Punitive bank fees prevent many people from using banks – and protecting themselves from loan sharks and other dodgy financial services
There’s one thing worse than the banks fleecing you on fees, and that's not providing you with banking services at all.
Over half the working age population of the world is ‘unbanked’. That’s either because low income people don’t sign up for a bank account - they can’t afford the fees - or because the banks don’t want their custom as, they argue, they can’t make any money out of poorer customers post the GFC.
A recent survey showed that about one in 12 American households, or some 17 million adults, are “unbanked”, meaning they lack a current or savings account.
The same survey in New Zealand would reveal a similar situation, with large numbers ‘under-banked’ if not ‘unbanked’; people who rely on a patchwork of different financial services, from pre-paid cards to payday loans, avoiding banks as much as possible.
That’s bad for the poor and bad for the economy because people without bank accounts don’t borrow to buy a house. They don’t save. They pay high interest rates on loans. They don’t buy insurance. They carry all the risks themselves.
Without a bank account it's hard to participate in the economy at all.
My first reaction to the news that lawyers were taking a class action suit against banks for high penalty fees was ‘great...banks are bastards.’ But it’s more complicated than that. Some argue that recent legislation in the US capping bank fees has driven banks away from low income customers because they can’t make money any more out of banking the poor. I don’t buy that. If the rules apply to all banks in the US, then it's a fair playing field, and surely there’s still money to be made from small accounts even if the banks have to reduce inflated penalty fees, or like Kiwibank, alert people when they’re about to get a fee so they can do something about it.
I can’t get excited about this class action because it’s the bad guys taking on the bad guys.
Lawyers taking banks to court for charging too much is like used car salesmen accusing supermarkets of marking up their price.
Australian lawyers like Slater & Gordon make a lot of money chasing ambulances. Some of their recent legal victories include class-action driven compensation for asbestos, tainted-blood and breast-implant victims.
This doesn’t mean they’ve got a highly tuned social conscience, and now want to share their largess with bank-fleeced kiwis. Let’s be clear who stands to win here. Last year, they won a settlement with the trustees of failed Australian finance company Fincorp in the so-called ‘Centro class action’. This was the largest class case settlement in Australian history – about $200 million.
But once the legal bills were paid, and the upfront money had been returned – with extra – to the litigation funder, plus a share of the settlement divided amongst the lawyers, the hard done-by investors got to divvy up just a few remaining millions.
It’s not the first time Slater & Gordon have teamed up with New Zealand lawyers. In 2011 they got together with Auckland firm Turner Hopkins and tried to get a class action against finance professionals like trustees and auditors who walked away unscathed from the collapse of companies like Hanover and Bridgecorp unscathed.
What happened to that class action?
We don’t have a culture of class actions in New Zealand, and that’s a good thing. Institutions like ACC exists to make sure people get fixed after an accident, and get on with their lives, rather than end up in the courts for years. Ending up in court is good for lawyers.
When it comes to bank fees, instead of doing the lawyers a favour, I’d rather see parliament look at the regulations, cap fees if necessary, and don’t just stop at the banks. Look at all the financial services that Kiwis use and how consumers might be better protected. Once people are protected and the fees are manageable, consumers will turn to banks rather than loan sharks, and save in accounts rather than under the mattress. That’s good for banks, good for the economy and good for us.