ASB is the sixth major bank to plead guilty to breaching the Fair Trading Act by failing to properly disclose currency conversion fees paid by its credit card and debit card customers from March 2002 to March 2005. Customers paid fees of up to 2.35% of the total transaction.

New Zealand banks have now paid out over $26 million in relation to the hidden fees.

In the Auckland District Court today, ASB pleaded guilty to 26 charges of breaching the Fair Trading Act. The company was fined a total of $600,000, and agreed to place $3.5 million in a compensation fund for affected customers. ASB will also pay $80,000 to the Commission in costs.

Affected customers were those who made transactions in foreign currency between March 2002 and March 2005 on any credit or debit cards issued by ASB under the brand names of ASB Bank, Bank Direct, Sovereign Go, New Zealand Home Loans and AA MasterCard. Consumers will be contacted by ASB if they are affected and most will receive their compensation in the next month.

"Banks know that the level of fees is important to customers, and in other areas they advertise low or no fee options to try and attract business," says Commerce Commission Chair Paula Rebstock.

"But as long as these foreign exchange fees remained hidden there was no incentive for banks to lower them," says Ms Rebstock.

"Banks must be upfront about all their fees and charges, so that customers can shop around and get the best deal, and in doing so put pressure on banks to lower the charges."

Ms Rebstock says that, in addition to considering the disclosure of fees under the Fair Trading Act, the Commission was also able to consider the reasonableness of fees under the Credit Contracts and Consumer Finance Act.

"Fees in the finance sector are an ongoing priority for the Commission, in light of ongoing concerns about industry practice."

"The Commission is currently investigating the reasonableness of late payment penalty fees on credit cards under the Credit Contracts and Consumer Finance Act," says Ms Rebstock.

Ms Rebstock says the Commission would not make further comment on that investigation while it is ongoing.

The Commission's prosecutions of ANZ National Bank, BNZ, Westpac, Kiwibank and ASB have resulted in a total payout of $26,561,051 in compensation, fines and costs. Proceedings continue against American Express, Diners Club, TSB and The Warehouse Financial Services.

Background

The fees

.The 'exchange rate' used to convert foreign currency transactions into New Zealand dollars included a fee payable to ASB of 1.25% and a fee payable to the credit card provider of between 1% and 1.1%.

Investigation of ASB.

ASB admitted that foreign currency exchange fees were charged but not adequately disclosed during the period from March 2002 to March 2005.

How compensation is paid.

Under the settlement reached today ASB will be responsible for contacting affected cardholders, including those who are no longer customers. The $3.5 millionwill be placed in an account, to be monitored by an independent auditor. Once all affected customers who can be contacted have been compensated, any money remaining will be donated to a consumer-focussed charity of the Commission's choice.

Prosecutions to date:

The Commission has previously prosecuted eight banks and two credit card companies for inadequate disclosure of currency conversion fees. As a result of the Commission's prosecutions of ANZ, National Bank, BNZ, Westpac, Kiwibank and ASB a total of $22,972,051 in compensation has been paid to consumers, $3,179,000 has been paid in fines, and $410,000 has been paid to the Commission in costs.

  • ANZ National Bank Limited pleaded guilty to 45 charges of breaching the Fair Trading Act in March 2006 in respect of ANZ Bank and The National Bank of New Zealand. ANZ National was fined a total of $1.325 million and agreed to pay reparation of $10,000,000 and costs of $160,000.
  • The Bank of New Zealand pleaded guilty on 17 July 2006 to 21 charges of breaching the Act. It was fined $550,000 and agreed to pay costs of $80,000 and provide a compensation fund of $5 million.
  • Westpac pleaded guilty on 29 September 2006 to 19 charges of breaching the Act. It was fined $570,000 and agreed to pay $4.5 million in compensation and $80,000 in costs.
  • Kiwibank pleaded guilty on 16 May to five charges of breaching the Act. It was fined $134,000 and agreed to pay $172,051 in compensation and $10,000 in costs.

Ongoing proceedings:

The Commission's prosecutions of TSB, American Express, Diners Club and The Warehouse Financial Services continue, and the Commission will not comment on the ongoing proceedings.