Federated Farmers says the Commerce Commission's decision to take legal action against three banks vindicates a compaint it made over a year ago.
The commission is taking action against ANZ, ASB and Westpac over their sales of interest rate swap contracts to rural customers.
Interest rate swaps are similar to fixed rate loans that some banks offer farmers and business customers to protect them from rising interest rates.
Some farmers have complained that when the opposite happened, and interest rates fell, they were locked into the higher rates which they couldn't get out of without paying an expensive buy-out option.
The commission says there is sufficient evidence the banks may have breached sections of the Fair Trading Act in selling the swap products.
Farm debt mediator and former farmer Janette Walker first complained to the Commerce Commission in 2010 after becoming aware of the swaps as part of a nationwide rural debt survey.
She says hundreds of farmers were encouraged or coerced by banks to enter into swap agreements.
Ms Walker says when farmers tried to get out of the swap contracts, they discovered they would have to pay massive fees of up to $1 million in some cases to cancel.
Federated Farmers President Bruce Wills says the commission's decision to initiate an inquiry vindicates the compaint it made in November 2012. He says the swaps have worked well for some farmers, but has obviously caused problems for others.
Labour's primary Industries spokesperson Damien O'Connor has also welcomed the Commission's decision, saying many farmers believe they were mis-sold those products.
He has called for the Primary Industries Select Committee to initiate a Parliamentary inquiry into the activities of some trading banks.
