BANK shares were pummelled yesterday amid investor concern that a landmark legal action against fees could hit profits.
Shares in major banks including Commonwealth Bank and ANZ fell by about 1 per cent after BusinessDay reported they faced one of Australia's biggest class actions for overcharging on penalty and late fees.
The $400 million claim, if successful, could trim bank profits by about 1 per cent, according to Goldman Sachs JBWere analyst Ben Koo.
If the claim, launched yesterday by class-action funder IMF Australia, extends to the full $5 billion in exception fees collected by banks in the past six years, Mr Koo calculated this could translate to a 10 per cent hit to earnings next year.
''The headlines are likely to be a negative for sentiment towards the banks,'' Mr Koo said.
For their part, the banks acknowledged that about half their customer complaints related to fees. Since a voluntary overhaul in fees last year, many have reported a drop in complaints.
The Reserve Bank said the banking sector gathered almost $1 billion in exception fees in 2008, but the voluntary reduction from last year is expected to cost the industry $550 million a year.
ANZ said recently the removal of some fees was likely to result in an annual $170 million cut in revenue. For Westpac, the cost is running at $215 million.
With actions against bank fees launched in Britain and the US, Australian banks knew it was only a matter of time before momentum for such a move would gather in Australia. Two years ago, National Australia Bank became involved in a legal battle with Britain's Office of Fair Trading over bank charges.
British banks generally offer fee-free accounts but banks tend to recoup account-keeping costs by slapping customers with high penalty fees for a range of issues including if accounts go into overdraft.
NAB's Clydesdale Bank was one of seven British lenders that had challenged the ability of the Office of Fair Trading to investigate whether overdraft fees were fair under laws governing the terms of consumer contracts.
While the consumer watchdog won its initial legal bid to investigate the fairness of charges, this was later overruled by a higher court. The equivalent of $4.6 billion in annual revenue was at stake had the OFT won the case.
More recently, Australian banks have been lobbying against the introduction of new rules banning ''unfair terms'' in contracts - a measure that stands to reduce their ability to enforce fees.
Under the new rules approved by the Senate in March, where a term in a consumer contract is found to be unfair, regulators, such as the Australian Securities and Investments Commission or the Australian Competition and Consumer Commission, may seek a ruling from a court to void the contract.
The new rules also allow for consumers to pursue their own remedies.
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