Bank regulation needed to protect consumers

Sales incentives offered to bank staff increased the risk of customers being mis-sold products, review finds.

18nov bank regulation needed hero default

Consumer NZ wants regulation of the banking industry to be strengthened to protect customers from being sold products they don’t need.

Consumer NZ chief executive Sue Chetwin said the joint review of the industry by the Reserve Bank and Financial Markets Authority showed banks were doing little to monitor whether products were suitable for their customers.

Released today, the review found the risk of customers being mis-sold products was increased by sales incentives offered to staff.

Ms Chetwin backed the review’s call for banks to drop incentives tied to sales. “If they’re not going to remove them, they need to show how they can manage the inherent conflicts of interest these inducements create. We doubt they can.”

Regulation to address the “significant weaknesses” in banks’ governance and management of conduct risks is also needed, she said.

“The review found many banks were relying on customer complaints to identify problems. But there were serious shortfalls with the complaints systems in some cases. The processes for whistle-blowers to come forward and raise issues were also poor.”

Failures in banks’ management of their processes had resulted in customers being charged interest or fees when they shouldn’t have been.

Ms Chetwin said legislative gaps meant regulators weren’t doing the monitoring needed to assess banks’ conduct and give consumers confidence their interests were being protected.

Consumer NZ supported recommendations to give regulators stronger monitoring powers and require banks to protect customer interests.

“Banks are making record profits. Consumers need to know whether these profits are resulting from the sale of poor value products that may result in customers unnecessarily taking on debt.”

Ms Chetwin said Consumer NZ’s own survey research found one in four consumers had been offered unsolicited products by their bank.

“In many cases, the consumer didn’t need or want the product, and you’ve got to question whether the only reason it was offered was because the sales rep had a target to meet.

“Sales incentives are not only inconsistent with banks' responsible lending obligations, they expose consumers to the risk they will be sold junk products.”

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Ray M.
10 Nov 2018
Incentives - Why not?

We don't have an issue with retail staff getting commission for selling us clothes we don't need or TVs with functions we never use so what is different about a bank? I think people need to take more responsibility for their own actions. If you buy something you don't want or need it is your fault. Just remember that the bank only exists to make money. It prefers to keep you happy enough to keep coming back but in the end the bank isn't your friend.