BNZ to pay $2.6 Million after misleading customers on interest calculations

BNZ has agreed to pay $2.6 million to the Crown after admitting it misled customers for nearly a decade about how interest was calculated on certain non-profit accounts.

According to a report by 1News, the issue affected more than 23,000 customers, who collectively received less interest than they were entitled to between December 2014 and February 2024. The underpaid interest totalled approximately $5.39 million.

The Financial Markets Authority (FMA) said BNZ updated its terms and conditions in 2014, stating that interest on the accounts would be calculated daily. However, the bank continued using a different method that calculated interest based on the lowest monthly balance, as reported by 1News.

According to the regulator, this discrepancy resulted in customers earning less interest than expected.

The problem came to light in September 2023 after a customer raised a query about the way interest was being calculated.

Following an internal review, BNZ self-reported the issue to the FMA and paid around $5.44 million in remediation to affected customers, including compensation for the use of money.

"BNZ admitted that it made misleading representations in its terms and conditions and customer statements about how interest would be calculated, breaching sections of the Financial Markets Conduct Act relating to false or misleading conduct," an FMA spokesperson said, 1News has quoted.

As part of the enforceable undertaking, BNZ will pay $2.6 million and strengthen its policies, systems and controls to improve customer outcomes and ensure compliance with regulatory requirements.

"This reflects the broader expectations now applying under the Conduct of Financial Institutions (CoFI) regime, which requires financial institutions to have effective fair conduct programmes and to treat consumers fairly," the FMA said, as quoted by 1News.

FMA Head of Enforcement Margot Gatland said the case highlighted the importance of accurate customer communications.

“Financial institutions must ensure their terms and customer communications are accurate and reflect how products work in practice, 1News has quoted.

"In this case, BNZ’s representations about how interest was calculated were inconsistent with the actual approach taken, leading to customer harm,” as quoted by 1News.

BNZ chief executive Dan Huggins said the bank accepted the regulator's findings and apologised to customers affected by the issue.

“Once we became aware of the issue, we commenced a review, self-reported to the FMA, and took the product off sale. We have been working constructively with the FMA throughout its investigation, 1News has quoted.

“All impacted customers have been remediated, including the use of money interest.

“Treating our customers fairly and delivering good customer outcomes is at the heart of what we do every day. We are committed to maintaining effective policies, processes, systems, and controls to help ensure this kind of issue does not occur again,” as quoted by 1News.

The case serves as a reminder of the obligations financial institutions face under New Zealand's conduct and consumer protection laws, particularly when communicating how financial products operate and the benefits customers can expect to receive.