the bank.

"It's all electronic these days so the costs involved are minimal, and we see no rhyme or reason why they are charging such large fees," Mr Brody said.

Mr Swan said he was concerned that banks had raised transaction fees for customers using another bank's ATM.

He told The Sunday Age: "I've made it very clear that the Rudd Government wants the banking sector to work for Australian families, not against them."

Last financial year, Australia's five major banks raked in combined profits of more than $17 billion, up from $16 billion the previous year.

David Bell, chief executive of the Australian Bankers Association said transaction fees on personal transaction accounts made up a mere 2% of bank income.

"Ninety-eight per cent of bank income is made up of lending, overseas customers, businesses with large volumes, and non-traditional areas such as insurance, superannuation, fund management and foreign exchange," Mr Bell said.

He said the ABA would be happy to participate in any inquiry on bank fees.

ATMS

A rise in ATM charges has raised the ire of consumer advocate Choice. Banks charge about $2 for using a rival's ATM and consumer groups argue that they make a tidy profit from this. Banks say customers can use their own bank's ATMs at no extra charge.

CREDIT CARD LATE PAYMENT FEES:

Exceeding your card limit can bring penalties that often range from $25-$35.

Some banks charge whether you are $1 or $1000 over your limit. Customers can be further stung when they pay off some of the card but are charged interest on the balance.

HOME LOAN FEES:

As interest rates rise, home owners may look to other institutions for a better deal. Exit fees vary, and can cost $350. There are also deferred establishment fees.

Choice says switching lenders is not easy with fees locking consumers in for one to five years. The Australian Bankers Association says the market is competitive, quoting figures showing that over the past 3 years, about 30% of new owneroccupied home loans were refinanced.

OUTWARD DISHONOUR FEES:

These are charged when a payment is declined because you exceeded your credit limit, or your account doesn't have enough money. They range from $30-$35. Choice says financial institutions should notify customers before processing transactions where there are insufficient funds. The ABA sayse banks have taken steps to reduce dishonour fees. -- Winston Tan