Consumer NZ is pushing for stronger regulations in the banking industry to protect clients from being sold products they do not need. This follows after the release of a joint-review by the Reserve Bank of NZ and Financial Market Authority which found “significant weaknesses” in the banking industry's conduct and culture.
"The review certainly identified some big problems and gaps in regulation. What it has shown is in terms of the bank’s conduct, there's no one really keeping tabs on what the banks are doing. They're getting a free ride," says Jessica Wilson, Head of Research at Consumer NZ.
Wilson says one in four consumers had been offered unsolicited products by their bank according to Consumer NZ's independent survey. One complainant included a young women in part-time employment who was offered a credit card by her bank.
“She could have easily got into financial trouble if she had taken up that offer. She didn't really have the capacity to meet debt repayments and it wasn't a good product for her so you really have to question why the bank was offering her a credit card."
The review, conducted over 4 months into 11 banks, included 391 interviews with bank staff across 13 cities and a survey of 2,000 consumers.
It found "significant weaknesses" in the governance and management of conduct risk and gaps in the measurement and reporting of customer outcomes and whether products purchased suited customer needs.
It highlighted that poor customer outcomes were increased by incentives offered to staff based on sales performance.
Wilson says "There is a big risk for low-income consumers that they are sold products they don't need and can't afford which they are not going to be able to use and it's just a real drain on their finances."
The government agrees that banks need to "lift their game". Commerce and Consumer Affairs Minister Kris Faafoi says, "The Reserve Bank and the FMA have talked about a gap but I think we’ve got to give the banks a chance to respond to the individual questions that the Reserve Bank and FMA will have for them."
Banks have until March next year to report back on the review but Wilson says the need for regulation is urgent.
"We think the banks have had quite adequate time to get their books in order. What the review has shown is that hasn't happened."
The government says work is already underway to improve the regulation of New Zealand's financial system and to prioritise customer interests.