Parliamentary Commission on Banking StandardsWritten evidence from Accord
Background
Accord (formerly the Independent Union of Halifax Staff) was the largest union representing members within Halifax Bank of Scotland Group (HBOS), which was formed in 2001 from the merger of Halifax plc and the Bank of Scotland. Accord now represents over 25,000 former HBOS employees in the Lloyds Banking Group (LBG) following the takeover of HBOS by Lloyds TSB in January 2009.
Therefore, in the period that the PCBS is examining, Accord has represented members within three distinct banks: Halifax plc, HBOS and LBG. For the purposes of answering the PCBS’s questions, Accord’s response will cover the period of HBOS and LBG only and, where necessary, be split into two distinct, sequential parts for each organisation.
An Account of any Investigations into PPI Selling Accord has Conducted:
Accord has not conducted any specific investigations of its own into PPI selling, or any other product for that matter, by either HBOS or LBG, since the union does not regard the conduct of such investigations as one of its core responsibilities. The union believes that the responsibility for investigating the sales practices of banks lies with the regulator, the Financial Services Authority (FSA). The union would like to point out that following the merger of the Halifax and the Bank of Scotland, the union was heavily engaged in the integration of the employees of the two banks and the development of a new set of terms and conditions of employment. There was also a heavy commitment to restructuring, redundancy and TUPE related consultations. In 2008 alone this involved 40 separate projects that reduced the number of roles within HBOS by nearly 5,000 in the year before it was taken over. The number of compulsory redundancies was minimal.
In the four years since HBOS was taken over by Lloyds TSB, there have been over 600 separate projects which have each been the subject of extensive consultation and negotiation.
More than 30,000 roles have been removed from the Lloyds Banking Group as a result. An enormous proportion of the union’s time and energy has been spent guiding and assisting our members through these difficult issues.
Also during this period, Accord negotiated an integrated set of terms and conditions of employment for HBOS staff in the Lloyds Banking Group and these were introduced by a collective agreement after extensive consultation with union members.
The union has also been dealing with the implications of the introduction of a cap on the final salary pension scheme which was previously closed to new entrants.
Four sets of annual pay negotiations have been undertaken in very difficult circumstances whilst at all times, the union has been supporting members individually and collectively on issues relating to the quality of their working lives, work life balance, performance management issues, issues relating to maternity leave and all of the other things that members pay for and expect their unions to do. Which in the priorities of most members, we would argue, doesn’t include investigating product design, pricing or sales practices.
That said, during the period 2001–2012 Accord has communicated concerns members have expressed about pressure to sell financial products to both HBOS and LBG. This has been done in formal and informal meetings with the human resources teams, business representatives and, where possible, with senior executives of the respective banks following resolutions from the union’s Biennial Delegate Conference’s (see appendix 1).
An Account of any Investigations into PPI Product Design Accord has Conducted
Accord has not conducted any formal investigations into PPI product design. As set out above, the union is responsible for representing the employment related concerns of its members only. It has no legal right to raise concerns about particular financial products with the bank or, for that matter, with any other body. As above, the union believes that the responsibility for investigating the design of PPI, or any other financial product, lies with the Regulator.
Any Account from LBG Staff Members of Their Experience in Selling PPI:
Following receipt of the PCBS’s correspondence, Accord emailed the 18,000 or so most relevant members of the union requesting any information/views they may have of the experience of selling PPI. The call for input was also carried on Accord’s website.
Less than 300 replies were received. Some of those responding did not have experience of selling PPI at either HBOS or LBG. However, of those that did the responses fell broadly into two general categories:
1.
2.
Those in the first category provide their own examples of pressure to sell, which are included in Appendix 2. It is disappointing that despite the clear indication from the LBG Chief Executive and his senior colleagues that the bank will only seek to “sell to customer need” and the launch of new “codes of Conduct” by the bank in 2012, there would appear to be a significant number of staff who believe that they are still under pressure to sell products irrespective of customer need or desire for them.
This suggests that the sentiments expressed by LBG staff (and those of all banks) in the recent Which? report “Here to help? Bank staff reveal the truth about working for Britain’s big banks” are based on the current reality and that more has to be done to change the culture of British banking from a sales to a service culture. In its evidence to both the PCBS and the preceding Independent Commission on Banking Accord argued that
“Accord believes that there can be no return to what had been seen before the financial crisis as ‘business as usual’.”
“Accord believes that unless sufficient focus is put upon the cultural change required within the financial services industry, and certainly within the retail banking sector—which Accord’s submission will focus on—of it, the necessary lessons will not be learned and the seeds of the next financial crisis will be sown.”
The feedback from Accord members suggests that there is still a problem that has yet to be addressed at least in some workplaces.
In fairness, there is a time lag before what is announced as a managerial intention actually translates into effective change on the ground because systems and other changes have to be managed through. In the Halifax for example, a number of the changes that are designed to shift culture and behaviour are being launched in branches in the week beginning 7 January 2013 following the roll outs to regional, area and branch managers in December 2012. These and other steps being taken in other parts of the Lloyds Banking Group are promising “green shoots”. However, the union will be regularly seeking members’ views and carefully monitoring feedback to ensure that the necessary changes in culture and behaviours become embedded.
With specific relevance to PPI (and its forerunner ASU), the second category of responses we received (Appendix 3) may well surprise PCBS members. As you will see from reading through the quotes, these Accord members are disturbed, even angry, that their own reputations have been damaged when they believe that they acted rigorously in ensuring that their customers fully understood the terms of PPI and the product was suited to the established needs and desires of a particular customer, only to find that it is now the subject of a mis-selling claim. This is particularly the case for members who live in relatively small communities where they know the people to whom they “sold” the product, know that the product was suitable and that, indeed, some known customers who had made claims on PPI policies that were paid out are now pursuing compensation for “mis-selling”.
Any analysis Accord has conducted on whether or not LBG’s incentive schemes for front-line staff caused mis-selling, whether PPI or other products:
Accord has not conducted any particular analysis into the effect of incentive schemes on mis-selling of PPI or other financial products.
However the responses from members in Appendix 2 and those who responded with particular points of concern about the current culture of LBG suggest that there was a problem, particularly at branch, area and regional management levels.
What is also apparent is that the value of the financial incentives for front-line staff were relatively low and the real driver for mis-selling at the branch level was the pressure to hit sales targets with the threat of adverse impact on the careers or job security of those who failed to hit these targets.
This was the case at HBOS and, whilst there are indications that changes for the better are occurring at LBG, it is also clear that there is still more to do to make the change to “selling to customer need” a reality.
How Accord Became Aware that PPI was Being Mis-Sold by LBG:
As the motions to the Accord Biennial Delegate Conference show, there was a degree of concern amongst Accord members at HBOS and, subsequently, LBG about pressure to sell products to customers regardless of need or desire. However, PPI (and its predecessor ASU) were not particularly singled out by members.
From 2010 onwards as the issue gained publicity from the national press and the advertising from Claims Management companies increased, the concerns became more prominent.
What Accord’s Assessment of the Root Causes of Mis-Selling is
Over the past 25—30 years UK banks and many building societies (demutualised or not) have moved from a service culture to a sales culture. This resulted from the deregulation of financial services in the UK and the growth of competition with access to ever greater funding achieved through new financial instruments and increased leverage (debt to asset ratios). The creation of integrated banks consisting of retail and investment banking operations also had an impact, although this was not the case for HBOS or Lloyds TSB.
Accord does not believe that there has been a significant “contamination” of retail banking by the more short-term, high risk, high reward culture of investment banking. However the union does believe that the rewards have been disproportionately at the executive level and that the risk been borne by shareholders and, as we now know, taxpayers.
Also during the period in question, bank shares moved from under-performing the market in the proceeding post-war period to over-performing the market. In order to continue generating increased profits to drive up the share price and—which executive bonuses, in particular, were linked to—there was a pressure to sell new products to generate new income streams to replace mature products.
It is also worth noting this period also saw a change in the approach to remuneration for bank staff with a shift from a relatively fixed salary to a “total reward” approach more heavily weighted towards “variable pay” (or bonuses as most people would call them) and share incentive schemes. However, it must also be said this “payment by results” shift was not just a feature of the banking industry. Indeed Accord notes that the current Government appears to favour a similar shift in some public services.
As Accord noted in its original evidence submission to the PCBS:
“The change to a sales-based banking culture led to a concomitant change in the training that retail bank employees received and how they were rewarded. Client-handling and sales-technique training increased, whilst the focus on professional banking qualifications diminished. Accord believes that this was a mistake.”
Accord is not claiming that none of its members ever mis-sold PPI or other products, nor that for some of them, the financial rewards for doing so were not a motivating factor. However, as the views of Accord members in Appendix 2 show; it was the pressure to hit sales targets that primarily drove them at the time—to sell products that are now regarded as inappropriate to customers, including PPI.
However Accord believes that it is also worth stressing, as members also make clear, that many customers benefitted from PPI (and ASU) which they purchased in full possession of the facts.
Accord welcomes the recent changes in changes in employee performance assessment announced by LBG, moving away from individual to team/group assessment and performance reward. However, there is a lot of work to be done to ensure that this change is honoured and culture and behaviours change in all areas and all levels of the business.
Other Observations
Professional Qualifications
As Accord noted in its original evidence to the PCBS:
“…customer service is incredibly important in any competitive sector and banking is no exception to this. However the union’s view is that banking should be seen as a professional service first and foremost. Helping households and businesses to manage their risks and financial needs is the core role of retail banking and Accord believes that appropriate professional qualifications are required to fulfil this role.
Customers look to bank staff for professional advice on how to manage and invest their money properly, just as they do to other vital professional service providers such as accountants or surveyors. In order to become head of a major accountancy practice or major firm of chartered surveyors an individual has to possess appropriate accountancy or surveying qualifications: any additional service or management qualifications they may possess are ancillary.”
Therefore, Accord supports the call for an independent professional body for retail bank employees. However, the union believes that the democratic representatives of bank employees should be involved in the creation and running of such an organisation.
Next Mis-selling Scandal
Accord believes that where there has been mis-selling of products by banks it has tended to be with “integrated products”, such as endowment mortgages and “add-on products”, such as PPI on credit cards and unsecured personal loans, rather than on stand-alone products, such as current accounts or credit cards themselves.
We note and share the concerns of members as expressed in Appendix 2, that there needs to be rigorous checks within LBG and other banks to ensure that integrated products such as the “Ultimate Reward Current Account” are only sold to customers who fully-understand the product that they are purchasing.
Claims Management Companies
Accord recognises that Claims Management Companies (CLMs) have been pivotal in generating public awareness that compensation may be obtainable if PPI was mis-sold and that it is arguable that without them this scandal may not have come to light. Nonetheless, Accord shares its members concerns about the quality of the claims submitted by many of these CLMs and also the costs that they charge customers who could make a claim on their own. Accord believes that there needs to be greater regulation of CLMs to ensure that they do not exploit already exploited and ill-informed citizens.
3 January 2013