28 Sep 2012

Call to investigate interest rate swaps

10:52 pm on 28 September 2012

The Labour Party's primary industry spokesperson has asked the Commerce Commission to investigate the banking practice of interest rate swaps, which he estimates thousands of farmers signed up to.

Damien O'Connor says interest rate swaps were offered to small businesses, including farmers, about the time of the financial crisis in 2008.

Interest rate swaps are like a fixed rate loan from a bank. When interest rates rise, the interest farmers pay on their debt does not go up. However, when interest rates fall, farmers are stuck with the high rate and an expensive buy-out option.

Some farmers say they have lost large amounts of money as a result.

Mr O'Connor says neither farmers nor bankers understood the swaps and, though they are not illegal, it is an issue of ethics.

He says they are very complex arrangements which should be investigated and if they are similar to products sold in the United Kingdom, then they are unethical.

Mr O'Connor says the UK deals were also unfair to what they deemed to be unsophisticated lenders - people who are not financial experts and just rely on information provided by banks.

The Commerce Commission has confirmed it has received complaints and will assess them.