Lloyds under fire in FSA crackdown
The new regime, launched this week, is designed to put a stop to incentive schemes that encourage staff to sell products regardless of the risks to customers.
Can I interest you in a personal loan?
Products that branch staff are encouraged to push on customers, who have often come in to the bank to perform a simple transaction, include personal loans, credit cards, payment protection insurance (PPI) and fee-charging current accounts - or packaged accounts.
These products are not necessary or even suitable for all, though. And big bonuses for those that sell them can encourage these staff members to wrongly advise customers for their own personal gain.
Craig Donaldson, chief executive of recently launched Metro Bank, said: "Put simply, if you tell branch staff that they can double their take home pay by selling a specific product, then they will sell a specific product, regardless of whether the product is suitable."
The scale of the problem
According to the FSA, "risky" sales incentive schemes are currently in place at about 90% of banks and building societies.
Potentially dangerous incentives uncovered by its investigators include a massive 100% of salary bonus for those hitting their PPI sales targets, and a "super bonus" competition that awarded £10,000 to the first 21 staff to reach a sales target.
Martin Wheatley, director of the FSA, said this "bonus-based approach" had fuelled the raft of mis-selling scandals - including the ongoing PPI debacle - that have cost the industry around £9 billion in compensation over 20 years.
"Bank staff used to offer impartial advice, tailored to customers' needs," he said. "Some time ago, this changed – financial institutions have changed their view of consumers from someone to serve to someone to sell to. We, as the regulator, intend to change this culture."
The trouble with Lloyds
Some 20 out of the 22 financial institutions investigated by the FSA were found to have potentially dangerous incentives in place for their staff.
But Lloyds - which was bailed out by taxpayers after the 2008 banking crisis - is the only one that has been referred to the watchdog's Enforcement and Financial Crime Division as a result of the inquiry.
For its part, Lloyds claims that it has already made major changes to its incentive schemes this year and is working "closely" with the FSA to ensure that mis-selling does not occur.
In the meantime, however, consumers at both lloyds and the other banks are being urged to think carefully before signing up for loans, credit cards or accounts suggested by branch or customer service workers.