The ANZ Bank has reached a $19 million settlement over a rural interest rate swaps product that regulators say disadvantaged its customers.
New Zealand's largest bank marketed and sold the swap products to rural customers over four years between 2005 and 2009.
The Commerce Commission and the Financial Markets Authority took action against ANZ, Westpac and ASB Bank over the products, and said the banks misled customers as to the products' benefits, risks and suitability.
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,
when the rates did the opposite and fell. Farmers were locked in to higher rates they could not get out of without paying an expensive buy-out option.
ANZ said it did not agree with the regulators' view that customers were misled, but it had agreed to a third party review of its processes.
Farm debt mediator and rural advocate Janette Walker, who led a five-year battle against the banks, today said the settlement with ANZ was great and hoped other banks involved would follow suit.
Ms Walker said the swaps had a massive impact between 2005 and 2009 and in some cases people lost their farms.
"A lot of the farmers I spoke to they were in very poor physical health and some in mental health. For some it did tip them over the edge, which was pretty sad. Some of them lost their farms, they were forced to restructure and sell down their assets. It had a massive impact in particular post GFC (global financial crisis) for the beef and sheep guys - commodity prices were appalling and the extra interest that they were having to pay on their loans they just couldn't manage."
Ms Walker said compensation payments would help farmers struggling with falling dairy prices and she was happy that ANZ had been held to account.
"It's a shame they didn't come to the party earlier - all the banks that are involved - that they didn't put their hands up earlier on and save this hideous process and it has been horrible for a lot of farmers, the waiting.
"I've been fielding a lot of calls recently from farmers, particularly dairy guys that are struggling financially because of the low payout. They've managed to hang in there and they desperately need some sort of a settlement to try and put them back to where they were when they first took out swaps."
The Commerce Commission said payments to 178 eligible customers from the ANZ settlement should be made by September next year. Talks with ASB and Westpac were continuing.