ANZ Bank New Zealand will pay $3.25 million to settle charges it misled customers about fees and wrongly demanded repayment of mortgage incentives, the country's Financial Markets Authority (FMA) announced today (Monday).

ANZ Pays $3.25 Million After Admitting to Customer Overcharges

The bank admitted to two separate breaches of fair dealing laws in an enforceable undertaking with regulators. The settlement covers conduct spanning more than a decade, affecting hundreds of thousands of customers.

ANZ charged customers improper fees when their accounts went into unarranged overdraft between December 2012 and May 2023. The bank collected both overdraft fees and excess interest even when payments were ultimately rejected - a practice that violated its own terms and conditions.

"ANZ's terms and conditions only allowed either the unarranged overdraft fee to be charged, or the payment to be dishonored," FMA Head of Enforcement Margot Gatland said in a statement.

It is worth noting that the same bank paid a $15 million fine for the very same case two years ago in neighboring Australia, when the matter was handled by the local ASIC.

Overdraft Fees Hit 200,000+ Customers

Since fair dealing laws took effect in April 2014, the improper overdraft charges affected 209,960 ANZ customers. The bank collected $4.37 million in improper fees: $3.49 million in overdraft charges and $879,078 in excess interest.

ANZ has already paid back affected customers, including $1.02 million in "use of money" payments that compensate for the time customers went without their funds. The bank contacted current customers directly and made "reasonable attempts" to reach former customers who could claim refunds.

The second violation involved ANZ's handling of cash contributions it paid customers who took out new home loans. These incentive payments came with strings attached - customers had to keep their banking with ANZ for two to three years or face demands to repay the money.

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False Claims About Mortgage Incentives

When customers moved to discharge their mortgages within the required timeframe, ANZ assumed they were switching banks and demanded repayment of the cash contributions. But the bank later discovered it couldn't verify that 1,019 customers had actually violated their agreements by moving their business elsewhere.

"By requesting these customers to repay the cash contribution on the basis that they had moved their banking to a competitor ANZ breached" fair dealing laws, Gatland said. The false representations occurred between August 2014 and August 2022.

ANZ refunded $2.43 million in cash contributions to those 1,019 customers, plus $582,030 in use of money payments.

The bank has since changed how it handles mortgage discharges, requiring customers to explain their reasons and clarifying when repayment of incentives is actually required.

FinanceMagnates.com also recently reported on overcharging at Deutsche Bank, for which Hong Kong's securities regulator fined the banking giant $24 million after uncovering $39 million in excessive fees over an eight-year period.

Self-Reported Violations Lead to Settlement

ANZ discovered and reported both issues to regulators itself, earning acknowledgment from the FMA for its cooperation during the investigation. The $3.25 million payment breaks down as $2.08 million for the overdraft fee violations and $1.17 million for the mortgage incentive breaches.

"Banks are required to ensure representations they make to customers about overdraft fees and cash contributions are not misleading and do not cause harm to customers," Gatland said. "ANZ made false representations in both instances."

The settlement includes a commitment from ANZ to develop better policies and systems to prevent similar problems. The bank must also identify any additional customers harmed by the mortgage incentive issue and provide refunds.

"It is essential that customers can continue to have confidence in their bank," Gatland said. "We will continue to respond to misleading practices to help ensure New Zealand has fair, efficient and transparent financial markets."