ASB settlement

The Commission has reached a $3.2 million settlement with ASB Bank Limited (ASB) in relation to the marketing, promotion and sale of interest rate swaps to rural customers between 2005 and 2009.

Details of this settlement including questions and answers can be found below.

Please note that the information on this page relates only to the settlement with ASB, discussions with the other bank (Westpac) investigated by the Commission in relation to interest rate swaps continues.

Read the settlement agreement.

See the indicative payment timeline.

Read more in the media release.

Questions and answers

1. What is the settlement for?

The Commission investigated ANZ’s, Westpac’s and ASB’s (the three banks) marketing and sale of interest rate swaps (swaps) to rural customers between 2005 and 2009. The investigation was conducted under the Fair Trading Act (the Act). The Act prohibits misleading and deceptive conduct in trade, including making false or misleading representations.

We commenced our investigation in August 2012 following media articles alleging that some New Zealand banks had mis-sold swaps to rural customers. We primarily considered whether swaps were marketed during this time in ways that may have misled customers as to their true risk, nature, and/or suitability.

2. What are swaps?

A swap is a financial derivative product that allows a borrower to manage the interest rate exposure on their borrowing. It allows a borrower to exchange with another party (for example, a bank) an obligation to pay a floating reference interest rate for an obligation to pay a fixed base interest rate or vice versa.

3. What was the outcome of the Commission’s investigation?

On 17 December 2013 we announced that we had completed our investigation into the marketing and sale of swaps by the three banks. We advised the three banks that in our view, we had sufficient foundation for commencing proceedings against the banks in relation to the alleged conduct. We intended to place the matter before the Court for determination, as only the Court can decide if the Act has been breached, and planned to file proceedings in March 2014.

While preparing proceedings, we had discussions with the three banks about our concerns. The discussions with the banks have been continuing since then.

On 3 December, 2014 we reached a settlement with ANZ. We have now reached a settlement with ASB. We continue to have discussions with Westpac.

4. How and why have we settled?

We believe that the agreed settlement with ASB is in the public interest and in the interests of our group of eligible complainants (referred to as named customers in the Settlement Agreement).

The settlement with ASB resolves the Commission’s concerns regarding ASB’s alleged conduct in the following ways:

  • ASB has admitted out of court (in the settlement agreement) that:
    • between 2005 and 2009 it represented to some of its customers that swaps were similar to fixed rate term loans but more flexible;
    • during a period in 2008 to 2009, break fees for swaps were higher than they would have been for an equivalent fixed rate term loan;
    • in those circumstances, some of the benefits of the swaps proved to be overstated for some customers and meant that:
      • some customers paid more to break or restructure swaps than they would have with an equivalent fixed rate term loan; and
      • some customers may have decided not to break or restructure swaps when they might have done so with an equivalent fixed rate term loan; and
    • it omitted to inform customers with swaps that under ASB’s contractual terms, ASB could increase margins on loans hedged by swaps. 
  • ASB has also admitted that between 2005 and 2009 it breached section 9 of the Act in that certain of its conduct misled some of the named customers in relation to the marketing of certain of their swaps and that this conduct was a cause of some of the named customers deciding to enter their swaps.
  • ASB will make available for payment an amount expected to be $2.7 million. As a result of certain allowed deductions and/or set-offs, ASB will pay a sum expected to be $2.3 million to individual named customers and/or their associated business entities (referred to as named customer entities in the Settlement Agreement).
  • ASB will make a donation of $250,000 to the Dairy Women's Network, acharitable trust that assists farmers and, in particular, provides education and support to women involved in the dairy industry.

ASB will also pay the Commission $250,000 towards its investigation costs.

We believe that this settlement is a very good outcome, as contested court proceedings would have meant uncertainty and lengthy delays in achieving any possible payments to named customers. This settlement delivers payments to named customers much more quickly than might be achievable through the courts. 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 on their behalf, if we had been successful at trial.

The full terms of the settlement are set out in the Settlement Agreement, which you can find below. The details of named customers are confidential and are not contained in the publicly available version of the Settlement Agreement.

5. Why is ASB paying less than ANZ did in its settlement?

The settlement amount is lower compared to the recent ANZ settlement primarily because:

  • Despite facing increased funding costs after the global financial crisis, ASB honoured customer’s expectations and chose not to increase farmers’ loan margins, meaning that the settlement relates primarily to break fees paid by named customers.
  • We received a much smaller volume of complaints about ASB’s swaps as compared to ANZ.

6. Which ASB customers are eligible for a payment offer?

Each eligible customer will receive a letter from ASB setting out the named customer’s entitlement under the settlement agreement (payment offer). Payment offers are being made to the named customers only. The named customers are the 40 current or former ASB rural customers who agreed to participate in the Commission’s investigation and whose details were provided to ASB before 31 July 2014.

The details of all customers who complained to the Commission will remain confidential.

7. Which ASB customers are not eligible for a payment offer?

  • Non-rural (eg, commercial) ASB customers or former non-rural ASB customers.
  • ASB rural customers or former ASB rural customers who did not complain to the Commission.
  • ASB rural customers or former ASB rural customers who complained to the Commission but later withdrew the complaint or declined to permit the Commission to disclose their identity to the bank.
  • ASB customers or former customers who complained to the Commission but were found not to have purchased swaps.
  • ASB customers or former customers who bought swaps outside the 2005-2009 period.
  • ASB customers who transferred their swaps from ANZ and are being compensated under the ANZ settlement.

8. I have not been in contact with the Commission before but I bought a rural swap from ASB. I want to be included in the settlement.

Unfortunately you will not be able to participate in the settlement we have reached with ASB.

On 9 May 2014 we called through the media for any other rural customers who had concerns about the way in which they were sold swaps to contact us by 30 May 2014. We advised that for any rural customers who contacted us after that date, we would do all that we could to include those complaints in our proposed proceedings and ongoing discussions with the banks, but that for those complainants we could not be as confident of obtaining redress.

During the course of our settlement discussions we were required to close off our list of complainants who were able to participate in the ASB settlement. We closed the list of ‘ASB’ complainants on 31 July 2014.

If you still have concerns about your dealings with ASB over the sale of swaps, you may wish to take legal advice.

9. How do I know if I am eligible?

You will be eligible if you (or a family member, trustee, or someone associated with your business) complained to the Commission before 31 July 2014 about your experience with swaps and consented to us disclosing your identity to the bank.

You will receive a letter from us in the new year asking you to confirm your contact details by returning a form to us. This is so that ASB can contact you directly with any payment offer.

By sending back your form to the Commission you are simply updating the Commission with your current contact details and consenting for the Commission to send your contact details to ASB so that it can forward any payment offer to you. Sending this form back to the Commission does not commit you to accepting any offer that may be made to you.

10. What payments will be made by ASB?

Payment offers will be made to the named customers. These offers will be calculated according to a payment methodology which has been set out by the Commission and based on confidential conditions contained in the Settlement Agreement. The methodology will take into account:

  • Break fees paid by named customers when ending or restructuring a swap
  • Costs incurred by named customers who did not terminate or restructure their swaps
  • Evidence indicating that named customers sought to restructure or terminate a swap or swaps
  • The potential difficulties that we might face in establishing customer losses if this matter had proceeded to court, especially with regard to the larger, more financially experienced and better-resourced customers.

ASB may deduct from the amount to be paid to a named customer the value of any payment, financial benefit, or reduced obligation previously provided by ASB to the named customer in relation to the matters that are the subject of the Commission’s investigation. This may result in some customers receiving a reduced payment or no payment. Where this occurs, ASB will explain to those customers the reason for the deduction.

11. Will anyone who hasn’t registered a complaint get any money?

The agreement provides that ASB will make a donation of $250,000 to the Dairy Women's Network for the assistance of the wider rural community.

12. What is the process for paying me?

Please read the timeline that we have prepared below.

Named customers will receive a letter from ASB setting out the payment offer. Please note that you will not receive this letter until early 2015.

Named customers will have 70 working days in which to decide whether to accept the payment, and details of how to do that will be in the payment offer.

13. How much are the payments?

This information is confidential to each customer, ASB, and the Commission.

Payment offers will differ for each named customer as they will be based on individual circumstances.    

Payment offers will be calculated based on the methodology prescribed by the Commission. It is not a precise calculation of any loss a named customer may have suffered, but rather what we think is a good estimate of losses that may have been recoverable if the matter had gone to court.

14. If I accept a payment offer, how long will it be before I get paid?

Payment to named customers who accept offers must be made by ASB within 15 working days of acceptance.

15. I previously signed a settlement with ASB over my swaps. Does this mean that I cannot receive another payment?

That depends on the value of your personal settlement. If you signed a settlement with ASB you may still receive a “top-up” payment if the amount you received from ASB under the terms of your personal settlement is less than what you are entitled to under the terms of our settlement. If you received more under your personal settlement with ASB than what you would receive under our settlement, then you will not receive any further payment.

16. What are the implications if I accept a payment?

Named customers who wish to accept a payment offer will be required to sign a Customer Release before any money can be paid. This Customer Release waives any legal rights you have against ASB with respect to your purchase of swaps between 2005 and 2009. It states that the payment to the named customer is in full and final settlement of any claims the customer has against ASB in relation to the matters and the swaps that are subject of the investigation.

Named customers should take legal and financial advice as to whether they wish to sign the Customer Release and accept any payment. We cannot give you advice on this.

17. What happens if I don’t accept my payment offer?

If you decline the payment offer, the money will be retained by ASB.

Any payment offer not accepted by the deadline will be deemed to be declined unless you have queried the offer, in which case you will have an additional 20 days after ASB and the Commission have responded to that query in which to accept or reject the payment offer.

18. Will the offer include interest on my losses?

Payment offers will not include interest.

19. Will I have to pay tax on the payment I receive?

That may depend on your individual circumstances. You will need to take your own specialist tax advice on the implications of accepting the offer.

20. What is happening with the other banks the Commission has investigated?

The Commission settled with ANZ on 3 December 2014. The Commission is continuing to have discussions with Westpac.

21. What action is the Financial Markets Authority taking?

As a result of the Commerce Commission investigation, the Financial Markets Authority (FMA) has engaged with ASB in relation to interest rate swaps. Any matters arising from this engagement will be announced separately.

For information on the FMA’s current investigations see www.fma.govt.nz.

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