The Commerce Commission has been labelled as gutless and ineffective for the deal it did with New Zealand's biggest bank over interest rate swaps.
Damien O'Connor. Photo: LABOUR PARTY
The harsh criticism has come from Labour's Primary Industries spokesperson Damien O'Connor following the commission's $19 million settlement with the ANZ Bank announced this week.
It is one of three banks the commission has been investigating after complaints about the marketing, promotion and sale of interest rate swaps to rural customers between 2005 and 2009.
Farmer complainants say they were were misled about the risks involved, which in some cases cost them their farms.
Interest rate swaps are like a fixed rate loan that some banks offered farmers and other commercial customers to protect them from rising interest rates.
The commission began an inquiry after complaints from farmers who said swap contracts they bought to protect them from interest rate rises had ended up costing them heavily instead. The rates did the opposite and fell, leaving farmers locked in to higher rates they could only get out of using an expensive buy-out option.
Damien O'Connor says the settlement - most of which will go in payments to customers who registered their complaints with the commission - is paltry.
"The Commerce Commission admits, as does the Financial Markets Authority, that fault occurred here, that the banks did mislead customers in the sale of the swap products that ended up costing farmers many many millions of dollars in break fees and extra interest.
"The $18 million is a poultry sum compared to the total amount of loans that were given out by the banks in swap arrangements. The agreement between ANZ and the Commerce Commission effectively removes almost the ability of any farmer to follow on with any claim around a swap loan and that is a huge disadvantage and in my view an unethical situation for the Commerce Commission to arrive at."
The commission talks are continuing with ASB and Westpac.
ANZ says it did not agree with the regulators' view that customers were misled, but it had agreed to a third party review of its processes.