The Commerce Commission has forced the state-backed lender to pay up after it admitted failings relating to home loan variation disclosure policies, procedures, and systems.
Variation disclosure is disclosure that banks must provide when a loan contract is varied unilaterally or by agreement.
The case dates back to August last year, when Kiwibank told the Commission that it failed to have proper systems in place in the period before April 2019.
Commission chair Anna Rawlings said Kiwibank did not disclose information to customers when they made simple changes to their mortgages, such as re-fixes or changing repayment amounts.
The Commission said all lenders entering into or varying consumer credit contracts must comply with lender responsibility principles set out in the Credit Contracts and Consumer Finance Act.
Kiwibank "admitted that it had failed to act with the care, diligence and skill of a responsible lender", the regulator added.
A settlement was reached in August, the Commission said.
Customers eligible for compensation will be contacted by Kiwibank, and any enquiries should be directed to the bank, according to the Commission.
The blow for Kiwibank comes as the bank, led by Steve Jurkovich (pictured), increased lending by 8.8% in the year to June, according to KPMG.
Kiwibank is also set to launch a third-party distribution business later this year, a move widely anticipated by the broker market.