Banks warn of rate rises if fees cut

AUSTRALIA'S banks have threatened to lift interest rates even higher if forced to slash customer penalty fees.

ABA /File

Banks warn of rate rises if fees cut

AUSTRALIA'S banks have threatened to lift interest rates even higher if forced to slash customer penalty fees.

Despite growing anger at exorbitant default charges, the Australian Bankers Association said cutting default fees would have "major adverse impacts on Australian consumers".

Banks charge up to $50 for overdrawn accounts and failed direct debits, and up to $35 for late credit card payments.

Welfare groups say the fees are pushing low-income families and pensioners over the edge.

However -- in a submission to a Senate inquiry -- the banks said they would have to recoup the money from somewhere if the fees went down.

"A financial institution would be forced to consider either increasing its lending interest rates or cutting costs to ensure its income is sufficient to meet all its operating expenses, invest in new technology, manage its capital and provide a return to its shareholders" the ABA said.

The banks said so-called exception fees were avoidable, and cutting bank profits would affect Commonwealth taxation revenue.

The inquiry is examining a bill by Family First Senator Steve Fielding to restrict penalty fees to basic cost recovery.

Senator Fielding said the charges were unconscionable for basic accounting mistakes.

"They are holding the lowest-income earners to ransom," Senator Fielding said.

"I don't believe people are sitting deliberately at home trying to frustrate the banks.

"And for banks to be profiteering, especially when people are really feeling the pinch from higher interest rates, it's just outrageous.''

Welfare rallied to support the Fair Bank and Credit Card Fees Bill. The Brotherhood of St Laurence said those being punished were often those who could least afford it.

"A Brotherhood customer was recently charged several penalty fees for misunderstanding of the direct debit system," executive director Tony Nicholson said.

"He said, `$50 is food for a whole week for my kids . . . it's just shattered me'."

The Salvation Army was concerned at the scale of the fees relative to people's incomes.