Kiwibank has become the fifth major bank to plead guilty to breaching the Fair Trading Act by failing to properly disclose currency conversion fees paid by its MasterCard cardholders. Customers paid fees of 2.6% of the total transaction.

New Zealand banks have now paid out over $22 million in relation to the hidden fees.

The company pleaded guilty to five charges of breaching the Fair Trading Act, and was today fined a total of $134,000 in the Auckland District Court. Kiwibank will also pay $172,051 in compensation to customers, and $10,000 to the Commission in costs.

Consumers will be contacted by Kiwibank if they are affected and most should receive their compensation by August 2007.

"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."

The Commission's prosecutions of ANZ National Bank, BNZ, Westpac and Kiwibank have resulted in a total payout of $22,281,051 in compensation, fines and costs. Proceedings continue against ASB, TSB, American Express, Diners Club and The Warehouse Financial Services.

The penalty and compensation paid by Kiwibank is less than that paid by other banks prosecuted for similar behaviour, because the offending occurred over a shorter period of time and affected fewer consumers.

Background

The fees

. The 'exchange rate' used to convert foreign currency transactions into New Zealand dollars included a fee payable to Kiwibank of 1.50% and a fee payable to MasterCard of 1.10%.

Investigation of Kiwibank.

Kiwibank admitted that foreign currency exchange fees were charged but not adequately disclosed during the period from May 2003 to May 2005. The Commission began investigating Kiwibank after it introduced a MasterCard in 2003, and failed to disclose the charges on bank statements.

How compensation is paid.

Under the settlement reached today Kiwibank will be responsible for contacting affected cardholders, including those who are no longer customers. The $172,051 will 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 charity of the Commission's choice.

Previous prosecutions:

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 and Kiwibank, a total of $19,372,051.00 in compensation has been paid to consumers, $2,579,000 has been paid in fines, and $330,000 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 reparation and $80,000 in costs.

Ongoing proceedings:

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