Independent review of product sales commissions and product based payments
Good Shepherd Microfinance, Consumer Action Law Centre and Financial Rights Legal Centre have made a joint submission in response to the Australian Bankers’ Association’s Terms of Reference paper Independent review of product sales commissions and product based payments.
We are not able to provide detailed comment on the operation of product sales commissions and product based payments, for the simple reason that these are generally not disclosed at the point of sale. Accordingly, we can only infer from the consumer impacts we observe that poorly constructed incentives have played a part, (and we suspect, have driven), inappropriate sales practices. Our work certainly exposes us to the impact such practices have on vulnerable consumers. Furthermore, significant research does exist to show that commission and product based payment systems do affect lending and sales practices, and we have drawn on some of that research to inform this submission.
We collectively take the view that product sales commissions and product based payments inevitably distort sales-staff behaviour, placing the imperative to make a sale above considerations of appropriateness for the consumer.
Anecdotally, we are advised that banking staff are driven to meet targets in an atmosphere of relative job insecurity, with the prospect that failing to meet those targets may result in a loss of employment and the possibility of less lucrative employment outside of the banking sector. Independent media reports support the assertion that staff morale within the banking sector is poor, and pressure on staff to meet sales targets is a major cause of that discontent. From a consumer perspective, these factors create a culture that is intimidating and where they are likely to be subjected to pressure sales tactics.
In Australia’s retail banking sector the consumer’s genuine need and capacity to repay are currently not the primary factors driving sales—and this leads to significant consumer detriment. Until there is a major cultural shift in the retail banking sector, it is difficult to see how these negative outcomes can be avoided. Certainly, it would seem that minor adjustments to current payment systems are unlikely to have any significant effect. Indeed, an industry-wide wholesale overhaul of product sales commissions and product based payments is required—and the notion that commissions and product based payments are necessary at all should be fundamentally questioned.
Read our full submission.