Media Releases

Commission settles with Westpac over interest rate swaps

17 February 2015

The Commerce Commission has reached a $2.97 million settlement with Westpac in relation to its marketing, promotion and sale of interest rate swaps to rural customers between 2005 and 2012.

Under the settlement Westpac will make available a total of $2.47 million for the 38 eligible customers who registered their complaints with the Commission. Westpac will also pay $250,000 towards the Commission’s costs and another $250,000 to Rural Support Trusts.

The Commission’s investigation into Westpac considered whether the bank had marketed interest rate swaps in a way that may have misled Westpac’s rural customers as to their benefits, risks and suitability.

The Commission believes Westpac’s behaviour gave some rural customers the impression that margins on interest rate swaps loans would not change during the life of the loan or on restructure. However, under Westpac’s contractual terms the bank could, and in some instances did, increase margins. As a result the Commission believes Westpac’s behaviour was misleading and was likely to have breached the Fair Trading Act.

The Commission’s opinion has not been tested in court and Westpac says it does not accept it. However, Westpac has admitted that some of its conduct breached section 9 of the Fair Trading Act in relation to some of its rural customers.

The smaller amount paid by Westpac, compared to the ANZ settlement, reflects two things.  Westpac did not have an across the board practice of increasing margins on interest rate swaps, and Westpac did not differentiate its break costs under a swap and under an ordinary fixed rate loan.

Commerce Commission Chairman Dr Mark Berry said the settlement was a good outcome for the 38 eligible farmers. “The payments to be made under the settlement are, in our view, a reasonable approximation of the potential losses that the Commission could have recovered through any court process.”

Dr Berry said securing a settlement was important as it meant the uncertainty of contested and lengthy court proceedings would be avoided.

“In reaching the settlement farmers have certainty and will not need to go through a potentially lengthy court process. The length of time that has passed since the swaps were sold also meant there was no guarantee of court awards. Farmers will not have to go through the stress of proving their individual losses that occurred up to ten years ago to the court,” Dr Berry said.

Westpac is the third bank to agree a settlement in this investigation, after settlements with ANZ and ASB were announced late last year. Dr Berry said the three settlements differ due to factual differences including the nature of the marketing and conduct by each bank. This makes the total compensation available to rural customers and support trusts $24.2 million.

Later this month the Commission will begin contacting the 38 customers who may be eligible for a payment under this settlement. Payment offers will then follow, with funds expected to be distributed by the end of July 2015.

As a result of the Commission’s investigation, the Financial Markets Authority has entered into a separate settlement agreement with the bank.

More information about the Westpac settlement can be found on the Westpac settlement page.


Interest rate swaps are a financial derivative product that allows a borrower to manage the interest rate exposure on their borrowing. They were typically provided to large corporate and institutional customers, but from 2005 they were offered by various banks to some rural customers throughout New Zealand.

In August 2012 the Commission began enquiring into whether interest rate swaps were misleadingly marketed from 2005 to 2009. On 17 December 2013, the Commission announced that it advised three major New Zealand banks (ANZ, ASB and Westpac), that it intended to issue legal proceedings in March 2014 over their sales of interest rate swap contracts to rural customers. In April 2014, the Commission announced it was assessing new information and furthering discussions with each bank.

More information about the interest rate swaps case can be found on the Interest Rate Swaps page.