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Bank powers to be reeled in over farm debt foreclosures

Lyn Berry lost her Marlborough vineyard to the bank a decade ago, and has started a petition to try and get Parliament to hold a banking inquiry. Lyn Berry lost her Marlborough vineyard to the bank a decade ago, and has started a petition to try and get Parliament to hold a banking inquiry.

 Lyn Berry lost her Marlborough Vineyard after the global financial crisis and is worried history will repeat if banks are not forced to work with farmers struggling with debt.

 Gray Eatwell explains why New Zealand needs a farm debt mediation law.


The power banks have to foreclose on farmer loans when the going gets tough will be curbed by a proposed new law.

The bill calls for a farm debt mediation scheme aimed at levelling the power imbalance between banks and farmers, ahead of a requirement for banks to bolster their capital reserves.

The Reserve Bank is pushing for banks to build up their capital reserves to make them less likely to fail in a financial crisis.

​Berry, who is petitioning Parliament for an Australian-style select committee inquiry into banking conduct, blames the actions of the bank for the loss of her vinyard.

Banks took such "unfair advantage of farmers and business" at the time because they had been told to double their reserves, Berry says.

"The quickest and easiest was to do that was by selecting farms and forcing their sale," she says.

She fears the Reserve Bank's plan to make banks double their capital will lead to banks putting pressure on farmers to repay loans in a bid to boost their reserves, even if it means forcing the sale of their farms.

Banks can also raise the extra money from shareholders.

DREAMS SHATTERED

Berry claims she lost her vineyard because of unreasonable decisions made by her bank's young, inexperienced loan officer, and has been reduced to living in a rented property in Wellington, relying on NZ Super to scrape by.

"They were running the business," she says. "Every month, somebody would come out and said what we could and could not do."

But she and her now-deceased husband were the expert business people, and the decisions the bank made were poor, including refusing to let them buy an anti-frost fan, which resulted in the loss of the crop, she says.

Eventually, the bank called in the receiver, who sold the property.

"They sold the property for $750,000, which was the initial value of the property before we put the vines in," Berry says.

The new owner had it revalued for over $2 million within days of buying, she claims.

TWO DECADE BATTLE

Gray Eatwell has campaigned for farm debt mediation law since 1999 when he lost his farm. Heoutlined his plight in a book, You Can Bank on It for which All Black legend Colin Meads posed for the back cover in support of Eatwell.

In Australia and Canada banks must engage in mediation with farmers before calling in loans, and putting farmers off their land.

The process is designed to give farmers a voice, and to force banks to engage with them with the mediation conducted by a neutral third-party.

It does not guarantee a farm business can be saved, but, Rural Women New Zealand told MPs last year: "In cases where farm exit is the best option or inevitable, mediation provides a forum for negotiation and settlement."

Paradise lost: The Marlborough home and vineyard Lyn Berry lost a decade ago.

Rural Women told MPs a survey of its members showed that when under-pressure farmers asked for mediation, banks generally said 'no'.

The earliest attempt to introduce a farm debt mediation law was 1999, when Alliance MP John Wright cited the mis-selling of foreign-currency loans to farmers by Bank of New Zealand. This left farmers exposed to interest rate fluctuations, leading to some losing their land and livelihoods.

Another attempt failed in 2013 in the aftermath of banks being found to have mis-sold complex interest rate swap loans to farmers, which also caused some to lose their farms.

But after two decades of campaigning, it appears MPs, including from the National Party, farming lobby groups, and even the banks have accepted that a farm debt mediation law modelled on the schemes in Australia and Canada is desirable, ​covering farms, vineyards, orchards and aquaculture businesses.

The Bankers Association told MPs in September last year it had dropped its work on a voluntary farm debt mediation scheme.

While NZ First MP Mark Patterson withdrew his Farm Debt Mediation private members' bill late last year, he only did so when the Government decided to introduce its own bill.

Patterson expects the draft to go to the Cabinet in May.

WHY SO LONG?

Gray says it has been the power of the banking lobby that has held back enforced debt mediation for so long.

"I've witnessed a lot of very serious farm and other business failures that did not need to happen. Good mediation would have probably prevented most of them," he says.

"Worst of all is the human carnage I have witnessed is absolutely disgusting."

Some farmers have committed suicide, he says.

DIGNITY AND FAIRNESS

Patterson told Parliament in May last year that his debt mediation bill would put "some onus on the banks or the lenders at the start of that process to make sure that they are absolutely doing the right thing".

NZ First MP Mark Patterson expects the draft farm debt mediation bill will go to the Cabinet in May."Farmers often have a lot of equity that banks can see as an easy target to get money out there, to get it earning interest for them and their shareholders.

"This is just a wee check and balance on them. This may come back, and in the cold, hard light of day, when they are under genuine scrutiny from people that actually understand these things, and if there are practices that are not appropriate, that they will be exposed."

"It actually gives the case for an honourable exit."

One farming family, which had been on a farm for 150 years, was evicted "with nothing more than a second hand car, and the clothes on their backs", he said at the time.

"This is about putting another layer, adding some dignity, and just another mechanism in place that can add some comfort and peace of mind.

"There was a second tier of lenders, Patterson told Parliament.

"They are genuinely predatory, and there needs to be some oversight of them."

FOLLOW AUSTRALIA

"I can't see why we would not provide the same level of protection for our farmers as Australia has done for theirs," Patterson said.

A Ministry of Business, Innovation and Employment briefing paper on Patterson's bill says recent reviews of the Australian and Canadian farm debt mediation schemes showed they had value.

This included the need for a neutral farm debt mediation service.

Australia brought in farm debt mediation after droughts in 1994 when pressure for bank accountability mounted.

Drought is a constant threat in farming in Australia, and farmers need to be able to rely on reasonable support from their banks.

But following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Australia looks set to overhaul its farm debt mediation schemes to create a national scheme with big penalties for banks that try to avoid it, and to put an onus on banks to offer mediation quickly.

In its final report, commission chairman Kenneth Hayne found banks often treated mediation as nothing more than a step required in the process of issuing a final demand on farmers.

Even in states where debt mediation was required by law, he found banks were not always treating farmers fairly.

Hayne recommended banks should ensure distressed farm loans are only managed by experienced agricultural bankers, are offered farm debt mediation as soon as a loan is classified as distressed, and manage every distressed loan on the footing that working it out will be the best outcome for bank and borrower, and enforcement the worst.

PRESSURE MOUNTING

Concerns were raised in Parliament last year over the treatment by banks of farmers and other agriculture businesses in times of stress like droughts, and disease outbreaks.

National MP Hamish Walker acknowledged that some banks were "putting pressure on farmers" during the M. bovis epidemic last year.

"It's very timely that this bill has come up," Walker said.

Labour's Damien O'Connor fought for farmers who had been mis-sold swap loans by banks.

But James McMillan, a partner from law firm Kensington Swan says: "A formal mediation process may not add much to standard industry practice."

"The banking industry has demonstrated, over recent years and during the course of two recent crises (kiwifruit and dairy) that it will exercise restraint in circumstances where the rural sector is confronted with financial difficulty."

Labour's Damien O'Connor, who fought for farmers who were mis-sold swap loans by banks, pointed out that many farmers were labouring under big debts. In mid-2018, rural debt was around $68 billion.

"It's not much less than the government owes," he said.

"We need to ensure some fairness into a situation that will occur for too many farmers in the near to medium future," he said.

This article was first published by https://www.stuff.co.nz
Author: Rob Stock
Last modified onMonday, 01 April 2019 00:14

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