ANZ is facing legal action from the financial markets regulator over allegations it sold credit card repayment insurance to customers who could never claim on it.
The Financial Markets Authority has filed High Court proceedings against the bank over two main issues - that it sold duplicate insurance to some customers and failed to cancel policies for ineligible customers.
In a statement the ANZ said it self-reported the issues to the FMA in June 2019 and had already compensated customers to the tune of $440k.
But the bank also acknowledged it took too long to report the issues.
Ben Kelleher, ANZ managing direct retail and business banking said it was very sorry for what had happened.
"We actively review our processes and systems to try and identify issues that could impact our customers. Where we find problems, we work to fix them for our customers."
Credit card repayment insurance is a type of insurance which covers some or all of a person's credit card repayments in certain circumstances such as redundancy, bankruptcy, injury, illness or death.
The FMA alleges the ANZ issued duplicate policies between April 2014 and November 2019 and then failed to cancel policies for ineligible customers between April 2014 and May 2018.
It said the issues related back as far as 2001 but its claim reflected the introduction of the Financial Markets Conduct Act 2013 which came into force from April 2014.
The regulator claims the ANZ contravened section 22 of the Act by making false and misleading representations about the cover of the policies.
"The regulator is seeking declarations of contravention of the Financial Markets Conduct Act, pecuniary penalties and costs."
The FMA said the bank identified the duplicate policy issue around September 2017 and the ineligible customer issue around May 2018.
"ANZ did not disclose either issue to the FMA or Reserve Bank during their joint conduct and culture review of New Zealand's retail banks from May to June 2018. The review requested that ANZ disclose "any work underway to remediate any identified issues where conduct by your firm has resulted in detrimental outcomes for customers."
The FMA says it was not notified by the ANZ of the issues until June 2019..
Nick Kynoch, general counsel at the FMA, said while the bank had undertaken remediation and self-reported the matter the case pointed to a failure of internal systems and controls resulting in customer harm over a significant period of time.
"Self-reporting is expected, and is taken into account by the FMA when determining the appropriate regulatory outcome. In this instance, we felt it appropriate to put the matter before the courts.
"ANZ sold a product that, for some customers, offered no benefit."
In a statement ANZ said it identified 390 customers that had more than one credit card repayment insurance policy and a further 439 customers who were ineligible to claim the insurance.
It said the FMA's proceedings related to 307 of those customers, with policies between April 2014 and September 2019.
The bank said it had contacted all affected customers to apologise and compensate them for the issues which were unintentional and caused by human error and systems issues.
It no longer sells the product.