Lloyds Banking Group has received a record fine of £28 million for running an aggressive bonus scheme that incentivised staff to sell products that were profitable for the bank rather than suitable for the customer.
The Financial Conduct Authority said mis-selling took place across the entire banking group – Lloyds TSB, Halifax, and Bank of Scotland – adding that the fine was the largest that had ever been issued for retail misconduct.
Tracy McDermott, the FCA director, said that the fine had been increased by 10% because Lloyds had faced a previous fine in 2003 for the mis-selling of bonds and had failed to heed its lessons from the past.
Salespoints
The regulator said that the bank’s failings related to the sale of ISAs and select income protection insurance products between 2010 and 2012.
The systematic failure was the bank’s ‘salespoints’ system, which incentivised staff to prioritise products that were lucrative to the bank rather than those that were suitable for customers.
Last year, a number of employees turned whistleblower on the bank, revealing the constant pressure they faced to hit salespoint targets. They feared demotion or the sack if they failed to deliver.
At the same time, there were lucrative bonuses on offer for those who matched their targets. In some cases, these were worth over a third of an employee’s monthly salary.
Ill-Awarded Bonuses
The FCA delivered a damning verdict on Lloyds’ behaviour and its decision to reward staff even when their sales were considered illegitimate.
229 staff were awarded bonus payments "even when all of their assessed sales were deemed unsuitable or potentially unsuitable", the FCA found.
"The incentive schemes led to a serious risk that sales staff were put under pressure to hit targets to get a bonus or avoid being demoted, rather than focus on what consumers may need or want," Ms McDermott said.
"Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first - but firms will never be able to do this if they incentivise their staff to do the opposite," she added.
Too Little, Too Late?
Earlier this year, the bank announced a series of measures to revamp its incentive scheme, which is now more focused on customer service.
But this came months after Barclays and the Co-operative Bank pledged to clean up retail banking by offering rewards for customer service rather than sales.
And even then, the changes announced in March only form a partial reconfiguration of the incentive scheme, with sales performance still forming part of an annual bonus package.
Lloyds pledged at the time that “before any variable payment is made, colleagues will still need to pass a vigorous set of measures that ensure everything they do generates the right outcome for customers”.
But customers have shown signs of losing trust in the bank. According to a recent index by TNS Global, one in five of those who have switched their current account since the launch of the new seven-day switch system in September decided to leave Lloyds for another provider.
Have you experienced aggressive selling practices by Lloyds (or another bank)? Would it persuade you to leave the bank for one which valued customer service? Let us know by leaving a comment below.
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