Parliamentary Commission on Banking StandardsWritten evidence from Unite the Union

This response is submitted by Unite the Union. Unite is the UK’s largest trade union with 1.5 million members across the private and public sectors. The union’s members work in a range of industries including financial services, manufacturing, print, media, construction, transport, local government, education, health and not for profit sectors.

Unite is the largest trade union in the finance sector representing some 130,000 workers in all grades and all occupations, not only in the major English and Scottish banks, but also in investment banks, the Bank of England, insurance companies, building societies, finance houses and business services companies.

This written evidence should be read in conjunction with Unite’s previous response to the Parliamentary Commission on Banking Standards call for evidence submitted in August 2012. 1

It should be noted that the design of products tends to be fundamentally sound. Where financial institutions run into difficulty is in failing to identify the individual needs of customers or indeed ignoring these needs whilst selling products to customers they neither want, need nor will use. The pressure to sell can also manifest itself in bullying behaviour by managers; the need to supplement low base pay; and the constant threat of disciplinary action or dismissal for underperformance. All of these issues may pressurise employees to, on occasions, disregard customer needs and sell to meet product targets.

Unite notes and welcomes a small change in the reward systems in some banks, with evidence of a shift to a needs based selling culture across the sector.

Indeed in one bank Unite was successful in getting the bank to move away from proposals to introduce white boards which would have detailed the sales performance of staff in branches.

However as with many new initiatives, the devil may well be in the detail. Banks are looking at new and more innovative ways to increase profits and only time will tell if there really has been a cultural shift that will treat customers and the workforce more fairly.

Unite’s response to the specific questions posed by the Commission.

1. An account of any investigations into PPI selling Unite has conducted

There has been no specific investigation by Unite conducted on the issue of PPI mis-selling. However Unite does regularly engage with employers on their pay and reward systems and particularly target and incentive plans. Where examples of dysfunctional sales activity and/or behaviour come to light from our members, these are raised directly with the banks concerned.

2. An account of any investigations into PPI product design Unite has conducted

Unite has not conducted any investigations into PPI product design. However Unite believes that most financial products on the market sold by the banks tend to be fundamentally sound and in the main, for those customers that needed it, wanted it and understood it, the product was most likely to be a valuable product for them.

The issues arise in selling the product, in this case PPI, without due regard to customer need and appropriateness and driven by a lucrative income stream from the product, which was not based on need, want or suitability. This is supported by the compensation paid out to customers mis-sold PPI of around £7 -10 billion.

The sale of PPI was driven by sales targets based on points in many banks. The number of points attached to different products varied. It could therefore be argued that Unite members may have been pressurised into selling more of the products that attracted the higher points and hence allowed the individuals to meet target, bonus etc.

Failure to sell may not only mean no bonus or incentive, but may also involve action using the “performance management” process with the potential for disciplinary procedure or even dismissal. It may also leave the individual excluded from the annual pay round, placing additional pressure on members as their pay dwindles in real terms.

In some institutions there is a mix of products sold, with the performance scorecard made up of a number of elements aside from sales, which should reduce the risk of dysfunctional selling.

Other sales techniques have included “sales promotions” such as customers trialling a product free for 3 months. This relies upon the inertia of customers not to cancel a product and then begin paying the monthly fee for a product that they neither want, need nor will use. The design of the product is less of an issue than the projections that the bank makes for the volume of sales for a particular product, including PPI, which increases the pressure to sell.

3. Any account from bank staff members of their experiences in selling PPI

Given the tight timescales for providing a response, it has not been possible to fully canvas a wide range of Unite Representatives experiences on this issue. However there was always a clear focus on PPI as a product and a high value product at that. A loan with PPI was “worth” significantly more in terms of income and sales points (double the points) for the branch and individual, than a loan without PPI.

Branch staff would routinely be tackled as to their “penetration” rates ie how many loans etc., they have sold with PPI and indeed a loan sold without PPI was often met with disapproval. PPI attracted a disproportionate amount of sales points as an overall percentage of branch targets.

The undernoted is a response from a Unite representative.

“As a personal banker I was told to always push protection insurance, particularly when selling a loan. I was told to ask the customer how much they could afford each month, and then to give a monthly repayment quote that included the cost of the insurance protection that most closely matched what they could afford to repay. If a customer said they didn’t want protection, I was told to tell the customer that they would have to speak to the manager about it before we could continue. They would then have to wait around or come back, which prompted some to just ‘take it anyway’ to be able to get the loan there and then.

If a loan was opened without insurance or referral to the manager, I would have to explain why and was made to feel that I had done something wrong.

I think these practices took place because the premiums were very high, earning the bank a fortune. Staff also got more ‘points’ for a loan with insurance, which was what we were assessed on at the time.

I’m also convinced a lot of staff didn’t really understand fully what the protection covered, and when I was a personal banker we had no specific training on it.”

In other examples, some colleagues were asked to “call-in” twice a day to advise on how sales on specific products were going that day.

If targets had not been met colleagues were required to identify an evening where the advisers would phone customers if they were not “on track” with lending appointments.

The undernoted is taken from an email which was circulated to colleagues across the region:

Advisers that Failed to Deliver Mortgage Application w/c xx/xx/2012

(named individuals)

“I wanted to be clear on the output; each adviser is to deliver 1 mortgage application per week. This means they need to complete an application between Friday and Thursday each week.

If an adviser does not complete a mortgage application in a week I expect that documented coaching is undertaken with the individual by the Branch Manager. I will undertake the same activity with you as the Manager.

If the adviser fails to achieve a mortgage application for a second week, a documented discussion is to be undertaken by the Branch Manager with a view to understanding the root cause, identify the need for change with the customer at the heart of what we do. The same activity will be undertaken from any Branch Manager with an adviser in this position by me.

If the adviser fails to deliver a mortgage application for a third week, further action will be taken with HR guidance with both the adviser and Branch Manager in order to support the business with delivery of this key goal.”

This e-mail clearly uses the threat of the performance management process and disciplinary against both the manager and adviser (frontline seller) where there is a failure to produce mortgage appointments, despite there being no individual targets for mortgages or any other individual product. Again the bank does not condone the messages or behaviour; however it is indicative of the culture.

There is currently a push to sell mortgages in one large bank, with the bank claiming that only 17% of their customers (ie the bank that a customer’s salary is paid into, direct debits paid out etc) have a mortgage with them, compared to nearer 38% for a competitor bank.

In conversations with the bank regarding sales, Unite has argued that such a push should be managed correctly, with no pressure on individual targets for mortgages etc., and in keeping with most of our conversations on sales with the bank, there is broad agreement on the approach, yet days later the following e-mail is raised with Unite by a concerned member.

“The following advisers have not done an application so far this quarter and S* (name deleted) has asked me to submit a plan as to what they are doing. Please can you let me know what you are doing and when this will be sorted?

(named individuals)

I will be inviting you to an exceptions audio every Tuesday to discuss your actions taken with those advisers that have not delivered a mortgage application the previous week.”

These examples show not only a blunt approach to management practices, but represent an over-zealous supervisory approach with two “check-ins” a day, when it could be argued that staff would be better placed getting on with their job of serving or in “helping” customers.

Despite the bank stressing that the sales culture is all about “Needs Based Selling” it goes on to highlight under performance on individual products and to mete out a punitive telesales night for those Customer Advisers that are not on track with lending appointments. There is no mention of overtime payments, rostering hours appropriately or confirming that such an activity is voluntary. Centrally the bank does not condone such behaviours and when such issues are raised by Unite these are normally swiftly dealt with.

It is also true to say that such examples are not prevalent across the majority of the network, but these examples still arise across a significant minority of branches, areas or regions.

4. Any analysis Unite has conducted on whether or not banks’ incentive schemes for front line staff caused mis-selling, whether PPI or other products

While overall the products on sale to customers in the financial services sector have been and continue to be fit for purpose, Unite is quite clear in its assessment that the incentive structures evident in most banks led directly to the circumstances where mis-selling was possible. However, the issue is more that organisations have chosen to mis-represent or ignore the needs of the customers by selling products that are not required, not suitable and often not used.

The issue arises in products being sold to meet target and income generation rather than customer need or want. Individual products will come under criticism from members, but more in relation to the non-competitiveness of the product itself versus the competitor banks products, thus undermining the ability to sell, rather than any fundamental unfairness contained within the product.

There is no doubt that Unite’s members in the sector have been put under huge pressure to sell products with failure to do so resulting in bullying and intimidating behaviour. Failure to reach performance targets which are often not realistic can have a consequent impact of the threat of disciplinary action and can lead to dismissal for perceived underperformance. This has driven the wrong behaviours in the sector as members are pushed to supplement low fixed pay with bonus and incentive payments based on selling an inappropriate product to the customer.

The use of Customer Value Points (CVPs) and the fact that different products attracted different values, with more valuable products such as PPI carrying higher points which would clearly encourage a bias towards selling higher value products or concentrating on these in cases of underperformance. There would be some safeguards in place, ie having to sell a minimum number of products across three distinct “baskets” to encourage a spread of products, but undoubtedly high value products such as PPI and Packaged Accounts were, and continue to be in the case of Packaged Accounts, a particular focus for selling. There would also be periodic product pushes, with the threat of the performance management process and disciplinary for failure to achieve specific products targets.

5. How Unite became aware that PPI was being mis-sold by the banks

Unite has had a long held concern regarding the pressures placed on our members to meet unreasonable and often unattainable targets to obtain their bonus which may result in inappropriate sales. However, Unite only became aware of the true extent of the scale of the mis-selling of PPI as a result of customer complaints and media attention. There was nevertheless always a belief that products like PPI, that attracted larger sales points and bonus, would inevitably drive the wrong behaviours.

6. What Unite’s assessment of the root causes of bank mis-selling is

Unite has for a long period, had concerns around mis-selling. Moreover, Unite has raised the issue of target led sales and the pressures to obtain unreasonable levels of sales or face disciplinary action on grounds of performance with HM Treasury and the FSA on a number of occasions as well as the Independent Commission on Banking. 2

The pressure placed on banks by their shareholders to perform well supported by an aggressive sales culture which delivered some exceptional profitability in the sector for many years has impacted on all staff from the Executives to the lowest paid. There is no doubt that staff continue to work under pressure to sell with a focus on driving increased sales performance in retail banking as part of ongoing strategic reviews across the sector.

Clearly there is shareholder and stock market pressure for institutions to perform and produce profit. This then manifests itself all the way down though the organisation to branch level with pressure on sales performance, where failure could result in no incentive, no pay rise, performance management procedures, the possibility of disciplinary action and the potential for dismissal.

Delivering the RDR; Unite response to the ICB

The use of performance audios as well as league tables that are either circulated via e-mail or placed on white boards on the wall in branches contributes to a demoralising “name and shame” culture, which further increases pressure on members to sell products and reach targets, rather than focus on the needs of the customer.

What was also apparent at the time and a position that has improved slightly is that once dialogue regarding the approach with employers had been exhausted without resolution, there was no clear line of escalation with complaints and referrals to the FSA. The opportunity to provide information to the FSA has tended to focus on individual complaints from consumers, rather than from a stakeholder like Unite. Clear lines providing the opportunity to formally raise issues of concern with the FSA and the subsequent regulator, the FCA directly, would enable Unite to escalate major concerns as they arise.

Change in Culture

The culture in the UK retail banking sector has to change. While it is evident that some smaller banks do not expose their workforce to the same level of sales focused or aggressive practices as others, it is nevertheless systemic in the larger banks where the majority of bank workers are employed; the majority of consumer’s bank and where the majority of complaints to the Financial Ombudsman are recorded.

On a positive note, Unite is aware that across the sector incentive and reward schemes are being looked at with some having been redesigned to better reflect service and control, as well as much more effort being taken to acknowledge a needs based selling approach, but there is still much work to be done. For consumers this is a welcome step forward. However Unite remains cautious that while the focus for sales targets will be displaced, share and market pressures to remain competitive and profitable remain. This will require the banks to look more closely at the products on the market and to ensure, without doubt, that they are appropriate to the customers needs. Let us hope that the future outlook for the sector is responsible banking reconstructed around fairness for the workforce and the customer.

19 December 2012