Press Releases and Announcements - 07 January 2009
Banks told to repay "excessive costs"
St George Bank is facing a potentially devastating
class-action lawsuit on behalf of customers for failing to pass on
their discounted legal fees to borrowers, guarantors and other
third parties they have taken to court, said Mr Ben Slade,
Principal at Maurice Blackburn Lawyers today.
On 4 December 2008, the Victorian Court of Appeal found
that the bank had wrongfully exacted excessive legal costs from
borrowers, their guarantors and other third parties.
[Boman Irani Pty Ltd v St George Bank
Ltd VSCA 246]. The bank was found to
have extracted excessive legal costs from its customers and their
guarantors by failing to give credit for rebates paid to the bank
by its lawyers. Law firms that do the bank's enforcement work
get that work by offering "volume rebates" in return for getting
lots of work. The more work the firms get from the bank, the
less the bank pays per hour. This is paid in the form of a
rebate at the end of the year, but the bank, which has recovered
the full legal fees from its customers, accepts the windfall
without giving the customers a refund. The Court of
Appeal found that this was wrong and that refunds should be
given.
Maurice Blackburn is preparing a class action for victims
of this improper practice. The matter has also been referred
to ASIC by the Victorian Court of Appeal as the practice appears to
be widespread through the country.
Ben Slade, Maurice Blackburn principal said "there was
nothing wrong with these deals, but while banks impose obligations
on borrowers and guarantors to pay the full costs of enforcing
their debts, banks have been charging hapless debtors much more
than their actual costs when those costs are enforced in
court."
Mr Slade said: "The case reveals St George to be charging
100% of their lawyer's fees, without passing on the generous
rebates, which should reduce the amount of legal fees claimed from
the loan's guarantor. It is extremely unlikely that this was
a one-off."
In the Court's judgment, Hargrave AJA, with the support of
two other judges of the Court of Appeal, also expressed doubt that
this was a one-off. He said: "The issue (of wrongfully
extracting excessive costs), is not limited to this case, or even
to this state. It appears that the bank has adopted a similar
approach throughout the country."
In judgment, he expressed "strong disapproval of the
bank's conduct in seeking to wrongfully exact excessive costs from
the … the guarantors".
"This decision highlights a practice that appears rife
within the banking and financial community," Mr Slade
said.
Mr Slade called for, "Australian banks to refund all
excessive legal costs charged to borrowers and guarantors and he
asked for a promise from all banks that they will change their ways
and immediately give credit to their customers for any discount on
costs. The excessive fees extracted from the customers as legal
fees must be repaid, with interest."
For more information please contact Ben Slade
on (02) 8267 0914