Kiwibank has been fined $1.5 million after admitting to long-running and systemic breaches of the Fair Trading Act, which resulted in 35,000 customers being overcharged a total of $6.8 million.

The Commerce Commission prosecuted Kiwibank on 21 criminal charges for making misleading representations to customers about services that were not provided as promised. The breaches stemmed from significant failures in the bank’s systems and processes, which Deputy Chair Anne Callinan said likely dated back to Kiwibank’s inception in 2002.

“There were long-standing flaws in Kiwibank’s systems and processes that led to these breaches,” Callinan said. “Banks must have processes in place to ensure consumers are getting a fair deal, and consumers would reasonably assume that banks wouldn’t make errors of this sort.”

The failures, which impacted customers across multiple areas, included:

•Not providing agreed discounts and interest-free periods under package benefit agreements.

•Incorrectly calculating regular loan repayments for customers making loan changes.

•Failing to switch customers to repaying loan principal at the end of agreed interest-only periods.

•Not applying agreed overdraft interest rate discounts for home loan customers.

•Overcharging various fees to loan customers.

“These failures were caused by errors in Kiwibank’s electronic systems and a lack of quality assurance checks to ensure staff carried out processes correctly,” Callinan said.

The breaches were self-reported by Kiwibank, which has since been contacting affected customers to apologise and provide refunds. To date, the bank has committed to refunding $9.2 million in remediation.

The Commerce Commission highlighted the need for financial institutions to invest in systems that meet compliance obligations, ensuring customers are treated fairly.

“Banks must get things right for consumers,” Callinan said.

Kiwibank was sentenced in the Auckland District Court on 26 November.