Bank’s debt pushing practices contribute to risks

Finsec media statement
7 November 2007
For immediate release
        
Bank’s debt pushing practices contribute to risks in financial stability

The finance workers union Finsec is calling on all banks to act in the interests
of the New Zealand economy by changing practices that encourage customers into debt in light of today’s Reserve Bank report that says risks to financial stability still remain due to low household savings and rises in debt and debt-service ratios.

“Banks are active debt pushers. They are not passive facilitators of household debt as some senior bank executives would have us believe. This is evidenced by recent profit announcements that show increases in lending volumes are a primary driver of their massive profit results,” said Finsec Campaigns Director Andrew Campbell.

“A good example of the active role banks play in the home loans market is the Westpac spring home loans campaign. Westpac staff have been told to take every opportunity to talk to customers, old and new, about the offers in the campaign, which includes rewards points on credit cards sold as part of a new home loan. However the offer excludes low interest MasterCard’s which is a clear sign the bank is most interested in maximising profit rather than minimising debt,” said Campbell

“Many banks create perverse incentives for staff to get customers into debt through setting sales and referral targets that staff come under enormous pressure to meet.  These targets are often linked to performance bonuses and in some banks are also linked to whether employees get an annual pay adjustment which recognises cost of living increases and profit amongst other things,” said Campbell.

“At a time when household debt servicing costs are increasing, and the impact of this is so large, not just on individuals but also the New Zealand economy, it is time for banks to behave more ethically. They can afford to and it will reduce the risk to individuals and New Zealand’s financial stability,” said Campbell.

“We are calling on banks to stop active debt pushing campaigns and move away from debt target based rewards for staff. Such a move is clearly in the interest of customers, their communities and bank employees” said Campbell.

ENDS

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