Bank Late Payment Fees Held to be Penalties – Class Action Risk for Other Industries

by K&L Gates LLP

Paciocco v ANZ [2014] FCA 35

The Federal Court of Australia (Federal Court) has held that late payment fees charged by a bank to its credit card customers were unlawful penalties.

Paciocco v ANZ [2014] FCA 35 is the first case to be decided following the High Court of Australia's (High Court) decision in Andrews v ANZ (2012) 247 CLR 205 in which the High Court extended the scope of the penalty doctrine under Australian law.

The case provides guidance as to how courts may approach the issue of late payment fees in other existing class actions concerning penalties in the financial services sector and may pave the way for further class actions against businesses in other industries.

History – Andrews v ANZ

In 2010, a class action was commenced in the Federal Court against ANZ by customers alleging that a range of fees imposed by the bank were, among other things, unenforceable penalties. The plaintiffs sought repayment of the fees.

In 2012, the High Court overturned existing case law which said that a fee could only be a penalty if it was levied in respect of a breach of contract. Instead, the High Court held that a sum charged to secure performance of a primary obligation may be a penalty even if there has been no breach of contract. In other words, if a secondary obligation (payment of the late fee) is imposed in order to secure performance of a primary obligation (timely payment of an account) then it may be a penalty.

The High Court did not decide whether any particular fee was, in fact, a penalty.

Paciocco Decision on Late Payment Fees

Under his contract with ANZ, Mr. Paciocco was obliged to pay a minimum amount on his credit card by a particular date each month, failing which, a late payment fee was charged by the bank. The Federal Court held that the late payment fee was, in substance, a collateral obligation levied as security for, and in order to compel performance of, the primary obligation to make the monthly minimum payment on time.

ANZ charged its customers a late payment fee of AUD35 or (latterly) AUD20. The Federal Court accepted expert evidence from Mr. Paciocco that the actual loss suffered by ANZ as a result of a customer's late payment ranged from AUD0.50 to AUD5.50. In this regard, the Federal Court found that the fees charged met the test of a penalty as being extravagant and unconscionable relative to the greatest loss that could conceivably have been suffered by ANZ.

The Federal Court pointed to a number of factors in deciding that the late fees met the test for a penalty at common law and in equity, in particular the fees were:

  • payable upon breach of the customer's contractual obligation to pay ANZ on time and, alternatively, were a secondary obligation imposed to secure payment to ANZ of the monthly repayment on time (which satisfied the broader test in Andrews v ANZ (2012) 247 CLR 205)
  • not payable for further services or accommodation by ANZ
  • payable regardless of how late the customer was paying, and regardless of the amount overdue
  • not a genuine pre-estimate of loss suffered by ANZ
  • disproportionate in amount to the actual loss and damage suffered by ANZ.

Decision on the Other ANZ Fees

Mr. Paciocco was only partially successful in challenging the bank's fees. Honour, dishonor, non-payment and overlimit fees charged by ANZ were found not to be penalties. 

In contrast to the late payment fees, the Federal Court held that the action of overdrawing a bank account was a request from the customer for an advance or loan from ANZ. This required the consensual conduct of ANZ and the customer. The ANZ 'honour' fee for considering the customer's request for additional services or accommodation was not a penalty, but a fee for service.

The Federal Court considered the relative positions of ANZ and the customer, but found that in all the circumstances, the imposition of fees (even the late payment fees) were not unconscionable, unjust or unfair in contravention of the relevant statutory provisions.

How Far Back can a Plaintiff Claim?

ANZ sought to rely on the six year statutory limitation period for contractual claims and contended that much of Mr. Paciocco's claim (being fees paid more than six years before proceedings were commenced) was statute barred. However, the Federal Court held that time did not begin to run until Mr. Paciocco was aware of his mistake in assuming that ANZ was entitled to charge the fees – being the date of commencement of the first Andrews proceedings in September 2010.

Implications – is Your Business at Risk?

Businesses which impose late payment fees similar to those dealt with in Paciocco v ANZ [2014] FCA 35 are now at an increased risk of class action litigation by consumers.

Although current class actions are targeting the financial services sector, there is the potential for class actions to target other industry sectors. In particular, those which deal with a large number of consumers and impose fees on customers, which may not be fees for additional services or accommodation. Potential targets include:

  • fixed line and mobile phone providers
  • internet providers
  • utilities (gas, water, electricity).

Businesses should review their current contracts and arrangements with customers in light of decisions in Andrews v ANZ (2012) 247 CLR 205 and Paciocco v ANZ [2014] FCA 35 and take steps to ensure that fees charged to customers are legally valid and enforceable.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© K&L Gates LLP | Attorney Advertising

Written by:

K&L Gates LLP

K&L Gates LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.