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Big banks, big cases and big money

As Group General Counsel at one of Australia's big four banks, people occasionally ask me what keeps me awake at night. In my first five years at the bank, nearly all of the problems that landed on my desk came out of one specific arm. Now those cases are few and far between, while the spectre of class actions grows.

Class actions come up fairly regularly in the news in relation to a range of legal claims, from shareholder class actions to product liability cases to actions arising from natural disasters, like the Victorian bush fire class actions.

"Suddenly mass-consumer actions which previously may not have been economically viable start to look like an attractive proposition for those funding the actions."
Bob Santamaria, Group General Counsel at ANZ

But the class action landscape has changed a bit in the last few years. Advances in technology have enabled litigation funders to quickly and cheaply aggregate thousands of small claims. Suddenly mass-consumer actions, which previously may not have been economically viable, start to look like an attractive proposition for those funding the actions.

Recently there has been a bit of press about a win ANZ had in the class action on bank fees, which the plaintiff law firm claims is the largest series of class actions in Australian history.

Whether or not that's right, the class actions on bank fees do involve a very large number of bank customers, far in excess of any previous number of people claiming in a class action. It's a good opportunity to reflect on what class actions actually are and where they are heading.

CLASS ACTIONS IN AUSTRALIA

A class action is a legal claim brought on behalf of a group of people who have similar claims or similar interests in the subject matter. In effect, a class action aggregates a series of small claims into one large claim.

Each small claim on its own might not be worth the cost and trouble of litigation. But once grouped together with other claims, the numbers can start to get very large.

In Australia, there are usually three main players putting forward a class action claim: 

  • The litigation funder, who stumps up the cash to run the claim on a 'no win – no fee' basis in exchange for a percentage of any judgment or settlement.
  • The plaintiff law firm.
  • The group members.

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Like most large companies, banks are no strangers to class actions.

The two main types we've seen are:

  • Claims on behalf of shareholders (such as the class action National Australia Bank successfully settled in relation to its disclosures to the ASX in 2008 on its Collaterised Debt Obligation (CDO) exposure).
  • Claims on behalf of customers (like the bank-fees class action).

The bank-fees class action is an unusual one mainly because of the size of the individual claims. In the past, although each individual claim in a class action might be small, they would still usually be in the thousands of dollars rather than the hundreds. But in the bank-fees case, some customers' claims might have been in relation to one fee charged on one account, which can be as little as $20.

Banks have not been the only companies targeted. Similar claims have been foreshadowed against telcos and energy companies.

Why the sudden flurry of this type of class action?

THE CHANGING LANDSCAPE

Technology certainly has had a role to play. Plaintiff law firms have changed the way they operate. Gone are the days of lawyers traipsing from door to door Erin Brockovich-style, slowly building up the numbers to instigate a class action.

Now, plaintiff law firms use both traditional and social media to communicate with large groups of people about proceedings they intend to initiate and to encourage people to sign up. They are very savvy at generating media interest.

Combining coverage from TV, radio and newspapers, plaintiff law firms are able to communicate with hundreds of thousands of customers (if not millions) to let them know about actions they are planning to run. Plaintiff law firms have also made it easy for customers to sign up. Now you can register online with the click of a button and the provision of a few contact details.

For the bank-fees case, the plaintiff law firm utilised new technologies to ensure the maximum number of people could register at once. Using technology like this, litigation funders can aggregate thousands of small claims quite quickly and with very little cost. The benefit for the funder is clear – the more people who sign up, the greater the profit if the case is successful.

MASS CLASS ACTIONS AGAINST BANKS ON FEES

In 2010, off the back of a broad and highly visible media campaign to attract group members, plaintiff law firm Maurice Blackburn (in conjunction with Australia's largest litigation funder, IMF Bentham Limited) initiated a series of class actions against most Australian banks in relation to bank fees.

The claim against ANZ related to certain fees on transaction accounts and credit cards, broadly:

  • Overdraw fees (fees charged following a customer seeking to overdraw their account).
  • Late payment fees.

Those fees were alleged to be unlawful because they were either:

  • Penalties - fees charged to deter customers from behaving in a certain way.
  • Unfair, unconscionable or unjust within the meaning of consumer protection legislation.

The case against ANZ was run as a test case while the claims against the other banks were put on hold.

It has been a long journey (and has already included a trip to the High Court of Australia – although there may be another one to come). In April 2015, the Federal Court of Appeal found in ANZ's favour, confirming overdraw fees and the late payment fees are lawful.

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Some aspects of the judgment are particularly worth mentioning. As has been found at each stage of this case, the Court confirmed the overdraw fees are charged for services ANZ provides to its customers.

For late payment fees, the Court recognised people who pay late are more risky, and that the riskiness of customers translates to a real cost to the bank. This is in addition to the cost of collections teams who may have to call the customer to chase up payment. The Court said that when you take all those costs into account, the amount of the fee is not excessive.

WHAT NEXT?

The bank-fees class action is the first of the late-payment fee class actions to be decided by the Australian courts. But does the recent ruling spell the end of mass-consumer litigation? Probably not. It's not even the end of this particular case.

Maurice Blackburn and IMF have filed an application seeking leave to appeal the decision to the High Court of Australia in respect of late-payment fees only. No doubt there are many people across a number of industries who await the final outcome with interest.

For any company with a large customer base, you would have to think that mass-consumer class actions will remain a threat. Litigation funders and plaintiff law firms have become professionals at whipping up support and amassing claims. When you combine tens of thousands of even the smallest claims, the potential financial incentives for the funder are simply too large to ignore.

Bob Santamaria is Group General Counsel at ANZ.

The author would like to record his appreciation for the considerable help provided by ANZ General Counsel (Dispute Resolution and Lending Services) Guy Gaudion and Corporate Lawyer (Dispute Resolution) Bess Andrews - both for their work on this article and in the defence of the bank-fees class action.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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