Those who allow their transaction accounts to stray into the red face more crippling fees as part of the latest bank revenue-raising trend.
In the past 18 months there has been a steady rise in penalties imposed by the big banks for bounced cheques, overdrawn accounts and periodical payments that coincide with insufficient funds.
Customers using debit cards may be unaware they have overdrawn their accounts, especially when using Eftpos, but going into the red by only a few dollars can trigger a penalty fee 10 times that.
Less than two years since its last fee increase, Westpac last month increased its penalty fees. Customers can expect to pay a $30 "account overdrawn" fee if their transaction account goes into the red, plus penalty interest of 17.75 per cent. The bank has also raised its dishonour fee to $40 from $25 for people who have insufficient funds to cover a cheque or periodic payment.
However, Julia Quinn, from Westpac, says the type of penalty fee will depend on a credit assessment made by the bank at the time a direct debit, cheque or periodic payment hits the account. Whether the bank allows account-holders to be overdrawn or dishonours the payment depends on factors such as the size of the payment, when the person's salary or additional payments are likely to be credited to the account and if the balance is already negative. The bank says the fee increases, all up from $25, reflect the cost of providing these services to customers.
However, a director of the Financial Services Consumer Policy Centre, Chris Connolly, says the size of penalties are "totally out of proportion" to bank costs.
He says often those who can least afford it, such as social security recipients and low-income earners, are slugged the most.
As the table below shows, a rejected cheque or a failed direct debit can cost as much as $50 if you bank at the National Australia Bank.
A solicitor at the NSW Consumer Credit Legal Centre, Katherine Lane, says such penalties can be "devastating" for social security recipients, who might see almost a quarter of their fortnightly income gobbled up if a cheque bounces. Another problem is these fees are often not a one-off hit.
To illustrate how punitive the fees are, assuming you have $18 in your transaction account, your first Eftpos purchase, unknown to you, pushes you into the red, and you continue to make five further transactions of a few dollars, each attracting $30 in penalty fees ($180 in total) - this amounts to 1000 per cent in interest.
Or the fees can be applied for relatively minor misdemeanours. In one case, a 15-year-old girl was hit with a $29.50 fee when her account was overdrawn by $3.99.
That arose when ANZ changed the terms and conditions on its savings transaction accounts last year, allowing customers to go into negative territory even if they did not have a formally approved overdraft. The changes were particularly problematic for people running their accounts close to the wire, says Ms Lane. "A lot of people rely on not being able to overdraw their account when they go to the ATM," she says.
A spokeswoman for ANZ, Rita Zonius, says that change has been reversed. ANZ cheque account customers can still incur a fee, as well as daily penalty interest on the overdrawn amount, if they end up in the red.
The size of the fee will vary depending on whether the customer has a formally approved overdraft limit. (Those who do not will be charged an honour fee of $29.50. Those who do have a limit, and then breach it, are charged between $29.50 and $50.)
However, all the leading banks charge flat fees and, in most cases, penalty interest when an account is overdrawn.
Customers should check whether fees apply per transaction per day, or once a day. St George Bank, for instance, charges a $38 fee for each day that a new transaction overdraws a customer's account, plus penalty interest of 18 per cent. St George spokeswoman Rebecca Taylor says: "If one transaction has overdrawn the account for five days, the customer will be charged only once."
The Commonwealth Bank applies a maximum of one $20 charge per account per day, irrespective of the number of transactions honoured. As the table shows, a bounced cheque attracts the heftiest charges.
The Australian Consumers Association's finance policy officer, Catherine Wolthuizen, says in some cases if a cheque is re-presented the next day, it can result in further penalty fees.
Eternal vigilance
Consumers must be vigilant to avoid penalty fees, says Lisa Montgomery, chief executive of bank research group Infochoice. Apart from monitoring your balance, she says:
If possible link your transaction account to your savings account so it is automatically replenished if funds are low.
Look for a better deal elsewhere. Bendigo Bank, for example, tries to make a periodic payment for four consecutive business days before charging customers a $15 fee for insufficient funds. If a customer becomes overdrawn, there is no flat fee but penalty interest is charged at a rate of 17.7 per cent until the account is returned to the black.
Try challenging the banks on the fees.
Check whether you have the right account for you, but be aware that while the so-called "basic" bank accounts available to pensioners and health-care cardholders are exempt from some fees, they may still be subject to the full array of penalty fees.
