Disputes between borrowers and their banks surged nearly 30 per cent last financial year, particularly after a series of natural disasters last summer put more customers at odds with their lenders.
Rising interest rates earlier this year also sorely tested relations with customers, with the number of disputes over home loans, credit cards and personal loans up sharply.
Disputes involving insurers spiked after the Queensland and Victorian floods and storms.
The figures are contained in the annual report of the Financial Ombudsman Service, the government-backed umpire that attempts to resolves disputes between banks, insurers, financial planners and their customers.
Its report revealed that the financial industry paid a total of $3.6 million in compensation to customers affected by serious problems, such as being charged incorrect interest rates.
In the year to June 30, the Financial Ombudsman handled more than 30,000 disputes, up 27 per cent from the year before, continuing a run of increases in complaints for each of the past three years.
However, the report shows that more than 70 per cent of disputes were resolved by discussion between the lenders and customers, rather than needing a formal decision by the Ombudsman.
Non-bank lenders continued to top the list of disputes over mortgages. GE Money was the worst offender, averaging 434 disputes per 100,000 customers. RHG, which previously traded as Rams Home Loans, averaged 319 disputes.
Among the big banks, National Australia Bank had the highest ratio, with 66 disputes for every 100,000 customers.
Macquarie Bank topped complaints for credit cards, with 48 for every 100,000 customers.
Deposit products generate relatively few complaints, but HSBC topped the list, averaging 12 disputes for every 100,000 customers.
Despite the increase in the total number of disputes, the banking industry insists its relations with customers are improving. The Australian Bankers Association said the share of disputes handed by the Financial Ombudsman relating to financial difficulties was well below the banks' market share.
This was despite a period in which many customers were affected by extreme weather events and rising interest rates.
''The Financial Ombudsman data shows banks have managed these difficult circumstances very well,'' said ABA chief executive Steven Munchenberg.