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Canada's big banks treat Indigenous, visible minority customers unequally: watchdog

People cast their shadows as they walk in Toronto's financial district on Monday, Feb. 27, 2012. A report by Canada's financial consumer watchdog says customers who self-identified as visible minorities and or Indigenous more often reported receiving recommendations that were not appropriate for their needs in a mystery shopping review that looked at Canada's big banks. THE CANADIAN PRESS/Nathan Denette

Pressure sales tactics. Ill-fitted suggestions. Misleading information.

Visible minority and Indigenous customers at Canada’s big banks more often received inappropriate treatment from sales staff, part of a wider trend of "concerning" interactions between those institutions and shoppers, a federal consumer watchdog has found.

In a mystery shopping review conducted in 2019 by the Financial Consumer Agency of Canada, customers who identified as a visible minority or Indigenous person more frequently encountered recommendations that were less simple and unsuitable to their financial circumstances compared with shoppers who did not identify as such.

They were also pitched more heavily on optional products. One in three were offered overdraft protection — the service guarantees that charges to a debit account will clear even if the balance falls below zero, but often involves heavy fees and interest — versus 18 per cent of other shoppers. They were also three times more likely to be offered balance protection insurance, according to the report, released Thursday.

"These findings indicate that banks can do more to ensure that the demographic groups at higher risk are protected from experiencing concerning sales practices," the federal agency said, highlighting younger shoppers and students as well.

Mystery shopping is a method of market research where individuals use semi-scripted scenarios to pose as customers and and talk with employees, in this case at bank branches. The shoppers, who recorded their observations, asked about chequing accounts and credit cards and reported on their interactions.

Overall, the report found 74 per cent of the shoppers at 712 bank branches described their experiences as positive. However, the agency said the banks could improve service when it comes to product recommendations and employee communication.

“Canada’s banks are client-focused with a deep commitment to high ethical standards and complying with established laws and regulations when providing products and services to help customers meet their financial goals," the Canadian Bankers Association said in an email, noting that a majority of mystery shoppers described their overall experience as positive.

Credit cards were a particular area of concern. Some 28 per cent of credit card suggestions were for premium cards that require a baseline income of $60,000 or a household income of $100,000, the report stated. But four in five shoppers received no questions about their income "at any point when a premium card was recommended."

Some 15 per cent of chequing account interactions and 20 per cent of credit card chats "led to recommendations that shoppers did not find appropriate for their needs," the agency said.

While only three per cent of sit-downs resulted in shoppers feeling pressured to sign up for a product or service, that low proportion "does not tell the full story," the study found. Twelve per cent of customers said they were pitched products or services at least twice, and that some employees "explicitly attempted to overcome" the turndowns of would-be clients.

"Despite these reports, many in this group did not report feeling pressured," the agency added, noting shoppers define pressure differently.

New federal rules that come into effect June 30 aim to enhance customer protections by obliging banks to speed up complaint processes and sell products and services that are aligned with clients' financial needs.

"We expect banks to focus on the areas for improvement that have been identified as they implement Canada's new financial consumer protection framework and ensure they consider the needs and abilities of consumers, including those in vulnerable circumstances," agency commissioner Judith Robertson said in a release.

Canada's Bix Six banks are the Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank.

This report by The Canadian Press was first published May 26, 2022.

Companies in this story: (TSX:BMO, TSX:BNS, TSX:CM, TSX:NA, TSX:RY, TSX:TD)

Christopher Reynolds, The Canadian Press

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