Pay late, pay more

On 27 July 2016, the High Court handed down its decision Paciocco v Australia and New Zealand Banking Group Limited, concluding a six year long legal dispute concerning the legitimacy of late payment fees of up to $35 charged by ANZ Bank.

In dispute were two main issues:

1. whether the fees amounted to a genuine pre-estimate of damage suffered by ANZ due to late payments or, alternatively, whether the fees constituted contractual penalties; and
2. whether the charging of late payment fees represented unconscionable conduct, engagement in unjust transactions or the incorporation of unfair contractual terms for the purposes of Australian consumer protection laws.

A fee charged under a contract will constitute a penalty if it bears no relation to the damage to or interest of the party who claims the fee or if the fee is extravagant or unconscionable in relation to the greatest loss that could conceivably have followed from the conduct which incurred the fee. A penalty cannot be enforced by a contracting party.

Ultimately the High Court accepted the arguments advanced on behalf of ANZ Bank. Specifically, the Court agreed that a wide range of factors including debt collection costs and costs associated with holding regulatory capital and soured loans should be considered when determining the maximum costs incurred by ANZ in relation to late payments. The Court further found that the late payment fees did not breach Australian consumer protection laws.

Be sure to keep up to date with Hicksons’ blog for a more detailed exploration of the legal issues in dispute in this case.

Post by Patrick Dunn and Rod Cameron