It’s time for a banking inquiry

Banks enjoy a significant power imbalance in their relationships with customers and not everyone has the confidence to complain to the Banking Ombudsman.

Calls are growing for a full royal commission into the New Zealand banking industry that would mirror Australia’s recent experience. But that may be too drastic and perhaps a government inquiry or public inquiry is a better fit.

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was set up across the Tasman in 2017 after a raft of high-profile reports and allegations. It recently claimed its first big scalp in AMP chief executive Craig Meller, who resigned after the royal commission heard that his company had misled Australia’s corporate regulator over a practice of charging customers for advice that was never delivered.

There is no indication that New Zealand’s banking sector has seen some of the egregious and fraudulent practices that Australia’s royal commission has made public. One of the most sensational revelations has involved the collection of bank fees from dead clients.

But it is also clear that there is widespread disquiet when it comes to our largely foreignowned banking sector. It can seem that everyone has a story to tell about a less than satisfactory interaction with one of these enormously profitable companies. It might be as simple as wondering why credit card transaction fees are so high, or it might relate to the unease of having a staff member trying to push an unrelated product. That can feel like fast-food upsizing: would you like an insurance policy with that loan?

The gullible or vulnerable can find it hard to resist. Banks enjoy a significant power imbalance in their relationships with customers and not everyone has the confidence to complain to the banking ombudsman.

As RNZ reported, the Banking Ombudsman Scheme is entirely funded by the banks themselves, which might cause some to wonder about its usefulness as a watchdog. However, Banking Ombudsman Nicola Sladden told RNZ that her office finds about 100 examples a year of banks behaving improperly. This number, which is the end result of about 3000 contacts from the public, might suggest a need for greater and more independent scrutiny than Sladden can provide.

Retailers, economists and the bank workers union are among those calling for an inquiry. In the case of retailers, it concerns the credit card transaction fees paid to banks, which are double the rate of fees in Australia. It has been reported that over $700 million a year is paid in such fees. An inquiry would bring full transparency to that practice.

The union that represents banking workers is keen for an inquiry because it is aware of the pressure that bank staff can be under to sell. While the New Zealand banking sector is less competitive and aggressive than in Australia, there is no question that similar conflicts of interest arise on this side of the Tasman.

The local banks will probably try to stay ahead of an inquiry by responding eagerly to the Reserve Bank and the Financial Markets Authority’s recent demand that they prove they are squeaky clean. But maybe only a government inquiry or public inquiry with the power to summon witnesses will give the public the confidence it deserves.