A bank charges customers A$35 every time customers fail to make the monthly payment on their credit card by the due date.

An airline charges $10 or more for printing boarding passes if passengers forget to print their own. (Some European airlines have charged much more).

A supermarket in an inner-city location offers free parking for the first hour, and then charges A$65 for stays of one to two hours.

These examples are real and recent. They all, to varying extents, attract accusations of price gouging or exploitation by service providers.

And they all raise legal questions similar to those involved in the class action that resumed this week against ANZ over bank fees.

The issues are not new to lawyers, but what is remarkable is the size of the class of plaintiffs (said to be close to 40,000 customers), the amount of money at stake, and the potential for a successful outcome to affect other banks and large service providers in other industries. Class actions against other Australian banks are also reportedly underway.

ANZ customers are challenging the legitimacy of certain fees charged by the bank in a range of situations. Those fees include, for example, dishonour fees or honour fees applied to debit transactions which would overdraw the customer’s account. (The former fee is charged where the transaction is declined; the latter fee applies where the transaction is approved.) Another fee being challenged is the late payment fee applied to certain credit cards.

In recent years, the major banks have moved to reduce many of these fees.

It is easy, but too simplistic, to cast this as a struggle between David and Goliath, or between victims and villains.

A conflict of values

At the heart of the issue lies a conflict of several important policy ideas. One idea, which is a very powerful one in contract law, is freedom of contract. A customer can choose whether to enter into a contract for particular services with a bank; the customer can also choose to take their business elsewhere if they are offered a better deal.

Another related idea has a moral dimension: people should not break their promises. Once a person has entered a contract, he or she should adhere to the terms agreed.

Against this, there is the pragmatic view that people often do not come to contracts on equal terms. The inequality might relate to their knowledge, bargaining power, or ability to understand what is in their best interests. I have not heard anyone seriously contend that banks and individual customers are on an equal footing in all respects.

The last idea, again very important, is the value of certainty. If courts will intervene and strike down or alter contracts, then how will people know when a contract will be enforced and when it will not? To put it another way, to what extent, and in what manner, should courts interfere in parties’ bargains?

This all requires a delicate balancing act. The starting point for lawyers is that the contract operates as agreed; a person needs to point to some exceptional reason to annul or alter the contract. Here, the law often focuses on what might be called procedural factors. These are circumstances that adversely affect a person’s decision to enter into a contract. Sometimes the terms of the contract itself can also be considered. The bank fees are being attacked from both angles, though the latter aspect has so far received the most attention.

Is it ‘unfair’?

This attack is itself interesting, and raises two important questions of principle. First, what terms of a contract should be open to challenge for unfairness?

At one end of the spectrum, it’s accepted that the essential elements of the bargain – the basic product or service and the price – are usually not open to challenge. At the other end of the spectrum, it’s accepted that fees or charges payable for breach of contract – that is, not doing what you promised – should be open to challenge. Between those extremes there is some room for debate. Some of the bank fees might fall into that area.

Secondly, assuming the fees can be challenged, how do we determine what is fair? That question is harder than it seems.

According to one test, we look at the amount payable and the event that triggers the payment, and ask: is the amount a genuine estimate of the bank’s loss if the customer breaches the contract; or is it extravagant or out of all proportion, a kind of deterrent or punishment? If the former, the fee is valid and payable. If the latter, the fee is ineffective as a “penalty” and the bank must prove its actual loss, which may be much less. It remains to be seen what ANZ’s true cost is in the various fee situations.

The real worry for big banks and in fact any service sector business, is that their “change” fees, “late” fees, “administration” fees, “cancellation” fees etc may not reflect the real cost of those events. Instead, they are nice round figures, stiff enough to encourage consumers to act in the desired manner, or make a tidy profit when they do not. These companies are likely to become the next targets if ANZ’s customers succeed in the present case.