None of the affected customers suffered a financial loss but the court found they were deprived the opportunity to renegotiate their loans before the changes came into effect.

The bank also sent 589 letters to customers between May and September 2018 that misstated their new minimum repayment after their fixed-rate or interest-only home loan period ended.

Customers were not charged the incorrect amount as a result of the letters but some did incur missed payment fees because they had insufficient funds in their accounts.

The total of the missed payment fees charged was $3854.93, which the bank fully refunded.

ME Bank first noticed the potential for issues in its loan administration software during a 2015 internal audit.

But the bank failed to investigate further and instead only identified the problem in 2018 after years of misleading customers. 

ME Bank first self-reported the offending to the Australian Securities and Investments Commission in October 2018.

The bank told the Federal Court the offences were caused by a technical issue and the consequences of the conduct were minor, given most customers did not incur a financial loss. 

But Federal Court Judge Robert Bromwich said the bank failed to take the initial audit seriously.

"While the root causes were not identified by the November 2015 audit, the existence of a real risk of a serious problem was," he said in his judgment. 

"Not having adequate prevention, detection and rectification systems in the first place, and not taking that audit warning seriously enough is important and significant."

The bank was convicted and fined $820,000, which will need to be paid within 60 days.