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Major bank found guilty of overcharging

A big four bank engaged in “unconscionable conduct” by charging customers periodic payment fees even though it knew it was overcharging, the Federal Court has found.

National Australia Bank Ltd (NAB) has been found to have engaged in unconscionable conduct by continuing to charge customers periodic payment fees even though NAB knew the overcharging was occurring.

The case was brought by the financial services regulator over allegations that NAB was charging fees for some periodic payments even though customers were entitled to an exemption, and that in some cases, NAB charged a higher fee than it should have. 

It was alleged that between 20 July 2007 and 22 February 2019, NAB’s terms and conditions stated NAB would charge $1.80 for periodic payments to other accounts within NAB and $5.30 for periodic payments to accounts at another bank.


The periodic payment fee arrangements could be established by customers completing paperwork in a NAB branch. 

NAB staff were required to manually enter details of the periodic payment into NAB’s system when setting up the payment, which if entered incorrectly, could result in customers being wrongly charged fees. 

Overcharging affected more than 1.6 million transactions 

On Monday (7 November), the Federal Court found that between 20 July 2007 and 22 February 2019, NAB “wrongly overcharged certain of its customers on at least 1,608,575 transactions”.

It charged some customers a periodic payment fee of:

  • $1.80 or $5.30 when they were entitled to an exemption under NAB’s terms and conditions
  • $5.30 when the correct fee was $1.80.

NAB’s terms also stated that customers would be entitled to exemptions from periodic payment fees for certain transactions, such as payments to NAB home loans, NAB personal loans, certain NAB savings accounts and certain NAB service packages.

According to the Australian Securities and Investments Commission (ASIC), between February 2015 and February 2019, NAB overcharged 4,874 personal banking and 913 business banking customers a total of $365,454 in periodic payment fees.

It ceased charging all periodic payment fees to customers on 22 February 2019.

As at 28 April 2021, NAB had paid approximately $8.3 million in remediation to affected customers who incurred incorrect periodic payment fees from 1 August 2001.


NAB ‘acted in its own self-interest’: Justice Derrington

Speaking of the court decision, Justice Derrington said NAB “took advantage of the customers’ continuing lack of knowledge, and acted in its own self-interest by continuing to operate a system which it knew wrongfully deducted sums from its customers’ accounts”.

“This conduct fell so far below the standards required of a bank’s obligations to its customers that it was unconscionable. It was neither proper nor right according to ordinary commercial values in Australian society, and it was offensive to conscience,” Justice Derrington said.

“Once it [NAB] was aware that its systems were wrongly charging PP (Periodic Payment) Fees to some clients who had no obligation to pay them, it was neither competent nor ethical to continue to charge them and to fail to inform them or advise them to review their accounts. 

“Neither could it be said to be fair or honest. Compliance would require suitable remedial action to be undertaken with appropriate urgency once aware of the wrong it had done.”

The court also found that NAB’s unconscionable conduct contravened its obligations as an Australian financial services licensee to ensure that financial services covered by its licence were provided efficiently, honestly and fairly, and to comply with the financial services laws. 

However, Justice Derrington declined to make declarations of contravention on the basis that the conduct was the same.

ASIC deputy chair Sarah Court said: “The continued charging of incorrect fees to customers when NAB knew it was occurring was concerning as it demonstrated that NAB was promoting its own interests over those of its customers. 

“Disappointingly, it took NAB over two years to switch off the periodic payment fees after becoming aware of the issue.

“When there are system failures that cause customers to be incorrectly charged, steps must be taken to solve the problem in a timely manner to minimise consumer harm.”

Speaking after the judgement was handed down, a NAB spokesperson said: "We acknowledge some customers were incorrectly charged for periodical payment fees several years ago. This issue related to the incorrect selection of a fee when setting up a payment arrangement.

“We apologise to all impacted customers for this and have now completed a remediation program to set things right. This has resulted in the payment of more than $8.3 million in refunds and interest to affected customers.”

ASIC had also alleged that NAB falsely represented to customers that it could charge fees for certain periodic payments under the bank’s terms and conditions when it was not entitled to do so, however this was not sustained by the court.

The matter will be listed for a hearing on the scope of any further relief, including penalty on a date to be fixed.

[Related: ASIC sues major bank]

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