Federated Farmers awaits Commerce Commission examination of swaps

Federated Farmers has asked the Commerce Commission to look into the selling of debt finance instruments known as ‘swaps’.  This formal request was made last November.

“It is fair to say we have received a number of inquiries from members and even non-members regarding swaps,” says Bruce Wills, Federated Farmers President.

“As most of these instruments were sold to farmers between 2007 and 2009, the impact of the global financial crisis upon interest rates saw concerns really only arise after 2009.

“While personal responsibility means poor decision making is no defence, Federated Farmers will not excuse the wilful misselling of any product; financial or otherwise. This explains why we asked the Commerce Commission last November to look into swaps and how they were sold.

“Speaking as a former banker swaps are incredibly complicated instruments.  You certainly only go into them after independent advice to ensure they are appropriate to your needs.

“I think the issue is less the product but the way they were sold.

“Most farmers do not use swaps and the product is still being sold right across the commercial spectrum. We have to be careful not to throw the baby out with the bathwater because I receive calls from farmers who rate swaps highly.

“Federated Farmers believes legitimate concerns need to be resolved.  If there is fire where there is smoke the Commerce Commission is best placed to find it.

“It is also worth remembering what we told the Labour-led Opposition banking Inquiry in August 2009; “We have also received reports from our members that margins have been changed on fixed term swap rates and that loan contract clauses might have been changed last year to enable this to happen.  There appears to be considerable confusion about ‘swaps’, with them being sold to farmers as though they are fixed rate products: one of our survey respondents wrote “they have mentioned they can change the margin on our swap which wasn’t mentioned when we signed up.  It was sold to us more like a fixed loan”.

“In December 2010, in our submission to the Review of the Code of Banking Practice, we further said; “A number of farmers have expressed concern to us about confusion over products such as swaps.  Many farmers (and even their advisors) misunderstood swaps and were unable to take advantage of lower interest rates from late 2008 without paying excessively high break fees”.

“Federated Farmers has close contact with all the major lenders and the New Zealand Bankers Association.  We are assured issues with swaps are being worked through on an individual basis.

“We also hope the Commerce Commission will be able to examine them too.  It is best placed to bring clarity to what has become a controversial financial instrument,” Mr Wills concluded.

You can view Federated Farmers letter to the Commerce Commission here.