Consumers should be able to trust bank tellers

Jim Callon started working for the Toronto-Dominion Bank in the late ’70s, straight out of university. “I remember in our particular branch tellers were being paid $10 for every credit-card application they got. So this isn’t a new issue,” he says.

The “issue,” of course, is the sales culture at the big banks, top of mind thanks to a CBC investigation and now the focus of a business practices review by the Financial Consumer Agency of Canada (FCAC). Are bank reps customerfocused first? Or sales focused?

It’s a good week to highlight this again, not least because of the release of the 113-page autopsy on the Wells Fargo scandal, an investigation into the bank’s broken sales model and, as the report says, the root cause of sales practice abuses. One example: “simulated funding,” where funds were transferred from one customer account to another to make it appear that the second account had been “funded” by the customer. Some of those second accounts weren’t authorized. “Employees did this because the number of accounts they opened and the rate at which those accounts were funded were important to achieve sales goals and incentive compensation targets,” the report states.

Culturally, branch managers were promoted and moved through the chain on the basis of sales success, so it’s not hard to see how unrealistic sales goals, or “scorecard goals,” and the pressure to achieve them metastasized through the company.

Another reminder, made by the report: it was the Los Angeles Times that first brought the scandal to the public’s attention. “When Wells Fargo investigated or terminated employees following publication of the Los Angeles Times articles in 2013,” the report finds, “there was no adequate investigation to identify and address injuries that customers may have suffered.”

What potential injuries are Canadian customers suffering?

The issue of consumer protection triggered Jim Callon’s involvement as a research associate with the MacKay Task Force in 1998. Coercive tied selling was a key concern for what was formally called the Task Force on the Future of the Canadian Financial Services Sector. “You’d be asking the bank for a mortgage and they’d be saying, ‘well, you should have insurance on that,’ ” he recalls. “And they’d get you into an insurance policy, which at that time seemed to be much more expensive than just ordinary term life that you could get elsewhere. So the issue was to untie that kind of behaviour.”

The task force led to Callon’s engagement in the framing of federal consumer protection policy, which in turn led to the FCAC’s creation. Callon became the agency’s deputy commissioner, so he knows whereof he speaks.

He recalls the whistleblower who provided a recording from a call centre, where a consumer was manipulated into providing a Social Insurance Number for a credit card application. “It was absolutely clear the consumer didn’t know what they were doing,” Callon says.

In 2004, the FCAC went after MBNA for advertising a credit card interest rate “as low as” 9.9 per cent when it became clear, after investigation, that only a small portion of applicants ended up with the low rate. The actual interest rate ran as high as 19.9 per cent. “Our view was that it was almost like a lottery where you entice people to apply for a card on the chance you might get (the low rate),” Callon says. The FCAC issued a $50,000 penalty. That decision was quashed by the Federal Court of Canada on the procedural technicality that the commissioner who ordered the decision was not independent from the investigation itself. The FCAC subsequently separated its investigative and adjudication functions.

Callon digs into the mental archive because he feels the FCAC today has lost touch. “When we established the FCAC, we had a clear focus on the consumer. We made a substantial investment in a call centre to encourage calls and inquiries, not just complaints,” he says.

Trends could be discerned. Example: mortgage penalties. Some of the customer complaints were of the I-don’t-want-to-pay-the-penalty variety. In that case, the consumer is on the hook. But many calls focused on the customers’ lack of understanding as to how the penalty was calculated, and frustration that a straight answer could not be got from the bank. An industry-wide FCAC review revealed, Callon says, that more that 20 per cent of the penalty clauses were not compliant.

“From my point of view you cannot be a market conduct regulator without having extensive contact with the marketplace,” he says. “You do that by listening to consumers. The majority of our big cases didn’t come from inspectors. It came from consumers calling and saying, ‘listen, I have a problem.’ ”

Certainly the FCAC website does little to suggest that customer complaints are top of mind. And the complaint process, as many readers know, directs consumers to their bank first, and then the bank’s internal ombudsman, and if unresolved, then to a third-party mediator. There are two of these, ADR Chambers, for TD and Royal Bank complaints, and the Ombudsman for Banking Services and Investments.

Does this bifurcated structure allow for a full understanding of the marketplace? Do the feds have a full-on understanding of systemic issues?

The Wells Fargo report takes some time probing the way internal reporting up the line was inadequate. Do our bank boards even have a full understanding of the view of the customer on the street? Does the board request full data on consumer complaints and inquiries?

I note a couple of interesting Wells Fargo developments. Whenever an account is opened, email confirmation is sent to the customer. And “incentives” at the community bank level are now focused on customer experience, “with metrics designed to emphasize customer service, retention and long-term relationship building.”

Sometime this month, the FCAC will publish its new Supervision Framework which, the commission says, will clarify how it publishes notices of violation and non-compliance. The decision to publish or not publish the name of a Canadian institution is at the discretion of the commissioner.

Jim Callon makes the obvious point that this is out of step with the global push for transparency. “The public interest can only be served when there is effective disclosure of non-compliance, including the name of the regulated entity,” he wrote to the FCAC last November in response to the commission’s call for public input.

“There should be no question where there is a significant issue that the institution is named,” Callon says in our interview. “I can’t accept that after 17 years we feel there should be some protection for these financial institutions.”

I would go a step further and suggest that the reporting mechanism itself is inadequate. I asked the FCAC for its projected stop date for the business practices review. “Given the nature of investigative work, it would not be appropriate to provide more detailed information in current investigative and enforcement activities,” a spokesperson responded by email.

Have an issue with your bank? Now’s the time to make it known. jenwells@thestar.ca