Banks could be ordered to hand over millions in compensation to farmers they have cheated in the past if Labor is elected.

Opposition Leader Bill Shorten announced the plan on Sunday in response to the banking royal commission, which heard from families forced off their land or slugged for falling behind in times of drought.

But the government has called the plan “simple tokenism” after the opposition voted against the Future Drought Fund.

Labor said it would double the compensation farmers can be awarded through the Australian Financial Complaints Authority to $4 million.

The compensation cap for non-financial losses would grow from $5000 to $4 million for “farmers who have been victim of unscrupulous, unethical abuses of power by banks”.

“For us, it’s about standing up to the big end of town,” Mr Shorten told reporters.

Lenders would also need approval from the regulator before they could foreclose farms.

A retrospective compensation scheme would review every case in which default interest was charged on farms over the past five years and consider whether any compensation should be paid out.

The stories we’ve heard from farmers about the treatment they got from the banks was shocking. It’s resulted in farmers losing their land, and in some instances, taking their own lives. We can’t allow this to happen. That’s why Labor will protect farmers from banking misconduct. pic.twitter.com/VUTIqfS0iJ

— Bill Shorten (@billshortenmp) March 3, 2019

The plan wouldn’t reopen matters that have already been resolved in court.

The royal commission recommended barring banks from charging default interest – a penalty added to overdue repayments – when farmers fall behind during natural disasters like drought.

The federal government has committed to implement 74 of the 75 recommendations, which includes establishing a national farm debt mediation scheme.

Agriculture Minister David Littleproud said Labor’s plan was a distraction after voting against the government’s Future Drought Fund, to put $100 million a year to support farmers through drought.

The National Farmers Federation welcomed the fund, which passed last month.

Labor described it as a “Nationals slush fund” and criticised the government for diverting billions in unspent money from the Building Australia Fund, which is intended for infrastructure.

“No matter what headlines Labor gets for these stunts, the fact is Labor voted against the Future Drought Fund,” Mr Littleproud said.

“Federal and state governments of all political persuasions have already committed to a national debt mediation framework for farmers. This is the proper mechanism to achieve a consistent and fair approach between banks and farmers in stress.”

Commissioner Kenneth Hayne found existing mediation was too often treated as a tick-boxing exercise.

“Farm debt mediation has too often been treated as a step that is taken only because the lender considers enforcement very probably, even inevitable, and the applicable statute requires a process of mediation before enforcement can proceed,” the final report said.

“The mediation may then be treated as no more than a step that must be taken before the lender demands and obtains an order requiring repayment of all that is owing.”

It recommended lenders offer farm debt mediation as soon as a loan is distressed, to work out measures that could help the farmer manage the debt.

Mr Shorten repeated that Prime Minister Scott Morrison voted against establishing the royal commission 26 times, before the government conceded when he was treasurer.