Thomas Coughlan
A man walked into a bank — no, this isn’t the beginning of a bad joke. He wanted to sign up for KiwiSaver, but when he leaves he not only has a KiwiSaver scheme, but also an expensive life insurance policy.
He is 25, with no spouse, no dependents and no mortgage; so, it is not really clear what this life insurance policy is for.
Upsold the Policy
It transpired that the man had been “upsold” the policy by a bank teller who was likely paid a performance bonus for selling him the product.
It is not unlike being asked whether you would like to make your hamburger a combo meal at McDonalds. But this is not about fries, but life insurance policies worth thousands of dollars.
Australian Royal Commission Inquiry
This story, and others, was laid out at a select committee hearing at Parliament on Wednesday, September 19, 2018, at which ministers were briefed on the Australian Royal Commission into misconduct in the financial services industries.
This week, the Commission heard that a 26-year-old Australian with Down’s syndrome was sold life insurance after a Cold Call.
This, and other horror stories raised by the Commission have raised some pressing questions for New Zealand’s Australian-dominated banking sector.
Banking in New Zealand
The chief question on MPs lips: “Is it happening here?”
“Sales targets have no place in the banking sector”
The answer from most submitters was that New Zealand by and large avoids the worst excesses of Australian banks, but there are many substantial areas of concern, particularly around the sales culture of some banks.
Front line staff in the banking sector have been subject to the creeping influence of sales targets for decades, according to Stephen Parry of First Union. Staff are incentivised to sell products like insurance to customers who come in looking for financial advice.
Barry said that members of his union felt “uncomfortable being pressured to sell, up-sell, and cross-sell financial products to consumers in circumstances where these products are neither needed nor wanted.
Pressuring bank staff
A survey the union conducted of its own members found that 82% of ANZ staff, 93% of BNZ staff, and 89% of Westpac staff felt under pressure to sell financial products.
“To our view, it is not only bad for workers but its inconsistent with the best interests of consumers. Sales targets have no place in the banking sector.”
Consumer NZ also drew attention to the sales practices of banks. Its survey of people who received an unsolicited offer from a bank found fewer than half of respondents felt the product was suitable for them.
Inappropriate products
“Our main concern with these offers is that in many cases the product is not appropriate and may result in the consumer unnecessarily increasing their debt or purchasing something that provides poor value for them,” Jessica Wilson, Head of Research at Consumer NZ, said.
Their Survey found the most common products sold were new Credit Cards, Credit Limit Increases, Life Insurance, Personal Loans, House and Contents Insurance.
Wilson spoke of cases where customers had been offered an increase in their credit limit, even when their bank was aware they were struggling to pay off their existing debt. She also raised the case of a superannuitant who was sold credit card repayment insurance, in spite of the fact that it did not pay out for over 65s.
“We’d know about it”
Ombudsman’s views
The Banking Ombudsman disagrees that there is a toxic culture in the New Zealand banking system.
“We have not seen the systemic abuses, the really bad conduct that has come out of the royal commission in Australia,” Miriam Dean, Chair of the Ombudsman Scheme said.
Dean said that while complaints and inquiries to the Ombudsman were increasing, the number of claims escalated to formal disputes was decreasing.
She said she was confident that her organisation would know if there was widespread bad practice in the banking sector because of its monitoring of complaints.
“We are the canary in the coal mine,” Dean said.
Monitoring the system
The Ombudsman service monitors its caseload and if it sees a string of similar cases that might indicate a systemic abuse, it can ask banks to change their practices.
“Fortunately our caseload suggests none of the systemic abuses of the sort revealed in Australia,” she said.
An appetite to regulate: On the surface, there appears to be little appetite for any full-scale banking inquiry or further regulation of the banking sector.
No inquiry needed
In April, Reserve Bank Governor Adrian Orr told Q&A there was no need for an inquiry in New Zealand, saying the problem was cultural.
But later, the Reserve Bank joined with the Financial Markets Authority on a review into the culture of the banking sector. The banks were asked to “prove” that their culture was better than their Australian parents.
Select Committee Hearing
But this did not go far enough for Labour MP Michael Wood, Chair of the Finance and Expenditure Committee, who told interest.co.nz that he could summon Chief Executives of banks to give evidence before the committee if he felt it necessary.
But Wood was forced to do a U-turn on that statement after discovering that the banks were under a confidentiality order with the FMA concerning evidence they were giving as a part of that inquiry. He was forced to back-pedal after Orr raised the matter with Finance Minister Grant Robertson.
ACT leader David Seymour, who sits on the Committee said the submission from the Banking Ombudsman showed regulation was working well.
“There is not a problem with banking regulation in New Zealand. You could have further regulation, but that comes at a cost,” he said.
Banks will be banks
Seymour said that customers should be aware that banks would try to sell them products.
“Anyone that goes to a bank and does not believe that the bank is trying to sell you stuff and make money probably should not be going to a bank in the first place,” he said.
“Maybe we should ban McDonald’s for asking if you’d like fries with that?” he said.
National leader Simon Bridges also said he would wait for the outcome of the FMA and Reserve Bank probe.
“Let’s see where they get to, if they don’t I certainly wouldn’t be in a rush to having our own Aussie-style inquiry,” he said.
Finance Minister Grant Robertson has said that he is watching the FMA and Reserve Bank probe closely and would not make a decision on whether to appoint an Australian-style inquiry unless the probe turned up evidence for one.
Thomas Coughlan is a Newsroom reporter based in Wellington who writes on policy and economics. Indian Newslink has published the above story and Picture that appeared in Newsroom on September 20, 2018 under a Special Agreement.
