The Federal Court has handed down a judgment in the matter of Paciocco v Australia and New Zealand Banking Group Limited [2014] FCA 35 ruling that ANZ’s credit card late fees constitute an unenforceable penalty.

It is a long judgment (105 pages) but in a nutshell:-

1. Credit Card late payment fees charged by ANZ ($20 and $35 fees) amounted to “extravagant, exorbitant and unconscionable charges”;
2. The liability to pay the late payment fee was payable on breach of not making the required monthly credit card payment by the due date. It was held that the fee imposed upon the customer was an additional detriment in the nature of a security for, and in terrorem of, the satisfaction of the required monthly payment, which was extravagant, exorbitant and unconscionable;
3. The late payment fee was extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from a failure to pay the required monthly payment by the due date;
4. The late payment fee was the same fee payable “regardless of whether the customer was one day or one week late (or longer), and regardless of whether the amount overdue was $0.01 (trifiling), $100, $1,000 or even some larger amount”; and
5. ANZ suffered loss or damage by reason of the late payment event and that the quantum of that loss or damage is no more than $3. The $3 is comprised of the operational (collections) costs. When one does not make the required monthly payment on a credit card by the due date, at least two sources of revenue are earned by the Bank – interest of X% on the amount outstanding and a Late Payment fee. Any extravagant fee on top of the interest will not be a genuine pre-estimate of damage.

It is worth noting that despite the above, the Federal Court found that honour, dishonour, non-payment and over-limit fees charged by ANZ bank were not penalties.