More proactive monitoring of the country’s banking sector is needed given the lack of understanding in the community about insurance products and loans, MPs heard today.
Home loans, savings schemes and insurance are not the same as other consumer products, Stephen Parry, First Union’s national organiser for finance sector workers, told Parliament’s finance and expenditure committee.
There is an asymmetry of information between the customer and the banks and insurers offering products and the cost of getting choices wrong can have big impacts, he said.
“We are all vulnerable consumers as far as these financial products are concerned,” he said.
The committee is considering whether there are lessons for New Zealand from Australia’s Royal Commission into banking misconduct which found widespread abuses, and saw the chair and chief executive of financial giant AMP resign.
In April the commission reported accusations that AMP illegally deducted service fees from customer accounts – and then lied to regulators about it; that CBA charged fees to dead clients for years; and that Westpac gave such bad advice to a client they lost their house – and were then charged $40,000 for that advice.
Consumer NZ chief executive Sue Chetwin told the committee that there needs to be more proactive oversight of the sector here.
Her organisation regularly deals with complaints from members being sold inappropriate products, and it is not good enough that banks and insurers are only re-examining their sales practices in the wake of the events in Australia.
“There does need to be oversight,” she said. “The industry is not good at self-regulating.”
The Reserve Bank and the Financial Markets Authority are jointly reviewing culture and conduct in the New Zealand banking and insurance sectors. They are due to report back next month.
Legislation started by the previous government aimed at tightening the rules on financial advisors also had its second reading in Parliament last week.
Jessica Wilson, head of research at Consumer NZ, said that bill still relies heavily on disclosure. Without greater monitoring there would be no way of knowing whether it changes behaviour or not.
Antony Buick-Constable, acting chief executive of the New Zealand Bankers Association, told the committee the FMA-Reserve Bank review may find things that need fixing.
But the New Zealand industry is so small, he felt sure that the regulators and parliament would know if the types of excesses seen in Australia had occurred here.
That was challenged by National MP Amy Adams, who said the Australian issues only came to light because of the Royal Commission.
Labour MP Duncan Webb also wanted to know how banks could guard against the inherent temptation to over-sell some types of insurance, when they were both the most complicated and most profitable of the products they offered.
Parry told the committee that sales pressure – particularly to shift products not always appropriate for customers – was the most common issue the union’s members bring to it.
And he observed that the major New Zealand banks had been only “luke warm” in adopting the findings of the 2017 Sedgwick investigation into banking remuneration in Australia. That made 21 recommendations aimed at removing sales incentives from pay structures and putting greater focus on customer needs.
Parry said the decision of some New Zealand banks to end commissions for front-desk staff had only come after the Royal Commission findings this year.
He said pressure to sell product is a systemic issue and that only a system-wide approach will deal with it. It would also be important that any further changes in remuneration and performance structures for bank staff don’t simply become a proxy for sales targets.
Buick-Constable told the committee New Zealand banks intend to be Sedgwick compliant before the 2020 target their Australian counterparts are working to.
Banking Ombudsman chair Miriam Dean told the committee that her organisation hasn’t seen any evidence of the systemic abuses uncovered in Australia and would have expected to had they been present.
But she said that doesn’t mean there aren’t systemic issues. She said banks are trying to do the right thing and most of the cases that reach them come down to poor service and miscommunication.
Sarah Parker, the scheme’s deputy ombudsman responsible for complaint resolution, said she had not seen the type of abuses seen in Australia, but that did not mean they had not occurred, or had not been dealt with by the banks directly.
She noted that the potential conflicts caused by sales commissions were not that visible to the scheme. Customers don’t complain about them as they are not aware of that risk, but the scheme does look into bank processes when considering any particular complaint, she said.
The committee heard that there can be “capability gap” among customers dealing with banks and insurers. They can receive all the available information on products but not really understand what they are being told.
“There is a lot of misunderstanding out there about how things like insurance or home loans and mortgages work,” Parker said.
Dean said the material banks and insurers provide must be in plain English, short and in a form that customers can understand easily.
And that is an obligation that falls on all corporates, not just banks, that are offering products to the public, she said.