Kiwibank has admitted it made a mistake when tens of thousands of customers were charged fees despite being entitled to having them waived.

The Financial Markets Authority (FMA) has today taken the bank to court for contravening the Financial Markets Conduct Act for what it says was misleading conduct when it charged fees for nearly two decades.

The breach has been accepted by the bank and despite paying back the impacted customers, it has agreed to a proposed fine of $812,500 for the mistake.

 “As a purpose-led organisation it is uncomfortable for Kiwibank to find itself before the court today,” lawyer Emmaline Rushbrook said.

Rushbrook said the bank recognised it had system failures and let customers down.

The case, before Justice Francis Cooke at the High Court in Wellington, impacted those with Kiwibank home loans, personal banking customers and business banking customers over various periods between 2005 and 2022.

FMA lawyer Nick Flanagan said Kiwibank had a duty of care to customers in making sure charges and services were correct, but a failure to do so meant the problem was prolonged.

 “Really the most basic checking would have identified the problem... had it been identified it would have ceased.”

In submissions to the court, Flanagan described the issues to be a result of “long-standing and readily identifiable deficiencies” in the bank’s systems.

Flanagan also sought declarations that Kiwibank contravened the act through their failings.

Although the bank did not “appreciate” the case being brought before open court, Flanagan said it had acted responsibly since.

“I think it’s a sincere acknowledgement they have not acted in the interests of consumers,” he said.

Justice Cooke said Kiwibank’s acknowledgement and self-reporting was an act of “owning up to their transgressions”.

When the case was filed in 2021, the FMA said between September 1, 2005 and March 31, 2020, tens of thousands of customers did not have the fee waived.

This, according to the authority, resulted in an overcharge of around $955,000, which has since been repaid with interest.

The contraventions by Kiwibank were brought under the fair dealing provisions of the Financial Markets Conduct Act, which came into force in April 2014. Because of this, proceedings could only cover conduct from that date.

Kiwibank first identified the issue around August 2019 after the FMA and the Reserve Bank carried out a joint review on the conduct and culture of the banking sector.

As part of that the banks were asked to provide details of any remediation work under way where bank conduct had resulted in detrimental outcomes for customers.

The hearing was held at the High Court in Wellington on Monday. Photo / File

The bank reported the issue to its board in October 2019 and then advised the regulator.

More than 35,000 customers were impacted on an average of $16.45 per person. This, according to Kiwibank, is the first time they have contravened the act.

Rushbrook accepted the proposed fine on behalf of Kiwibank but the final penalty would be confirmed when Justice Cooke released his reserved decision.

Courts confirm penalty

Kiwibank has been ordered to pay the $812,000 agreed to at Monday’s hearing in the High Court at Wellington.

In a decision released on Thursday, Justice Cooke said he was satisfied the amount proposed by the FMA was appropriate and agreed it reflected the seriousness of the breaches by the bank.

“Such failures potentially have important market consequences,” he said.

“Banking customers can rightly assume that their bank has good systems and has accurately calculated and applied financial entitlements.”

Banking customers cannot be expected to cross-check every item on their statements, Justice Cooke said, and if they were expected to do so there would be “adverse mark implications”.

“This is particularly so when the financial impact for each individual customer is low, but where the financial benefit for the institution is higher because of the number of affected customers.”

Justice Cooke said the conduct of Kiwibank was negligent and not intended to deprive customers of entitlements. He also acknowledged the proactive approach taken by the bank in addressing the system failures.

FMA Head of Enforcement Margot Gatland said protecting consumers was a priority for the authority, and Justice Cooke’s decision recognised the impact of the bank’s conduct.

Hazel Osborne is an Open Justice reporter for NZME and is based in Te Whanganui-a-Tara, Wellington. She joined the Open Justice team at the beginning of 2022, previously working in Whakatāne as a court and crime reporter in the Eastern Bay of Plenty.