The country's other main banks are likely to follow Bank of New Zealand's lead and drop penalty fees on overdrawn personal and business accounts.
The Australian-owned bank says it will stop charging honour, dishonour and unpaid bill fees on transaction and savings accounts from September.
The fees, ranging from $5 to $35, apply every time an account goes into the red.
In many cases, accounts become overdrawn simply because payments come out early or salaries go in late, generating a large number of complaints, the bank says.
BNZ chief executive Andrew Thorburn says the bank is doing away with penalties fees rather than wasting resources dealing with complaints.
The Australian government is to introduce a consumer law in January forcing banks to justify their penalty fees when challenged to do so by customers.
BNZ is a subsidiary of National Australia Bank, which is axing its $A30 overdrawn charge from all personal savings accounts and personal transaction accounts from 1 October. The move is also aimed at appeasing customers - NAB receives more complaints about the fees than anything else.
Kiwibank says it is reviewing its penalty fees, while ASB says it will make an announcement in the next few weeks.
Claire Matthews, a senior banking lecturer at Massey University, says the move is welcome but astonishing.
Ms Matthews says customers the BNZ attracts from other banks as a result of scrapping the fees may be less desirable clients who frequently incur penalty fees.
