Kiwibank has been ordered to pay hundreds of thousand of dollars in a civil penalty after overcharging customers a total of more than $1.1m.

The bank admitted breaching the Fair Dealing provisions of the Financial Markets Conduct Act earlier this year, after court proceedings were brought by the Financial Markets Authority.

The case related to Kiwibank's general terms and conditions that told customers they would not pay transaction fees on their accounts if they also had a Kiwibank home loan.

However 35,000 of the bank's customers did not have their fees waved over a 14 and a half year period and were overcharged a total of $1,172,639.94.

As the Financial Markets Conduct Act came into force in 2014, the proceedings only cover conduct from that date onwards, capturing some 19,000 of the total affected customers and overcharged fees totalling $576,809.66.

Kiwibank was ordered to pay a $812,500 civil penalty at the High Court in Wellington this week.

Justice Francis Cooke said the bank's failures potentially had important market consequences.

"Banking customers can rightly assume that their bank has good systems and has accurately calculated and applied financial entitlements," they said.

"They cannot be expected to cross-check every item on their bank statements, and there would be adverse market implications if any such expectation existed.

"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."

The judge said the bank's conduct involved negligence and no intention to deprive customers of their entitlements.

"Once identified Kiwibank also brought the contraventions to the FMA's attention, and embarked upon a process of remedying their error, and addressing its systemic failures."

This story was originally published by RNZ