Federated Farmers seeks to improve the Banking Code

With the Reserve Bank holding interest rates at three percent, Federated Farmers attention has turned to the review of the New Zealand Code of Banking Practice.  The Federation will be advancing two substantial changes to improve the New Zealand Banking Code.

“Federated Farmers thanks the Reserve Bank for keeping interest rates on hold and being cautious about future increases,” says Philip York, Federated Farmers economics and commerce spokesperson.

“Yet there seem to be major gaps in resolving bank disputes which, if closed-up, would improve client-bank relationships.  But as things currently stand, most farmers cannot take their complaints to the Banking Ombudsman Scheme and that’s a huge hole.

“We will be recommending that the current cap of $200,000 for compensation be removed completely.  As most farmers are dealing in seven figure sums, this limit precludes many disputes involving farmers from coming forward.

“Allied with this would be an amendment to the Scheme, so that it can consider complaints about a participating bank’s ‘commercial judgment’ or a bank’s interest rate policies.  These are arguably the two most common complaints regarding banks we hear about.

“And keeping the focus on solutions, Federated Farmers will be recommending the review should consider if a farm debt mediation service should be introduced in New Zealand.

“This reverses our position from 1999, when we opposed a Farm Debt Mediation Bill promoted by then NZ First MP, Doug Woolerton. 

“But as farm debt back then was less than a quarter of what it is today, its time might have come. 

“Both Canada and New South Wales have legislated farm debt mediation services and we have put such a proposal before the Minister of Agriculture and Forestry.  We feel this review should also consider it for the bank and non-bank sectors alike.

“Farm debt mediation is a structured negotiation process to provide for the efficient and equitable resolution of farm debt disputes. Overseas, mediation is required before a creditor can take possession of property or other enforcement action under a farm mortgage.

“Agricultural debt now comprises 40 percent of total business debt but it falls on a much smaller number of businesses. The Federation strongly believes a farm debt mediation service should be considered before the next commodity or other shock hits agriculture. 

“With farmers not having the recourse available to most other banking customers under the Banking Ombudsman scheme, we are concerned that this potentially increases the power banks have over farmers and in the view of some farmers, influences how the banks consider their complaints.

“Federated Farmers believes there should be greater transparency and scrutiny around a bank’s commercial judgment and interest rate policies.  It would seem to us that the Banking Ombudsman is the logical agency to undertake this role,” Mr York concluded.

Federated Farmers wishes to better understand bank behaviour on stressed loans

If Federated Farmers is going to advocate for change, then it needs to understand fully, the financial position of farmers in stress situations.

If farmers and their advisors are willing to give Federated Farmers details of their position, then please call on 0800 FARMING (0800 327 646). 

The Federation also encourages farmers to make their own submission on the Code before submissions close on 17 December 2010.  For details about how to lodge a submission, please click here.