The Commerce Commission plans to prosecute three major banks for allegedly misleading rural customers.
The commission said ASB, ANZ and Westpac breached the Fair Trading Act by misrepresenting interest rate swap contracts sold to rural customers. It plans to take action against the three banks in March next year.
Interest rate swaps are financial derivatives, which allow borrowers to manage the interest rate exposure on their borrowing.
Jeanette Walker, who pressured the commission to investigate the swaps, said farmers bought $6 billion worth of the products thinking they were the same as fixed rate loans.
Walker said they did not realise their banks could raise interest rates if the Reserve Bank dropped the Official Cash Rate.
She said that meant farmers ended up paying 10 to 15 per cent interest when the rate for a normal loan was just above 5 per cent, forcing some out of business.
The Commerce Commission says it is also investigating other institutions which sold interest rate swaps.