Sort Out Your Swamps Situation

Sort Out Your Swamps Situation

Freddy is catching up on the business news when Joe, his neighbour, walks in to join him for a coffee.  

“Joe, what’s your take on this swaps business?” asked Freddy.  “Did you use a swap on your mortgage?”

“That’s what I was coming to chat about,” said Joe.  “We bought a swap back in 2006 and it caused me grief.  I decided to treat it as an expensive learning exercise and haven’t thought about it since.  I saw an article about pay outs that are being made as a result of the Commerce Commission investigation and I wondered whether we might be able to get back some of the money we lost.”

Just then, Freddy’s lawyer daughter, Pebbles, arrived. 

“Pebbles, what can you tell us about swaps?” asked Joe.  “I hope I’m eligible for some of the payments but I’m not sure.  Can you tell us how this works?”

“An interest rate swap is a financial derivative product that lets a borrower manage their exposure to risk from fluctuating interest rates,” said Pebbles.  “It is usually offered to large corporate and institutional customers.  From 2005, banks offered them to rural customers throughout New Zealand.  In August 2012, the Commission began to investigate whether the marketing of these products was misleading.  The investigation led to the Commission announcing in December 2013 that it would issue legal proceedings against three banks.  The Commission has now settled with all these banks, but only eligible customers are entitled to a payment offer from the bank.  

“The Commission investigated the banks under the Fair Trading Act.  The Act prohibits misleading and deceptive conduct and making false and misleading representations in trade.  The investigation focused on whether the swaps were marketed in ways that may have misled customers as to the true risk, nature and/or suitability of the swaps,” said Pebbles.    

 “How will I know if I am eligible?” asked Joe. 

“You will be eligible for a settlement if you complained to the Commission before 31 July 2014 if you were an ASB or Westpac customer, or before 12 August 2014 if you were an ANZ customer.  To be eligible you must also have consented to the Commission disclosing your identity to your bank. 

“The Commission will contact eligible customers to confirm their contact details.  Eligible customers will then be contacted by their bank with a settlement offer.  You don’t have to accept the offer, but may want to take legal advice before making a decision. 

“If you had dealings with a bank over the sale of swaps and you don’t think that you are eligible for a payment offer under the Commission’s settlement arrangements, you may also want to take legal advice about the options available to you,” said Pebbles. 

“Thanks Pebbles,” said Freddy.  “Joe, it sounds like you had better get some advice about your options.”


The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document. 

If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser.

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Marie Callander