Australia

Wed Feb 26

Multiple warnings and huge fines are not stopping super funds, insurers and banks overcharging customers

Written by Jeannie Marie Paterson, Professor of Law, The University of Melbourne

Last week the Federal Court ^[1] fined Australia’s biggest superannuation company, AustralianSuper, A$27 million for overcharging customers.

The company had breached its legal obligations under the Superannuation Industry (Supervision) Act 1993 ^[2] by failing to identify and merge the duplicate accounts of customers.

Given the individual errant fees were about $1.50 per duplicate account ^[3], the penalty might sound disproportionate to the wrongdoing.

But over the nine years the duplicate account and other fees were being charged, they collectively cost customers about $69 million ^[4].

As revealed in court ^[5], the double charging continued even though AustralianSuper’s employees and officers were aware that duplicate accounts were widespread.

Not a precedent

This court case was not the first. It follows a damning series of cases brought by the Australian Securities and Investments Commission (ASIC) against banks, insurers and super funds for overcharging.

In 2022, ASIC reported ^[6] six of Australia’s largest financial services institutions had paid almost $4.4 billion in compensation to customers for overcharging or providing no service.

Financial penalties ^[7] were also imposed. Westpac and associated entities were fined $40 million for charging $10.9 million to more than 11,800 dead customers ^[8].

ANZ was also hit with a $25 million penalty ^[9] for failing to provide promised fee benefits to about 689,000 customer accounts over more than 20 years ^[10].

These cases were highlighted in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry ^[11], which ran from December 2017 to February 2019. But even after that, new instances emerged.

Warnings from the banking royal commission have not been enough to stop some improper or illegal practices. Mick Tsikas/AAP ^[12]

In 2023, a review ^[13] by ASIC resulted in general insurers repaying more than $815 million to more than 5.6 million customers for pricing failures since 1 January 2018 ^[14]“.

After this, ASIC imposed penalties on insurers IAG-subsidiaries ^[15] and QBE ^[16]. It was alleged they misled customers by promising them loyalty discounts to renew their home insurance policies. But the customers actually had their premiums raised by an amount similar in size to the discounts.

In 2024, ASIC announced the findings of an inquiry ^[17] into excessively high fees for superannuation fund advice. The fees were not proportionate to the advice needs of members or the cost of advice.

More than 300 members across seven of the funds ^[18] had advice fees of more than $15,000 deducted from their accounts.

Despite repeated calls by ASIC and the Australian Prudential Regulation Authority for the industry to improve its operations, a 2024 ASIC review found ^[19] major banks left at least two million low-income customers in high-fee accounts. Those affected were refunded more than $28 million ^[20].

Why has this litany of pricing misconduct cases occurred?

Put in the best light, the failures represent a combination of poor legacy payment systems and increasingly complex modern payment structures and products.

Recognising these constraints, the Federal Court has stated that the obligation under the Corporations Act ^[21] to ensure financial services are provided "efficiently, honestly and fairly” does not demand “absolute perfection ^[22]”.

In other words, some mistakes are inevitable. But this does not relieve banks, insurers and superannuation funds from responsibility for payment errors.

Financial institutions are required by law to act efficiently, honestly and fairly. Joel Carrett/AAP ^[23]

The buck stops with the institutions

Charging more money than permitted or failing to pass on discounts will usually be a breach of the financial institution’s contract with its customers, and may also amount to misleading conduct ^[24].

It’s unlawful. Even if the individual amounts in question are small compared with the turnover of the financial institution, they are significant to the customers affected.

This means, as courts have consistently recognised, that financial institutions have a responsibility to put in place “systems and processes” to identify and correct payment errors. And they need to remediate affected customers promptly.

The ongoing misconduct suggests banks, insurers and superannuation trustees have ignored this.

Notably, in 2023, a court found NAB ^[25] waited more than two years to correct overcharging, despite being aware of it.

And in 2025, the court was critical of AustralianSuper ^[26] for taking years to address the problem of duplicate customer accounts even after it was identified.

The judge in the AustralianSuper case said:

nobody was responsible for ensuring compliance with legislative requirements and [this] resulted in no resources being dedicated to that task.

When no one takes responsibility

After the Royal Commission, ASIC was criticised for not being sufficiently rigorous in enforcing the law ^[27]. It now appears ASIC is working through the fee practices of banks, insurers and super funds armed with considerable penalties.

ASIC’s clear aim is to ensure payment misconduct doesn’t pay, and enforcement by the regulator cannot be dismissed as a mere cost of doing business ^[28].

But is this enough? Customers may wait years for payment errors to be identified and redressed through enforcement by ASIC.

We need to rethink how these institutions understand their obligations to customers. Notably, the United Kingdom has introduced a “consumer duty”, which requires banks to promote customers’ interests and demonstrate how they are doing this.

Australia doesn’t have this obligation. But it may be worth learning from the UK. Banks, insurers and superannuation funds here should be obligated to show they are using processes that produce good ongoing outcomes for their customers.