Are Late fees Legal

Micheal Pascoe, a highly respected and experienced finance commentators says, "Australia's banks have been ripping hundreds of millions of dollars off their customers in penalty fees that have little or no legal basis."(Source http://au.blogs.yahoo.com/michaelpascoe/17/banks-gouging-out-dodgy-penalty-fees)

UPDATE: $5 BILLION DOLLAR LAW suit against the major Australian banks for late fees. See http://www.theage.com.au/business/fee-gouging-banks-face-huge-class-action-20100512-uw8h.html for more details. Hopefully, customers who have been penalized by late fees will see a credit back into their accounts and the money from the law suit won't be gouged by legal fees.

Should the suit be successful, it will certainly change the way companies impose late fees on customers and may lead to a string of law suits against large corporations, who have been milking late fees from customers for years.

Have you noticed a sudden rise in the number of companies charging $15 to $50 as a late fee?

Pay your credit card account too early and you could end up paying a late fee. Unbelievable - yes, but true, the bank uses technicalities in its terms and conditions to penalize customers that pay their bill too early.  Jenny pays her credit account on the 31st day of the month. In her mind, the debt to the bank is cleared and she thinks that she'll look at paying her account again at the end of the next month when she looks at her company books. Her balance on 1 August 2007  is zero but on 2nd July an amount is taken from her account for web hosting. It is a small amount, let's say $30 and she thinks nothing of it. On the 2nd of August, the bank issues her a statement, asking for payment because her account has gone into debit on the statement date. She doesn't think to pay off her account, because she has just recently made a payment and has only $30 owing to the bank. But on the 21st August, Jenny gets slugged with a $30 late fee. So now Jenny owes $60, instead of $30. If Jenny had paid her account on the 2nd August instead of 31st July, she wouldn't have been penalized.

What is the true interest rate?

The loan of $30 for 20 days works out to be an interest rate of 1825% pa. The late fee was equal to Jenny paying 1825% per annum or 100% of the loan in the period of 20 days.

This is a true story and the fine print in your credit card statement, says that the bank can and will impose these fees, and even if you have savings accounts with thousands of dollars, the bank can debit your credit card for late fee but won't debit your savings account to pay for your credit card debt. The bank wants you to get a late fee and it's too bad that the bank's sophisticated computer system can't work out that the account has not been in arrears for more than 20 days. To the bank, this is good business!

However, it is not legal or supported by common law. Just because someone tells you that they are going to slap you in the face, doesn't make it legal for them to do so. And just because the bank tells you in the fine print of their terms and conditions, that they will impose a late fee, if you don't pay any money to your credit account between 2nd and 20th of a calendar month, doesn't give them the right to collect that money from you.

Common Law

Common Law states that late fees cannot be punitive. There is no legal precedent to justify penalizing a person for being late on a payment. Late fees imposed by banks are unenforceable but most people pay the late fees because it is more convenient to do so than object to paying the fee.Though in the case of a person not paying a debt on time, a business can apply a administration fee but that fee cannot be excessive but must be equivalent to the expense of collecting the unpaid money. It is clear that banks in particular are using late fees as a way of making money, not just recovering the cost of late payment. After all, in most cases, the bank already has good access to a person's money and assets and late fees are increasingly billed as an item on an invoice without any written notice or warning.

What can you do to avoid late fees?

Settle your accounts with the banks fortnightly instead of monthly

Close unnecessary credit cards and bank accounts, so there are less accounts to manage.

Pay bills as soon as you receive them or organize direct debit from your account

Keep your credit accounts in surplus

What can you do to change the system?

If you are slugged with a late fee then don't let your bank or corporation get away with it. Pay your account straight away then call them and complain. Send them a message through internet banking and complain. Write to them and complain. Use up that $30 worth of their time, so they'll think harder about stealing your money. Keep complaining till they refund your money.

There is currently a senate inquiry into bank fees. Send your complaints and experiences with late fees to Senator Steve Fielding before middle of September 2007. (The earlier the better !)

Tel: (03) 9802 1922
Fax: (03) 9802 8236

Toll free number (vic):
1300 736 017 
Email: 
senator.fielding@aph.gov.au
255 Blackburn Road,
Mount Waverley
VIC 3149
Parliament Contact:
Tel: (02) 6277 3711
Fax: (02) 6277 5713

You can also write to the Bank Ombudsman http://www.abio.org.au

You can also file a claim with the Small Claims Tribunal in your State or Territory. There is usually a fee of just over $30 to file a claim and this is a great way of making the banks or corporations work hard to get the late fee from you but it will cost you.

Write to your local Member of Parliament and complain, so that legislation can be passed to stamp out the practise of excessive late fees.

What about Class Action?

"A countryman between two lawyers is like a fish between two cats." Benjamin Franklin

In most class actions the lawyers make more money than the plaintiffs. Read the case of Schwartz vs Citibankhttp://www.overlawyered.com/letters/archives/000607.html

A class action about bank late fees was launched in Australia but was dropped. A lawyer involved has told Seven News just the discovery process to get the necessary documents out of the bank would cost $5 million - more than the firm could afford to risk on such a case and with hundreds of millions of dollars of late fees at stake, the banks would definitely want to defend their pot of gold.

Why Fight?

Most people probably think it is just easier to pay the late fee than to bother writing letters or complaining but there is a big picture here that you the reader needs to consider. What about the poor, who are slugged with a late fee for every dishonoured cheques, periodic payment or direct debit? How do they put food on the table and climb out of poverty, if the Australian banks continue to penalize them. If Australian banks go the way of theAmerican banks, late fees will increase to more exhorbitant levels. What is stopping the banks and corporations from imposing late fee fines of $100, $1000? The only thing stopping them is people's threshold for pain and if people don't complain,  the banks can only conclude that $30 or $50 is an acceptable amount to pay for being even a day late paying a bill.

More Interesting Reading

"If we turn our monetary system over to the bankers our children will wake up as slaves in the country we fought to free." Thomas Jefferson

The world financial system is indeed corrupt and this is the reason why despite all our technological advances, we work longer and harder, while the cost of housing is excessive and the combined household debt of all Australians is $130 for every $100. Most of us, are too busy to understand what money really is and the following articles are essential reading to grasp an undestanding of finance and financial systems, namely the important bits they left out of University courses.

http://www.masternewmedia.org/economy/debt-and-interests/money-creation-by-private-banks-Money-Castaways-story-20070804.htm provides understanding into how money is used to rule the world.

http://www.justiceplus.org/bankers.htm Billions for Bankers--Debts for the People

The History of Banking and other interesting articles

http://www.gold-eagle.com/editorials_02/fekete031302.html What really caused the Great Depression

The Federal Reserve Corporation a private corporation.

Quotes on money by US Presidents and others

Since man left the Garden of Eden, there has been rulers and slaves but are we returning to the dark days of English history, where the poor cannot afford a loaf of bread and where even lawyers struggle to pay for their houses. Many people fight to overturn this monetary system, some buy up gold and silver, believing that the stock market will crash and we will return to old money but they forget that in the days of the Great Depression, holding gold greater than $100 value was outlawed by Roosevelt and the penalty was 10 years in prison or $250,000 fine. This will certainly happen again and if the currency collapses, it is more likely that the governments of the world will blame it on currency traders and impose an international currency. With technological advances, plastic/paper money will be replaced with a RFID chip and people forced to trade with this chip.Already Hitachi and the European bank are imbedding RFID chips in Euros and there are reports on the internet that RFID chips have already been found in US and European bank notes.and plans are underway to implant all new born babies with RFID chips. Of course, the propoganda will be that it will be for the baby's own good and protection from abduction.

Read VeriChip Sells First Baby Protection System, in Talks with Military

Money has for thousands of years been used control and enslave people and its transformation to a more insiduous form is a natural progression that was foretold by the Book of Revelations, 2000 years ago. The issue of bank late fees pales in importance to all these other articles and biblical prophecy but there are battles you can win and wars that you will definitely lose. The tide is turning on late fees - it may be a small battle but one that may be won.