Bank of New Zealand (BNZ) agreed to pay $2.6 million to the Crown after admitting it misled more than 23,000 customers about how interest was calculated on certain non-profit accounts between December 2014 and February 2024. The bank's terms and conditions stated interest would be calculated daily, but in practice BNZ used the lowest monthly balance method, resulting in customers receiving approximately $5.39 million less interest than entitled. The issue was discovered in September 2023 after a customer query, prompting BNZ to self-report to New Zealand's Financial Markets Authority and remediate approximately $5.44 million to affected customers. The case reflects growing regulatory scrutiny on whether financial products operate as disclosed to customers, with the Financial Markets Authority emphasizing that institutions must ensure communications accurately reflect actual practices.
Customer Query Uncovered Decade-Long Interest Calculation Issue
The discrepancy came to light in September 2023 after a customer raised a query about how interest was being calculated on their account. Following an internal review, BNZ identified that 23,103 customers had been affected by the inconsistency between stated terms and actual calculation methods. The bank estimated that approximately $5.39 million in interest had been underpaid over the period from December 2014 to February 2024. BNZ subsequently self-reported the issue to the Financial Markets Authority and undertook a remediation program that returned approximately $5.44 million to customers, including use-of-money interest.
Financial Markets Authority Enforces Misleading Representation Breach
The Financial Markets Authority said BNZ admitted making misleading representations through both its terms and conditions and customer statements. Those representations suggested interest would be calculated daily, while the actual methodology relied on customers' lowest monthly balances. Margot Gatland, Head of Enforcement at the Financial Markets Authority, stated: "Financial institutions must ensure their terms and customer communications are accurate and reflect how products work in practice. In this case, BNZ's representations about how interest was calculated were inconsistent with the actual approach taken, leading to customer harm." The Financial Markets Conduct Act prohibits false or misleading conduct relating to financial products and services, placing responsibility on firms to ensure their communications accurately describe how products operate.
BNZ Commits to Policy Updates and Account Replacements
According to the Financial Markets Authority, BNZ has committed to maintaining effective policies, processes, systems, and controls designed to prevent similar issues from occurring in the future. The bank has updated its terms and conditions, stopped offering the affected accounts, and moved customers onto replacement products. Gatland acknowledged BNZ's cooperation throughout the investigation, including its self-reporting of the issue and efforts to compensate affected customers. The matter arrives as New Zealand's Conduct of Financial Institutions (CoFI) regime continues to reshape expectations for banks, insurers, and other financial providers, placing greater emphasis on customer outcomes, fair treatment, governance, and internal controls.
Operational Errors Accumulated $8 Million Total Cost
The financial impact of the case demonstrates how operational issues can accumulate over long periods. What may initially appear to be a relatively small difference in interest calculations ultimately resulted in more than $5 million of customer remediation and an additional $2.6 million payment to the Crown. Together, the total cost exceeds $8 million. The case serves as a reminder that customer communications, product design, and operational implementation must remain aligned, particularly as regulators continue increasing scrutiny of conduct and customer outcomes.
FAQ
What did BNZ admit to regarding customer interest calculations?
BNZ admitted making misleading representations through its terms and conditions and customer statements, which stated interest would be calculated daily while the bank actually used the lowest monthly balance method between December 2014 and February 2024.
How many customers were affected by BNZ's interest calculation issue?
BNZ identified that 23,103 customers were affected by the discrepancy, with approximately $5.39 million in interest underpaid over the period.
What actions did BNZ take after discovering the interest calculation error?
BNZ self-reported the issue to the Financial Markets Authority, undertook a remediation program that returned approximately $5.44 million to customers including use-of-money interest, updated its terms and conditions, stopped offering the affected accounts, and moved customers onto replacement products.
