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ANZ’s big class action

  • June 19th, 2013

I think there is a good chance ANZ will  lose to the class action promoters. That will not be the best outcome for bank customers generally, but the banks have largely themselves to blame.

Early in my commercial law career I was a banking law specialist. I liked it partly because I got to present papers to banking law conferences. They were memorably held in places like Surfer's Paradise and Adelaide Casino. I could take Cathy (and infants) so I could redeem some of the debits building up in my matrimonial account from working enormous hours.

But I also liked banking law because it was mostly still the work of great judges and law drafters of the 19th century. It was certain, very sensible and clear.

Rob Ogilvie also has deep in his CV lots of lending documentation, enforcement, standard form design, unit trust formation and seminar presentations to bank staff. So Franks & Ogilvie has kept up our interest in the field, though the law is now encrusted with complications created by recent decades' less perspicacious lawyers.

The foundation of the action against ANZ is a general contract law principle, not a specific banking law matter. It claims that the banks have been penalising unauthorised overdrafts and other breaches of contract, instead of just charging what they have cost the bank to deal with. I think the action is more likely than not to succeed because our law has always been against penalties in contracts. You can agree in advance on what happens if a contract is breached, if it is a genuine pre-estimate of the likely costs of fixing the breach. But if it is just a penalty, ancient law says that provision is not enforceable.

It is actually an  inefficient rule that probably costs consumers more than it saves them. Penalties are a standardised disincentive. The cost of handling thousands or millions of actual calculations of what an overdraft limit breach might actually cost the bank could be huge. And in the long run such costs become part of the overhead that is charged to everyone, those who do not breach as well as those who do.

If the banks and the country's business organisations had been investing in getting the law up-to-date and efficient, they would have had a firm like ours draft and promote a sensible change to that law years ago. Now they'll spend millions on a court case, instead of the fraction of that they could have spent on a stitch in time.



Oh, come on. You make it sound as if the alternative is an army of clerks dressed in head visors and armbands are sitting there with adding machines working out the cost of Mrs Smith’s $2 overdraft breach. The bank will already know (at least on a product and client segmentation basis) the true cost of servicing those overdraft breaches.

  • paul scott
  • June 20th, 2013
  • 1:27 am

a truly sickening and self serving article Stephen, utterly sad.



That should be true but it does not deal with the question. That is how much of that must be absorbed as overhead, and how much can be seen as a genuine pre-estimate of the cost of a breach of the particular contract. Hopefully the court will find that it is permissible to pre-estimate for an entire class of breaches or accounts, without regard to things like activity patterns, changes in creditworthiness, transacton size etc. The law has not fully worked out how to deal with standard form mass contracts in a way that is consistent with their underlying nature as efficient risk allocation instruments. It still applies many principles that assume fully informed individually consensual transactions.


[…] Stephen Franks thinks ANZ could lose the class action against its fees but warns that it could be a costly victory: […]

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