It pays to be on time – ANZ Bank late payment fees found to be legal


It has long been established law that if an amount is charged under a contract for some breach and the amount is not a genuine pre-estimate of the loss resulting from the breach, this will be a penalty and will not be enforceable at law.  Therefore a charge or fee cannot be for the purpose of punishing a party to the contract.  How does that apply to the late payment fees that Banks will typically charge on credit cards?  Aren’t late payment fees charged solely to punish customers for late payments?  The High Court has recently considered this question in the case of Paciocco & Anor v ANZ [2016] HCA 28.


In Paciocco v ANZ, Paciocco who was a customer of ANZ Bank commenced a claim against ANZ alleging that their late payment fees charged on their credit cards constituted a penalty or were in breach of consumer laws for being unconscionable, unfair or unjust.  The High Court judges disagreed.  They found that the late payment fees were legal and enforceable.


The High Court determined that if the fees were extravagant and unconscionable the fees would be penalties and would not be enforceable.  The question of whether the fees were extravagant and unconscionable depended on whether the fees were in line with ANZ’s greatest prospective loss that could flow from the late payment by the consumer, determined at the time the credit card was issued.


Applying this test, the Court found that the late payment fees served to protect ANZ legitimate costs associated with late payments, including regulatory costs and the costs of collecting credit card debts.  So the fees are not just to punish late credit card payments.  Those late payment fees go towards paying for administration costs of the Bank in chasing consumers for payment and in debt collection that may proceed to Court.  The Court also considered that the commercial risk taken by ANZ in providing credit to consumers and ANZ’s right to pursue profit ought to be taken into account in determining the reasonableness of the late payment fee.


The conclusion to take from Paciocco v ANZ is that late payment fees charged by Banks are lawful, but the High Court decision will also have greater application to a variety of commercial contracts, where fees in the nature of late payment fees may be charged.


If you require any assistance with commercial matters, contact McLaughlins Lawyers.

Author: Sonaaz Farhadi-Fard

Partner: Ian Kennedy

Date: 24/08/2016