Australians who have been wronged by banks could potentially claw back far greater compensation payments under a federal Labor government.

The opposition has pledged to raise the threshold for compensation that those stung by credit issues could negotiate through the Australian Financial Complaints Authority to $2 million.

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That would be up from from the current caps of $500,000 for individuals and $1 million for small businesses.

Labor would also lift the value of claims the authority could consider from $1 million to $2 million, making more Australians eligible for compensation.

Non-financial losses would also be put on the same footing as financial losses, the opposition says, with such losses potentially able to earn $2 million compensation instead of a maximum $5000.

Labor has also pledged to allow Australians who have been knocked back for compensation since 2008 to argue their case a second time.

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An independent panel would be established to oversee the raft of measures.

"Compensation won't undo all of the damage inflicted by the big banks - but it is important to help victims recover and in some cases, restart their lives," Labor leader Bill Shorten said in a statement.

At its core, AFCA would continue to function as it currently does, assessing complaints and making determinations for what banks should pay.

Banks who do not comply with determinations are referred to the Australian Securities and Investments Commission.

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The plan comes after the coalition vowed as part of its response to the banking royal commission involved to allow AFCA to award compensation for successful claims going back 10 years.

As recommended, the government will also set up a compensation scheme of last resort to ensure that consumers can have their case heard and be confident that where compensation is owed it will be paid.

That scheme will be paid for by the financial sector.