There is "anecdotal" evidence banks pressured some farmers into accepting complex loans which have now left them struggling with steep interest bills, consumer watchdog the Commerce Commission says.
The commission today updated Parliament's primary production committee on the investigation it launched last year into "interest rate swap" loans.
The loans were marketed to farmers during the 2007 to 2009 period as a means of insuring against the risk of rising interest rates. However, following the 2008 global financial crisis, interest rates have fell to historic lows leaving farmers who took out the loans paying interest rates far higher than current market rates.
The commission is examining whether the banks breached the Fair Trading Act by misleading farmers about the nature of the loans. Green Party MP Steffan Browning today asked the commission's chairman Mark Berry and competition general manager Kate Morrison whether the investigation had produced any evidence that farmers had "effectively been blackmailed" by banks into accepting the products with threats that their credit would be declined or withdrawn.
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Ms Morrison told the committee that "anecdotally there may be".
However, Dr Berry said the commission had no powers with regard to "unconscionable conduct" so there was nothing it could do if uncovered such behaviour.
Farmers affected by the loans who believed they had been coerced into taking them, "have got rights of private action" but the commission was unable to provide information and advice about who to pursue that action.
"What we can only look at is from the point of view of whether or not there is misleading or deceptive conduct."
If the commission finds that is the case "we would go forward with the prospect of court proceedings but with the door open to settlement discussions if the banks so wished." The commission has now interviewed 33 farmers about the loans. Ms Morrison said the total amount involved in the loans was in excess of $10 million.
The commission is currently investigating loans made by three banks but Dr Berry said the loans were not limited to those banks. He was unable to say how long the investigation would take.