BANKS ONE
Some South African banks are lucky they do not operate under the consumer protection rules of the United Kingdom. In Britain millions of home owners are to be compensated by their banks because of the way in which they were sold mortgage-linked life assurance endowment policies.
And the banks which sold the policies could be facing tough fines similar to those handed down recently to life assurance companies for mis-selling pension plans.
The British Personal Investment Authority ombudsman, Tony Holland, criticised the policies because policyholders were not advised of their high-risk nature.
The mortgage-linked life assurance endowment policies were widely sold in South Africa but have been quietly phased out by local banks after the high-risk nature of the products was exposed by Personal Finance, particularly against the background of very high interest payable on home loans in South Africa.
The product works (or is said to work) like this:
* You take out a home loan;
* You only pay off the interest. You do not pay off the capital;
* You take out an endowment policy into which you initially pay the money that you would have used to pay off the capital;
* The amount you pay into the endowment is escalated by about 10 percent every year; and
* In theory after 20 years you will have enough to pay off the loan and have a bit more besides.
These policies are not working in Britain where interest rates (less than five percent) are not as far away from returns on endowment policies as they are in South Africa.
With life assurance companies showing returns of less than 10 percent, some substantially less, on mainstream lower-risk endowment business and with interest rates on mortgage bonds being closer to 20 percent for long periods, it is a no brainer about the success of these "investments".
Standard Bank and Liberty Life at least have given guarantees that the bond capital amount will be met, but even then you would probably have been better off and less at risk if you paid your bond off using the extra money that goes to the escalation clause in the endowment to reduce your bond's term.
If you already have signed up, here is what I suggest you do:
* Guarantees: Establish in writing whether you have any guarantees that the bond amount will be met. If you do, you should probably sit tight even though you would probably have been better off not being in the product at all.
* No guarantees: If you do not have a guarantee and you were told that this was a low-risk choice, complain to both the bank and the bank ombudsman and attempt to get your position re-instated. I would also consider stopping any further escalation in the endowment and using that money and any other spare cash you have to repay your bond sooner. You should not consider cancelling the endowment itself. You will probably lose more than you would gain because of surrender penalties. If you do surrender the policy, use the money to reduce your bond.
BANKS TWO
Last year I walked into the office of Viv Bartlett, head honcho at First National Bank, to interview him about his well-advertised campaign to bring better banking services to his customers.
He beat me to my first question by asking me why I was a "bank basher". Since then, Personal Finance and I have been attacked for being bank bashers by other banking executives, the Banking Council and some clown from the trade union of banking officials, who thinks bad service is justified as long as bank staff keep their jobs. A few banks withdrew advertising from Personal Finance.
What did we do wrong in the eyes of this group? We highlighted problems being suffered by bank clients, such as poor service and poor products as well as uncommonly high differences between bank borrowing and lending rates.
Against this background I was interested to read last week the very first report of the very first banking ombudsman who was not also the chief executive of the banking council. The ombudsman, Charl Cilliers, was critical of the banks over numerous issues.
I was also interested in an interview Business Report published with Derek Carstens, former MD of Ogilvy & Mather, Rightford advertising group, who has joined the First Rand group, which among other things, owns First National Bank.
"In general banks have done a relatively poor job of managing their public image," Carstens said.
I agree, but I think poor service is the main reason why banks have a poor public image.
"I would hope to see some co-operation between the industry players in challenging existing misconceptions including the perceived lack of competition." This is a priceless statement: "co-operating" to show you are not a cartel?
Later in the report he is quoted as saying he hopes to bring a consumer-orientation to First Rand financial services brands.
I would suggest that instead of shooting the messenger as FNB did by pulling advertising from Personal Finance after a critical report on one of its subsidiaries, Carstens should make his first task to improve the way his group treats consumers. Last week I slapped other divisions of his company, Momentum Life and Southern Life, over the knuckles for attempting to curry favour with financial advisers at the cost of and by misleading policyholders.
Financial services companies should realise that employing high-salaried spin doctors, to paper over the cracks will not improve any brand name in the long run. The only answer is to address the real concerns of the people who contribute to the profits, namely the consumers.
In the meantime, Charl Cilliers, you get two gold stars for your first report. One for taking on the job and the second for finally reporting on the issues that are of concern to bank customers.
Personal Finance last week reported extensively on Cilliers' report and does so again this week in the interests of empowering readers and not to bash the banks.
Often a lack of knowledge causes mis-understandings between banks and customers. The advantage of reports like that of the bank ombudsman is that they are a learning opportunity for everyone.
If you have any problem with your bank that you cannot resolve with it, contact the ombudsman. But he is there for the purpose of addressing legitimate complaints, not to bash your bank because it refused to give you an overdraft or bounced your cheque because you had no money in your account.