Do You Want to Supersize your Debt?


A friend of mine recently got a call from her bank manager. It went something like this:


Hello, my name is Glenn [name has been changed]. I’m your new bank manager. I just wanted to call to introduce myself. And to let you know that I could look into giving you a loan if you need credit to make any new large purchases.

Thank you, I don’t need any more credit. I already have a half a million dollar mortgage with you. And a car loan.

With the new loan you could exchange your car for a newer model, or renovate the house. Everyone needs extra cash.

As I said, I already have enough debt with you.

Glenn insisted, but my friend stood her ground. That was probably not Glenn’s first call of the day — or last. And I can only wonder how many others accepted his offer, even if they didn’t really need the money.

According to the Australian Bureau of Statistics, banking and insurance services in Australia make up 9% of the economy. And product and loan selling through employees is one of the ways banks achieve revenues.

You see, being a banker nowadays is more like being a used car salesman. Tellers make incentives by recommending products, and the incentives complement their pay.

So, if bank employees are getting commission to recommend a product, do you really think you’re getting independent and sound financial advice? I don’t think so. They may be ‘your friendly bank’, but there is definitely a conflict of interest there.

Pushing More Debt At Customers

Banks are now under fire for betraying their customer’s trust. And for pushing their employees to sell unnecessary financial products to customers, to meet their monthly targets.

In the US, Wells Fargo has been fined US$185 million for creating two million fake accounts to help employees meet aggressive sales targets. The bank has now fired 5,300 employees, yet they are still claiming they did nothing wrong. Wells Fargo has vowed to eliminate product sales goals by 1 January.

In Australia, tellers are complaining they are being pressured to sell debt products, even when the product is not right for the customer.

The Finance sector Union is pushing to have bankers be bound by a duty to put their customer’s interest first. And they are calling for a royal bank commission and new legislation to do so.

According to the Australian Financial Review, comments in the submission for a review of bank salaries from the union, many union members commented:

‘“We are pushed and pushed to reach targets that are unachievable unless you basically bully people into saying yes”; “Due to the focus on targets, some of our tellers are beginning to sound like a McDonald’s employee [asking] ‘Do you want fries with that?’ Our version is ‘Do you want a savings account or can I  review your insurance arrangements?'”; and “Our manager bullies staff by telling them that if they don’t reach their revenue target she will send them to another branch and get someone who can”.

The fact is, banks have a history of behaving badly to increase profits. Even as I write this, the big four Aussie banks are being sued by US investors for allegedly rigging the bank bill swap rate (BBSR).

And don’t forget CBA’s Comminsure scandal. Bank doctors were asked to change their evaluations, and were telling people things like they had had ‘the wrong type of heart attack’, to avoid making payments.

The report from the union about teller incentives comes at a bad time for the banks. With low interest rates, banks are seeing their profits squeezed. And they are under pressure to perform to keep their revenues. Banks have been quick to respond to the report, and now they’re trying to clean their image. Westpac is leading the charge.

As reported by the Australian Financial Review:

From next month, the incentive system for tellers will be based “entirely on customer feedback about the quality of service they received in the branch”. Westpac is also abandoning the incentive rewards for specialised sales roles. Instead of basing rewards on the sale of different products, Westpac staff will be rewarded for “meeting the full range of our customers’ needs”.’

So, do you really think they will eliminate sales tactics that create revenue? And put their customers’ needs above their own? Forgive me, but I’m sceptical. After all, banks are in the business of making money.


Selva Freigedo,
For Markets and Money

PS: Too much global debt could be the catalyst that ignites the next great crisis of our time.

Yet according to Markets and Money’s Vern Gowdie, we’re already in the throes of this crisis.

Vern is the Founder of The Gowdie Letter and Gowdie Family Wealth advisory services. As one of Australia’s top financial planners, Vern says the next crisis is already in motion.

Australia has gone through two credit bubbles in its history. The third, and latest, has built up over the past 65 years. When it pops, the impact will leave a lasting mark. One that will make the 2008 financial crisis look like child’s play.

The fallout of this crash could damage your wealth. But you can safeguard your wealth from the worst effects of the coming crisis, provided you act now.

Vern will show you how to do this, and more, in his latest report, ‘Global Financial Crisis 2016: 3 Crisis Scenarios, and How They’ll Impact Australia’. To get your free copy today, click here.

Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the ravaging effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is lead Editor at the daily e-letter Markets & Money. And every week, she goes through each report and research note produced by our global network of trusted advisors to find the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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