A Kiwibank error has changed the status of some customers to 'US resident' and is threatening to close their accounts until they prove they are not.
The bank will not say how many customers are affected, and a staff member says they now do not know who the real US residents are.
When Jane - not her real name - got a letter out of the blue from Kiwibank threatening to freeze her accounts unless she provided documents proving she was not a US resident her blood froze.
"It just made me feel really scared … it just felt like such a serious letter and especially being told my accounts could be frozen."
She said she was worried and confused.
Banks have to report to Inland Revenue any accounts held by customers who are, or are connected to, foreign tax residents - with the information then shared with other countries.
Bank customers have to provide declarations about their status - usually prompted by someone opening a new account or somehow indicating their foreign status.
Jane said she has only ever been to the US as a tourist, and has had accounts with Kiwibank since well before 2017.
She said she asked Kiwibank multiple times what prompted the threatening letter now but was brushed off and ignored.
Eventually they told her a form had been ticked saying she was a US tax resident - but she supplied a screenshot of her online banking showing the box ticked 'no'.
The bank then told her she was "asked and answered" about her status "in person as opposed to on a form".
But she said she has had no conversations with anyone from Kiwibank for as long as she can remember.
"I think that the way they are writing to me shows that they just want it to go away. And they're hoping that I am just busy and I just go 'okay fine, okay that's done'."
It appears a Kiwibank has has wrongly identified a number of New Zealanders as US residents.
RNZ has heard a phone recording made by a Kiwibank customer of a conversation with a bank employee.
In it the employee admits Kiwibank's error was due to a "combination of human error and technology".
They describe it as a "bulk thing that we're attending to right at this moment" that is "keeping [them] busy".
They say the bank now cannot identify which are the real US residents.
Jane said she wants Kiwibank to come clean and own their mistake rather than pinning the blame on customers.
"They've threatened to freeze my account because of an error they've made.
"They made me do the work of disproving something that I think it is becoming quite clear that it was their mistake rather than mine.
"I am a customer of theirs who they have made to feel like I've done something wrong."
Jane said she did not trust Kiwibank to look after her information and may change banks.
Jessica Wilson from Consumer NZ said Kiwibank needed to own up as to how many customers have been sent these letters in error.
"For those people getting a letter from the bank saying their account may be frozen when they haven't done anything to warrant it - it's pretty heavy handed.
"Those customers ... have good grounds to feel miffed with the bank."
She said Kiwibank needed to say sorry.
"The bank's clearly aware it has got a problem with its systems. It needs to fix the problem and apologise to those affected."
A Kiwibank spokesperson said customer information such as a foreign address or phone number could imply a foreign tax residency that may not have been declared - and these needed to be checked.
"If there is a discrepancy letters are sent to customers on the matter."
It said in the past three months it has sent about 600 letters related to US tax residency.
"On the odd occasion where the incorrect information has been recorded, due to the customer providing the wrong information or the bank recording it incorrectly, the issue is easy to resolve, and we will act swiftly to put the situation right."
The banks said in light of the issues raised by Jane it was reviewing the way it communicated with customers.