Banking enquiry would appease doubting customers

7:48 pm on 4 May 2018

By Claire Matthews

Opinion - Customers forced to buy insurance when taking out a loan, an inability to recover money loaded on a cancelled credit card, and better deals for new customers on loan.

With the recent media attention on Australia's Royal Commission into misconduct in the banking, superannuation and financial services, it is unsurprising to see stories about people's personal experiences.

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Photo: RNZ

At first glance the reports tend to support the argument that banks are terrible organisations and therefore New Zealand desperately needs a similar enquiry.

However, it's important to remember we are usually only hearing one side of the story. Digging deeper often reveals a much more complicated situation, and in many cases the financial institution's actions have actually been quite reasonable.

Occasionally I am contacted by members of the public seeking assistance with issues they have encountered with their financial services provider. Initially, their story will raise concerns about actions taken, but in most cases digging deeper reveals a different story.

Late last year, I was approached by a gentleman over a foreign exchange transaction. We met so he could tell me about what had happened. After a long discussion and investigation of various aspects, we found he had not been ripped off as he originally thought.

In that case, the real problem was the bank's poor communication, both in relation to the original transaction and in response to the customer's subsequent queries.

More recently I've received correspondence from two people who claim their cases clearly illustrate the need for a banking enquiry. However, in both situations the case has been through the legal system, with multiple hearings and appeals.

I haven't reviewed either case in any detail, but I'm happy to rely on the legal system's decision and therefore accept that the outcome was appropriate.

Offering better deals to new customers than existing customers was one example used in an earlier story by RNZ. Such behaviour is not unique to the financial services market - it's common throughout the business world, despite widespread evidence that looking after your existing customers is more profitable than attracting new customers.

In New Zealand all financial services providers have to belong to a dispute resolution scheme made up of four individual schemes: the Banking Ombudsman Scheme, the Insurance and Financial Services Ombudsman Scheme, Financial Services Complaints Ltd, and the Financial Dispute Resolution Service. They're all free for the customer to access. Poor behaviour by financial services providers should be evident in their activity.

In the 2016-17 financial year, the four dispute resolution schemes received more than 10,788 enquiries and complaints, of which 1138 (10.5 per cent), were investigated. The FDRS does not report enquiry numbers, so the total number of enquiries is understated and the proportion investigated is overstated.

There are approximately 1.5 million home loans currently held by the banks, nearly 1.7 billion debit and credit card transactions were completed in 2017 according to Payments NZ, and New Zealand's current population is more than 4.8 million people. On that basis, even the number of enquiries does not seem particularly concerning.

Banks and their staff are not perfect. They make mistakes, and sometimes do things that are inappropriate. Any form of enquiry will find examples of such activity, but I don't believe these issues are endemic and therefore have doubts about the benefits to be gained from an enquiry.

However, I am supporting the calls for an enquiry nonetheless - because I see that as the best way to address the continuing angst in New Zealand around these issues.

*Claire Matthews has been director of academic programmes for the Massey Business School since 2014, having joined Massey University in 1996 after 12 years in various roles with Trust Bank. Her research interests centre around consumer's financial behaviour, decisions and attitudes, with a particular interest in retirement planning and KiwiSaver. She is a Fellow of the Financial Services Institute of Australasia and a Certified Member of INFINZ.

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