Despite paying billions in compensation for mis-selling, the banks’ bonus culture shows no signs of abating. Does there need to be a major change in how banks do business?
When Which? invited Martin Wheatley, the incoming head of the FCA, to an event to hear consumers’ views about banking, one of the major gripes people had was the way banks sold products.
This type of upselling, where you’re sold another financial product when you only want to put in a cheque, has also been unpopular here on Which? Conversation. But worse than this, is that sales driven by commission can also lead to mis-selling.
Pressure to sell
Is it any wonder that the banks were mis-selling of payment protection insurance (PPI), when advisers at one bank, Alliance & Leicester, received bonuses that were six times larger for selling loans with PPI than selling loans without it? In the end, banks have had to pay out £7.9 billion in compensation for mis-selling PPI.
There is a huge disconnect between the pay received at the top and the pay received at the bottom of our banks – with branch staff receiving a low basic salary with the opportunity to earn significantly more in bonuses if they sell more products.
We’ve heard horror stories from bank staff who can’t bear the constant pressure to sell products to customers.
Give back your bonuses
At Which? we’ve been working hard to push banks and regulators to make changes. For example, we asked banks to claw back bonuses awarded to those executives who oversaw the PPI mis-selling scandal.
As a result, Lloyds has said it will claw back £2 million in bonuses and HSBC has indicated it will claw back bonuses, too. We want all other banks to do the same.
Banks should only recommend a product after looking at their customers’ circumstances, and shouldn’t be incentivised to sell one product over another. But most importantly, incentives for staff at all levels should be based on the customer service they provide, and not just on the sales they make.