Banks 'to be challenged on unfair penalties'

Banks charging excessive penalties for minor transgressions - such as late payments on credit cards - could be forced to comply with new rules if federal government plans are approved.

A new fairness test could be introduced that would effectively make terms in consumer contracts deemed to be "unfair" as null and void.

Currently, the productivity commission is looking at a rising number of complaints from consumers about penalties charged by banks on a range of situations, including small unauthorised overdrafts, genuine mistakes on the repayments of credit card bills and insufficient funds to cover direct debit payments.

Sydney Morning Herald reports that any legislation introduced could be based on a landmark ruling in the UK's High Court last month.

The ruling found that although fees for exceeding overdrafts are not technically "penalties" and as such cannot be pursued under common law, they can be judged for fairness by the UK's Office of Fair Trading.

Refunds in the UK have passed the $1 billion mark since the case concluded.

Gordon Renouf, director of policy for consumer group Choice, told the publication: "To my mind, charging $50 for being overdrawn by $1 for one day that would be unfair.

"First, banks don't need to let you overdraw; they can design their accounts so it doesn't happen. And second, there is no relationship to the cost involved."

Consumer affairs minister Chris Bowen said he looked forward to discussing the productivity Commission recommendation at a meeting with his state counterparts on May 23rd.

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