Apr 012008

As ill advised as it may have been for me, I watched Four Corners last evening.

As what may be termed by many as a ‘bank johnnie’ because that’s where I gained my start in finance, I could only nod in agreement with all the expose` had to say on the issue of steadily increasing consumer debt in Australia. In particular, Kim White, the former NAB personal banker. It’s a nice euphemism for pawn broker, don’t you think? “Give us your home and we’ll give you the money” In truth, as White stated in as subtle a manner as he could without attracting legal suits, that’s what lending to the consumer demographic is all about today. Speaking as someone who has been on the inside of major institutions at the selling end, I can fully understand when White stated that he’d known of suicides because of sales performance pressures. Sales targets are set without reference to those at the coal face who have the best knowledge of local conditions. Sales targets are set by faceless bean-counters in the institution’s economics and marketing areas. They also have targets, but their targets aren’t measurable. Their jobs are safe. It’s those in the firing line, those at the fore-front of the public interface, those who have to do the ‘sell job’ to Joe Public whose jobs are on the line. As White stated quite clearly, if you don’t meet the sales targets, you’re ‘performance managed’ out. Being ‘performance managed’ means you’re under the gun to achieve, or yer out on yer ear, buddy! These are the caring, sharing financial institutions we’re told they are. Make no mistakes. There is no caring and no sharing when it comes down to sales results.
Then there’s the credit cultures endemic to all financial institutions in this country. As one spokesperson noted, it’s akin to a race to the bottom in regards to prudentiality. Surely, most institutions will assess at 1.5% to 2.00% over the current ruling cash rate, however, as 4 Corners detailed, we’ve incurred 3% rises in the last eighteen months. We’re not through yet, either. There’s at least one more tranche of US sub-prime debt to be rolled and whether you believe it or not, what happens there, happens here as well. We’re currently looking at 9.50% (effective) rates on standard variable and while I doubt many people are actually locked into variable rates ( a non-sequitur if even there was one), there will be those so duped by the propaganda from their institution that they’ll be loathe to explore the options available in fixed rates. Therein lies another issue. That of the relevant institutions not being honest, or ethical in their dealings with customers so besieged by the interest rate daemon.
Prudentiality stems from much, much more than simple adherence to assessment rate margins dictated by policy. Policy exists only for the legal protection of the institution concerned. It behoves every single loans approval officer to look further, think deeper and consider longer the circumstances of the applicants before them. Of course, here we have the other impactor. That of the broker/referrer complaining to the team leader of what ever institution’s credit team that they’re being unfairly treated. Who’s word counts for more on such an argument? Why, the provider of the business, naturally. Again, it’s down to the sales culture of the institution concerned. These days, lenders live or die in market share terms by the credo of the broker/referrer. In my mind this is surely a recipe for disaster, given that it’s recognised universally that brokers live by their wits and will tell the approving authority whatever is required to achieve an approval. The borrower is a third, fourth and often last consideration. More often, not a consideration at all. It’s the commission which counts.
This is the system we’ve built for ourselves. This is the system, which to all intents and purposes, we’re happy with. Certainly, it’s not one-size-fits-all and there are the easy marks out there like the couple which Four Corners depicted rather graphically last night. As a lender, I’m afraid I have little sympathy for such people, however, I also have no kind feelings towards the financial institutions which quite actively go about placing them in such a position. Financial services in this country are in need of a severe shake-up and a move away from ‘market forces’ control if the average consumer is to be in any way protected from predatory practices. These practices exist as an every-day occurrence. It’s not at all unusual to hear during a morning staff meeting about the sales targets required in order for staff to be ‘recognised’.
There is currently legislation in train which will outlaw predatory lending practices by brokers, but I’m left aghast by the fact that such legislation places next to no pressure on the institutions themselves to marshall the resources from which they gain their business. The buck stops with the broker, and there-in, my friends, will continue to lie the problem. While lenders tacitly agree to accept the fodder fed to them by brokers, immune from prosecution under law, the consumer credit problems of this country will not go away any time soon.

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