After a recent run-in with the Bank of New Zealand, Gloriavale has warned the country’s competition watchdog that customers are being segregated into “desirable” and “undesirable” consumers.
In a submission to the Commerce Commission on its personal banking services market study, the West Coast religious community said its “recent experience of vulnerability” has highlighted the need for reform and clarity for “certain segments of society”.
Gloriavale’s 40-year relationship with the BNZ ended abruptly in June 2022 after the bank said it would close the isolated community’s accounts because the bank’s human rights policy had been breached. BNZ relied on an Employment Court decision issued a month earlier that found three former Gloriavale members were, in the eyes of the law, “employees” from the age of six until their departures.
Other banks reportedly turned Gloriavale away, forcing the religious community to seek an urgent interim injunction to stop BNZ from closing its accounts. Without the court’s protection, Gloriavale said, payments made for its most basic functions – including medical care, rates, food and clothing – might be jeopardised.
Gloriavale succeeded. On the without-notice application, Justice Rachel Dunningham accepted there could be constraints on the exercise of the power to terminate a contract, “particularly given the importance of banking facilities to function in today’s society”. The judge found the balance of convenience and the overall interests of justice lay with Gloriavale.
Justice Helen Cull continued the injunction, finding that closing the community’s bank accounts would detrimentally affect its position until the matter went to trial.
Before Justice Cull, BNZ argued that continuing to provide banking services “for a community that has coerced schoolaged children to work for them” wasn’t in the overall interests of justice. That a finding of child labour had been made was, in the bank’s view, a justification for invoking its contractual right to terminate the relationship.
Gloriavale took aim at the bank’s internal policies, telling the commission that customers were being separated based on desirability via “self-imposed and self-regulated” internal guidelines. These policies were effectively creating a new group of “socially unacceptable” customers who posed reputational risks for a bank – a segment that might then be used as a ground to exit undesirable banking relationships.
Unless customers brought proceedings, most wouldn’t have the opportunity to see the bank’s decision-making records – “which raises natural justice issues” – or challenge such a decision, Gloriavale said. “Whether the role of moral arbiter is one that should be assumed by those providing a necessary service such as a bank is highly questionable, particularly when presently there is no legislative protection for persons excluded from banking services. This practice begs the question of ‘where the line is drawn’ for who may be permitted as a bank’s customer and who is excluded.
Finding an alternative bank wasn’t easy, Gloriavale said, and it could become impossible if a customer was deemed undesirable. Justice Cull noted Gloriavale had been turned away from every bank, despite trying to make alternative banking arrangements.
Banking as a right?
Even where alternatives were not available, banks asserted an “unconstrained ability” to end their services for any reason, which could further isolate some communities and leave them more vulnerable in their reliance on everyday banking services, Gloriavale submitted.
A statutory right to having a basic bank account exists in the UK and Canada. But the lack of similar protection in New Zealand was concerning “if banks can make judgments, independent of contractual arrangements, as to who ‘deserves’ those services or who fits within the bank’s prevailing ideological stance”, it said.
“This risks increasing vulnerability for those who do not fit the perceived ‘acceptable’ customer [profile], those who participate in undesirable industries or whose values are not seen to be consistent with mainstream views. Competition is almost certainly effective for those customers who are ‘desirable’ customers – and equally likely to be ineffective for those who are ‘undesirable’.”
For the homeless, people with poor credit scores, those living in remote locations with spotty or no internet access or ex-offenders, their undesirability could leave them even more at risk of falling outside the banking net. The commission’s preliminary issues paper notes that financial institutions might not be properly incentivised to factor in the wider societal impacts of their actions.
“This is contrary to the principle of financial inclusion,” Gloriavale said. “There are inadequate checks and balances within the system to ensure that customers who no longer fit a bank’s ‘preferred’ customer profile (and may be contrary to it) have the ability to challenge that decision particularly where there are no practical alternatives for that customer.”
Rural Women New Zealand (RWNZ) spoke to some of the challenges that rural communities face. In its submission to the Commerce Commission, RWNZ said the closure of bank branches in rural areas could prevent such communities from accessing the personal banking services they needed, thereby forcing them to drive to their nearest branch – if they could afford to do so.
Similar to post offices, bank branches were a key piece of community fabric, especially in rural areas. Removing these facilities undermined the viability of small towns, RWNZ said. “Consumers forced to travel out of town for banking services will take their purchasing power there, also potentially leading to the closure of local businesses.”
The advocacy group supported extending and expanding the regional banking hubs trial, an initiative being piloted in seven small towns throughout New Zealand and supported by the New Zealand Banking Association and six of the country’s biggest banks: Kiwibank, BNZ, TSB, ANZ, ASB and Westpac. Three new banking hubs were opened in mid-July as part of the pilot’s second phase, on top of the first four hubs that opened in late 2020. The trial will finish in mid-2024.
While the trials highlighted the continuing importance of accessing physical banking services, RWNZ said feedback to date suggested the hubs were yet to demonstrate they were a fit-for-purpose replacement. In visiting Whangamatā, one of the three newest hubs, and talking with locals about their experiences so far, Consumer NZ found an overwhelmingly positive reception to the initiative, although appointment hiccups had surfaced for customers wanting to see their bank’s representative.
For all its commendable potential benefits, digital connectivity remained an issue in many rural communities, said RWNZ, which agreed that innovations might disenfranchise banks’ rural customers. “Internet and mobile coverage, reliability and capacity are not consistent across the country. These inconsistencies put New Zealanders in rural areas at a disadvantage, particularly where they limit (and potentially discourage) their participation. Moves to digitise personal banking services will need to take account of connectivity issues for rural consumers to ensure they are not excluded by these changes.”
Expanding and extending the regional banking hubs trials could give consumers a place to reliably connect with digital solutions, including video calls. However, the banking sector needed to recognise that rural consumers, the elderly and people living with disabilities might have trouble interacting across the digital divide.
The commission is four months into a 14-month-long study into whether competition for personal banking services is up to scratch. Excluded from the scope of the market study are corporate and institutional banking, commercial banking and business and agriculture.
The competition watchdog is seeking feedback on the nature of competition, its impact on people, barriers to entry and expansion, the ease with which account holders can search for and switch providers, the extent of innovation and the drivers behind local banks’ “persistently high profitability”.
However, the commission’s focus has been criticised for being too technocratic, to the exclusion “of the very consumers who are being disadvantaged by the Australian banks”. Wellbeing and social investment consultancy Habilis New Zealand raised several faults with the commission’s market study: from the “puzzling” communications shortfall to the regulator’s “invisible” work plan for economic or market analyses. But chief among the consultancy firm’s concerns was an absence of democracy in the commission’s process.
“The issues canvassed in the market study affect 99% of New Zealanders with a bank account and have far-reaching impacts on our entire economy. As the commission’s preliminary issues paper notes, there is prima facie evidence that the Australian banks are making excessive profits, well beyond any reasonably expected return on capital, which means billions of dollars are being siphoned out of the pockets of New Zealanders to provide the undue enrichment of predominantly offshore investors,” Habilis said.
“Given the wide-ranging social and economic impacts of this pernicious behaviour and the interplay with the regulatory failures that have led to it, the low-key approach of the commission makes little sense.”
Only sophisticated market actors who were aware of the issues, understood the complexities and had the resources to participate in the study were considered stakeholders. The technical nature of the issues paper was disadvantaging consumer engagement as it presupposed a level of knowledge. Habilis also took aim at the commission’s “intent to exclude” consumer participation as demonstrated by its word choice. “The very consumers whose pockets are being emptied and whose wellbeing is being negatively affected by the Australian banks are referred to exclusively in the third person. For instance, the questions within the paper are framed as commentary on things that are happening to some theoretical group,” the consultancy firm said.
“The very language of the preliminary issues paper views the 99% of New Zealanders with a personal bank account as a passive group on whom banking market participants act with impunity. It is disempowering and exclusionary and underlines the degree to which the commission is pursuing a technocratic process at the expense of the very people it should be representing.”
The bulk of submissions were from organisations and yet only two additional weeks were given to submitters wishing to make cross-submissions “on hundreds of pages of technical documentation” – a remarkably short timeframe when compared to the 20-working-day timeframe the commission has to process an Official Information Act request. To assess, assimilate and then author responses “in half the time of an OIA request seems either deeply optimistic or intentionally exclusionary”, Habilis said.
A question of equity
Addressing substantive points raised by the Australian banks was no small task and would take time, effort and expertise, the consultancy firm said, which would be “multiplied many times over throughout the 150-odd pages of smoke screens and water-muddying analysis from the Australian banks. Which brings us to the question of equity.”
Habilis expressed concern that the commission wouldn’t counter the Australian banks’ “specious” arguments, instead choosing to play the role of a neutral umpire, “merely adjudicating the competition between the Australian banks and their detractors” – the wrong position to take, in the consultancy firm’s view.
A significant resource imbalance existed between the banks and consumer advocates, which translated into a large power imbalance within the market study. Habilis said it lacked the budget to engage the country’s leading law firms or largest consultancies or specialised economists – so much so that the market study appeared to be “a game played by professionals against us amateurs”.
Consumer NZ, another small organisation compared to the Australian banks, was bigger in comparison to Habilis. “If Consumer NZ is struggling to engage with the commission’s technocratic processes and short timelines, then the hurdle is even higher for those of us with even more limited resource,” Habilis said. “While the commission did not set out to be discriminatory or exclusionary, that’s the place we find ourselves.
Having received a second tranche of submissions, the commission is preparing its draft report for publication in March 2024. Its final report is slated for 20 August. ■