The Government will continue changing the law to prevent lenders from being hit with disproportionately hard penalties for giving their customers the incorrect information about their loans in the mid-2010s.

However, it has decided lenders that are already before the courts for disclosure breaches won’t be given relief.

The Government will include a carve-out in its amendment to the Credit Contracts and Consumer Finance Act (CCCFA) that exempts active litigation.

This way, a large class action against ANZ will progress as is.

ASB, which was also subject to the class action, earlier this month agreed to pay $135.6 million to settle its case, but didn’t admit to doing anything wrong.

Under the existing law, the default penalty for lenders that breached their disclosure obligations between 2015 and 2019 is for them to reimburse affected customers all their interest costs and fees for the duration of the breach – regardless of its severity.

The Government was worried this could see lenders face crippling penalties for inconsequential mistakes, so sought to give the court discretion to issue fair penalties – as it is empowered to do for breaches that occurred after 2019.

However, it faced fierce criticism for seemingly swooping in to the rescue of ANZ and ASB, which were subject to a class action that could have collectively cost them hundreds of millions of dollars.

Further to advice from Parliament’s Finance and Expenditure Committee, the Government will now take a middle-of-the-road approach.

It will change the law to appease the industry, while avoiding intervening in active litigation.

“While retrospective law change is unusual, in this case I believe it is justified,” Commerce and Consumer Affairs Minister Scott Simpson said.

“The intent has always been to fix bad law and ensure the courts have the discretion to reach fair and equitable outcomes.”

When ASB, on October 7, announced it had reached a settlement with those bringing the class action, ANZ said it would keep defending itself.

It said the errors it made saw the average affected customer underpay $2 a month.

It noted it reported the issue to the Commerce Commission and paid affected customers $35m, “leaving them all better off than they would have been if the issue hadn’t occurred”.

The lawyer representing the customers, Scott Russell, said he remained committed to ensuring the rights of ANZ customers were upheld.

ASB chief executive Vittoria Shortt said the $135.6m payment ASB agreed to make to an undisclosed number of customers and their litigation funders was a “pragmatic” way of settling the matter.

Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.