The Federal Court has found that National Australia Bank Ltd (NAB) engaged in unconscionable conduct by continuing to charge customers periodic payment fees even though NAB knew the overcharging was occurring.
ASIC alleged that between February 2015 and February 2019, NAB was charging fees for some periodic payments even though customers were entitled to an exemption and that in some cases NAB charged a higher fee than it should have. NAB overcharged 4,874 personal banking and 913 business banking customers a total of $365,454 in periodic payment fees (refer: 21-031MR).
ASIC Deputy Chair Sarah Court said ‘The continued charging of incorrect fees to customers when NAB knew it was occurring was concerning as it demonstrated that NAB was promoting its own interests over those of its customers. Disappointingly, it took NAB over two years to switch off the periodic payment fees after becoming aware of the issue.
‘When there are system failures that cause customers to be incorrectly charged, steps must be taken to solve the problem in a timely manner to minimise consumer harm.’
ASIC’s allegation that NAB falsely represented to customers that it could charge fees for certain periodic payments under the bank’s terms and conditions when it was not entitled to do so was not sustained by the Court.
In relation to the unconscionable conduct, Justice Derrington said NAB ‘took advantage of the customers’ continuing lack of knowledge, and acted in its own self-interest by continuing to operate a system which it knew wrongfully deducted sums from its customers’ accounts. This conduct fell so far below the standards required of a bank’s obligations to its customers that it was unconscionable. It was neither proper nor right according to ordinary commercial values in Australian society, and it was offensive to conscience.
‘Once it [NAB] was aware that its systems were wrongly charging PP (Periodic Payment) Fees to some clients who had no obligation to pay them, it was neither competent nor ethical to continue to charge them and to fail to inform them or advise them to review their accounts. Neither could it be said to be fair or honest. Compliance would require suitable remedial action to be undertaken with appropriate urgency once aware of the wrong it had done.’
The Court also found that NAB’s unconscionable conduct contravened its obligations as an Australian financial services licensee to ensure that financial services covered by its licence were provided efficiently, honestly and fairly, and to comply with the financial services laws. However, Justice Derrington declined to make declarations of contravention on the basis that the conduct was the same.
The matter will be listed for a hearing on the scope of any further relief, including penalty on a date to be fixed.
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Background
Between at least 20 July 2007 and 22 February 2019, NAB’s terms and conditions stated NAB would charge $1.80 for periodic payments to other accounts within NAB and $5.30 for periodic payments to accounts at another bank. NAB’s terms also stated that customers would be entitled to exemptions from periodic payment fees for certain transactions, such as payments to NAB home loans, NAB personal loans, certain NAB savings accounts and certain NAB service packages.
Periodic payment fee arrangements could be established by customers completing paperwork in a NAB branch. NAB staff were required to manually enter details of the periodic payment into NAB’s system when setting up the payment, which if entered incorrectly, could result in customers being wrongly charged fees. From at least 20 July 2007, NAB charged some customers a periodic payment fee of:
- $1.80 or $5.30 when they were entitled to an exemption under NAB’s terms and conditions; or
- $5.30 when the correct fee was $1.80.
NAB ceased charging all periodic payment fees to customers on 22 February 2019.
As at 28 April 2021, NAB had paid approximately $8.3 million in remediation to affected customers who incurred incorrect periodic payment fees from 1 August 2001.
Editor's note 1:
On 9 November 2022 the matter was listed for a directions hearing on 18 November 2022.
Editor's note 2:
On 17 November 2022, the directions hearing on 18 November 2022 was vacated. The Court made timetabling orders and listed the matter for a hearing on relief and penalty at 9.30am on 6 June 2023.
Editor's note 3:
The hearing on penalty and relief was heard by Justice Derrington on 6 June 2023. Judgment was reserved.
Editor's note 4:
On 22 September 2023, the Federal Court ordered that NAB pay a pecuniary penalty of $2.1 million for unconscionable conduct (23-258MR).