A forthcoming consumer law attacking unfair contracts by banks may suck $1 billion worth of fee income from the banking industry.

The new law is expected to come into force in January.

The new law has been hailed by many as a very important step towards consumer protection as it would openly hit the excessive penalty fees levied by the banks on the head.

The consumer advocates claim that banks charge $40 as late payment and overdraft fees, which is much higher than the real charge for these financial institutions i. e. $1 per transaction.

Earlier in May, the data issued by the Reserve Bank had disclosed that out of entire $11.6 billion of fees income earned by banks in 2008, $1.2 billion were earned in penalty fees.

Now, under the new law banks will have to justify this over charging as the law will strengthen consumers' stance to challenge the fair play of the size of the penalty fee.

According to lawyer James Middleweek this law would totally change the consumers' dealing with banks.

Lawyer James Middleweek further stated, "These fees will have to come down."

However, the Australian Bankers Association is of the view that the new regulation would bring in uncertainty for the banks.