19 Nov 2012

MP calls for inquiry into interest rate swaps

1:28 pm on 19 November 2012

Labour's Primary Industries spokesperson Damien O'Connor is calling for a parliamentary inquiry into the banking practice of interest rate swaps which some farmers say has financially ruined them.

Interest rate swaps are like a fixed rate loan that some banks were offering between 2007 and 2009 to protect farmers from rising interest rates.

But when the opposite happened, farmers were locked into the higher rates, which they could not get out of without paying an expensive buy-out option.

Mr O'Connor estimates that thousands of farmers signed up, and many say they have lost large amounts of money as a result.

"I spoke to a farmer who spent over $4 million in break fees to get out of these contracts. This is a very big farming operation - they just wrote the cheque out because it was cheaper to do that than to carry on with their swap arrangement."

Mr O'Connor has passed information on the interest rate swaps to the Commerce Commission, which it is still assessing, but is also pushing for parliamentary inquiry.

"I've already alerted the Primary Production select committee. Labour initiated an inquiry into the banking sector a couple of years ago. I'm sure there'll be some lessons from that we can carry forward, but I will be pursuing this.

"I think the Commerce Commission has the opportunity now to show some leadership, to show that it has the ability on behalf of New Zealanders to take these issues up. So hopefully, well before Christmas they'll indicate whether they're going to pursue this."