Witnesses line up to slam sales-driven banks

18 February 2010 8:00 am | By Lee Jones

Bank bashing was at the top of the agenda as Which? heard from the first expert witnesses in its Future of Banking Commission last week.

The commission, headed by Conservative MP David Davis, Treasury select committee chairman John McFall and Liberal Democrat Shadow Chancellor Vince Cable, is focused on the consumer, so witnesses were asked about what the banks are doing to help customers, particularly those with debt problems and those with little financial education.

The first witnesses were representatives of the consumer advice industry and all had tales of misselling, callousness and abuse of power.

Toynbee Hall head of financial inclusion Sian McLean used an example of a former mortgage industry executive who had lost his job as a result of the credit crunch to illustrate “the lack of responsibility” of banks.

She said the executive used all his savings to try to pay his mortgage but finally approached his part-nationalised bank and asked it to ignore the redemption penalty on the mortgage as he tried to sell his home to pay the debt. She said: “The answer came back, ’you signed on the dotted line, we want £13,000, thank you very much’.”

Citizens Advice Bureau chief executive David Harker said the CAB had also seen evidence of callousness from banks as well as numerous examples of misselling to indebted borrowers.

He said: “We have seen examples of people who have walked into the banks with a lot of credit and store card debt and have asked the bank for help, only to be sold a range of even worse financial products.”

Banks are “places to sell things”, according to Harker and are no longer in keeping with the traditional view of them as places where people receive prudent advice and simple financial products.

Financial Mail personal finance editor Jeff Prestridge had previewed the Which? Commission in a Mail article and said bank branch staff had responded because they were so “ashamed” of what they were forced to do in their heavily sales-orientated jobs.

He said: “Banks’ sales culture is having a terribly detrimental impact on customers. A lot of the branches now are nothing more than places designed to sell as much product as possible.

CAB chief executive Adam Harker: ’We need generic financial advice, separate from the selling process. Banks should be giving people the objective advice that they need’

“A lot of people still trust the staff in the branches but that trust is being abused, as they are not allowed to treat customers fairly, as is required.

“What is unfortunate is that the sales culture has been allowed to perpetuate and the FSA has just stood aside and let it happen.”

There was little mention of independent financial advice in the debate but when Capital Economics economist Roger Bootle asked why banks were driven by “a quick buck”, the experts said the lack of a personal relationship with the client was at the heart of the problem.

Financial Services Consumer Panel chairman Adam Philips said: “You can treat your customers as a source of capital or you can have a long-term relationship where people come to you for help with their savings, pensions and investments as they move through life. But that is not a model that any retail banks operate because there is more money to be made in moving money around rather than good customer service.”

The witnesses were not optimistic that banks would change their sales culture - Harker said it would be impossible to “put the genie back in the bottle”. He said: “The incentive for banks is to sell - that is what they do”.

McLean said education and advice are the key to fighting the ingrained sales culture. “We need to educate the people going into the banks. Right now, there is not a national conversation happening that is asking how we get to a point where people are not financially naive.”

Harker agreed, saying: “We need generic financial advice, separate from the selling process. Banks should be giving people the objective advice that they need.”

The experts all voluntarily offered additional written evidence to vindicate their views and to prove further that additional bank regulation and advice is key in bring an end to the sales culture.

Prestridge said: “Until banks get away from the sales-driven mentality, then financial services will continue to be blighted. That spreads mistrusts and affects financial services as a whole.”

The commission is set to interview further expert witnesses such as Bank of England governor Mervyn King, outgoing FSA chief executive Hector Sants and City minister Lord Myners later this month. Which? chief executive Peter Vicary-Smith says he is confident that the evidence his group is collecting from members of the public and from the commission hearings will “help shape a banking system that meets all our needs”.

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