Ask David Tennant which bank fee he dislikes the most and he has no hesitation in nominating the deferred establishment fee on a home loan. Tennant is the principal solicitor at the Consumer Law Centre of the ACT and he often deals with clients who are trying to avoid foreclosure on their mortgages.

"When people come in to see us they are under pressure," he says. "They are looking for a way to refinance or sell the house before they lose it. It makes it very hard for them when they are faced with a fee of several thousand dollars to get out of a loan they can no longer afford. Some deferred establishment fees are as much as 4 per cent of the value of the loan. That is outrageous."

Outrageous is a word you hear a lot when you talk to people about bank fees. As well as deferred establishment fees, consumer groups rail against early termination fees on home loans, a range of so-called exception fees on credit cards such as over-limit fees and excessive charges for ATM use and other transactions.

As surreal as it sounds, there's even a "late" payment fee for paying your credit card too early (see box, right).

It is not just consumer advocates. Government agencies and regulators are increasingly turning their attention to the issue. Led by Treasurer Wayne Swan, governments have made it clear to banks and other financial institutions that the basis on which they charge fees must be for cost recovery and not to gouge extra revenue out of customers.

But, as governments have been learning lately, dealing with the issue is not easy.

Hiding fees

A report to the Ministerial Council on Consumer Affairs on the use of mandatory comparison rate disclosure in the home loan market shows that deferred establishment fees and other "back-end" mortgage charges are, in part, a result of the introduction of comparison rates.

A review of the impact of the mandatory comparison rate scheme, which was introduced in 2003 to give consumers better information about home loan costs, was prepared by Hawkless Consulting and presented to the ministerial council last month.

According to the report, when lenders were faced with the prospect of having to include all fees and charges in a comparison rate, they responded by restructuring their products so that some fees, such as deferred establishment fees and discharge fees, fell outside the criteria for inclusion in the comparison rate.

Fancy footwork

The banking industry research group InfoChoice found that between 2004 and the end of 2007, the establishment fee for a standard variable rate home loan fell 16.8 per cent, from $617 to $513. Borrowers who look only at upfront charges would imagine they are getting a better deal. They are not.

The annual service fee on a standard variable rate home loan rose 390 per cent, from $43 to $211, over the same period.

InfoChoice found that the average discharge fee on a standard variable rate loan rose 38 per cent between 2004 and the end of last year - up from $228 to $315. It can pay to look beyond the upfront costs and see what might happen at the end of the loan: one lender, Bendigo Bank, charged $30 to discharge a loan, while another, Mortgage House, charged $2475.

The early termination fee is one that can really hurt. InfoChoice found that the average fee was $1451 and fees were as low as $200 and as high as $8750.

Consumer groups have pointed out that many borrowers tend to ignore these types of fees, as they have with exception fees on credit cards, believing they will never have to pay them.

"Regulators put pressure on certain types of fees and charges but the cost to the consumer never goes away. The charges bob up somewhere else," Tennant says.

World leaders in fees

The Australian Securities and Investments Commission looked at mortgage fees from a different perspective in a review it did for the Treasurer in April.

It found that in 1995 the aggregate value of mortgage fees was 0.67 per cent of all outstanding mortgages. By 2007 fees had grown to 1.39 per cent of outstanding mortgages. Over the same period early termination fees increased from 19.3 to 41.8 per cent of overall mortgage fees.

The watchdog found Australian mortgage fees are high by international standards. On early termination fees, it says "some do not appear to be related to the underlying costs they are purporting to recover".

Last month the Reserve Bank released the results of its annual survey on banking fees. It found that overall the rate of increase in fees and charges was slower than the rate of growth in banks' balance sheet assets but there was an exception in the area of credit card accounts. Late payment fees, over-limit fees and foreign currency conversion fees increased by 16 per cent last year.

The Reserve Bank says that over the past five years, fee income from credit cards has grown by 170 per cent.

During that period the average over-limit fee has increased from $13 to $30, late payment fees have gone up from $21 to $31 and foreign currency conversion fees have gone from 1 per cent of the value of the transaction to 2.5 per cent.

Annual fees have risen too. Over the past five years the average fee on a standard rewards-based card has gone from $61 to $85 and the average fee on a gold rewards-based card has gone from $98 to $140.

Consumer campaigns

The consumer group Choice has been campaigning hard on these fees. It says: "Banks, credit unions and building societies charge fees of up to $50 when consumers exceed their credit limit, pay their cards one day late or fail to have sufficient funds in their account when a direct payment is due. These fees are unfair. The amounts bear no relation to the cost incurred by the financial institution as a result of the consumer's default.

"Banks could easily help consumers to avoid fees but choose not to. They could offer credit cards that can't go over the limit or they could warn consumers that a payment is due but there are not enough funds in the account."

Banks have responded to these criticisms, although the concessions tend to be limited to certain groups of customers.

Some concessions

Last year St George Bank cut its dishonour fee to $8 for customers who hold a Concession Card. For other customers, those fees are $45 for a dishonour and $38 for an honour fee (when the bank honours a payment even though the account is overdrawn).

The bank cut its inward cheque dishonour fee altogether. This fee was charged against the account of a customer receiving a bad cheque and was the fee most heavily criticised by consumer groups.

St George has a system of email and SMS alerts. Customers can elect to receive notification of the balance on a nominated account at the beginning of each day. They can also use the service to monitor their direct debits.

National Australia Bank has made changes to its Concession Card Account, removing all exception fees, transaction fees and monthly account fees.

Such accounts are usually available to holders of a Centrelink Health Care Card, Seniors Concession Card, Pensioner Concession Card or Repatriation Health Card.

Last September NAB announced that it would remove the over-limit fee on credit card accounts held by customers with Concession Card Accounts. The bank said it would also withdraw the ability to overdraw the card on electronic purchases.

Late last year NAB launched a suite of new transaction accounts, which included a waiver of the account service fee if a minimum of between $2500 and $5000 (depending on the account) is deposited each month. Other features of the new accounts included free ATM access, and a facility that stops the customer overdrawing. In February, NAB announced the launch of a home loan with no exit fees.

In August, ANZ announced that customers would be given the option of switching off the ability to overdraw their accounts. The other change the bank has made is to reduce exception fees for low-income earners on ANZ Access Basic Accounts, from $35 to $10. ANZ also capped exception fees at $10 on credit cards held by ANZ Basic Account holders.

ANZ has given all credit card customers the option of avoiding exception fees by switching off the ability for their account to go over the limit. Last November the bank launched a credit card that rewards customers for paying off their balances. The card gives one reward point for every dollar repaid to the account balance, including payments of interest, fees, cash advance and balance transfers.

In August, Westpac reduced its customer dishonour fee from $25 to $10 and its account overdrawn fee from $20 to $10 for customers with a Westpac Basic account and selected student and youth accounts.

In November, the Commonwealth Bank removed the overdrawn fee on its Pensioner Security account. The bank dropped inward cheque dishonour fees last June.

Without exception: the 10 worst fees

Early termination fee

The loan contract will specify that if the loan is paid out within a certain period, usually three or five years but sometimes longer, the borrower will pay a penalty. Early termination fees can be set as a fixed amount, a percentage of the outstanding balance or several months' interest payments. The banking industry research group InfoChoice says the average fee is $1451. It found one fee of $8750. The Australian Securities and Investments Commission says these fees do not appear to be related to cost recovery.

Inward cheque dishonour fee

This one is an absolute shocker: the fee is charged against the account of a customer receiving a bad cheque. Most banks have cut it out but consumers still need to beware.

Discharge fee

Lenders charge a fee for handling all the paperwork when the loan is paid out. That seems fair enough but what does not seem fair is the rate of increase in the fee. InfoChoice says discharge fees have risen by 38 per cent over the past four years, from $228 in 2004 to $315 at the end of last year.

Annual mortgage service fee

This one gets the prize for fastest-growing fee. The annual service fee on a standard variable rate home loan rose 390 per cent, from $43 to $211, between 2004 and the end of last year.

Over-limit fee

This fee has gone from an average of $13 to $30 over the past five years. Consumer group Choice says banks should give their customers the option of not being allowed to exceed their limits on their transaction and credit card accounts. It also argues that the banks have the technology to send the customer an email or SMS alert to warn them they are about to go over the limit.

Late payment fee

The average fee has increased from $21 to $31 over the past five years. Choice argues that the banks get away with unreasonable charges on fees such as late payment because consumers never check them when they are shopping for a card. People don't think about it because they think they will never make a late payment.

Foreign currency conversion fee

Five years ago the fee was 1 per cent of the value of the transaction. Today it is 2.5 per cent.

Annual credit card service fee

Over the past five years the average fee on a standard rewards-based card has gone from $61 to $85. The average fee on a gold rewards-based card has gone from $98 to $140.

Overseas ATM charges

Travellers often come back with horror stories about huge ATM fees in eastern Europe or South America. According to the Reserve Bank, the average charge for use of an overseas ATM has gone up from 0.8 per cent of the value of the transaction to 1.4 per cent over the past five years.

"Late" payment fee for being early

Bankers say a problem may arise where a customer is going on an extended holiday or business trip and wants to pay a credit card account before leaving. If the payment does not fall within the billing period the customer could be hit with a "late" payment fee even though the payment was made early. The way to avoid this problem, say the banks, is to use an online payment facility which allows the customer to set the date when the payment will be made. Or perhaps they could just fix the problem.