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There is so much I could have written about recently with the meltdown of Wall Street and the massive bailout about to be delivered by the taxpayers. But it is a struggle to beat up on bankers who have made it clear in conversations that their ethical mission is the pursuit of profits for the bank and not to do what is ethical for the customer.

When faced with logic and a corporate culture like that, the Wall Street bankers should be receiving a national medal instead of outrage and disdain. At least I’m sure some of them think so.

“Why are you mad at us. You wanted the economy stimulated and let us self-regulate. How can you be angry we did what you wanted?”

Bailing out Wall Street will not fix this problem as long as the accepted norm is to put profits before everything else in the financial services industry. No, it will only be a matter of time before abuses in the pursuit of profits will undermine financial stability again.

Over in the article “The Right Thing: The Financial Company You Keep” an excellent point is made,

“It’s dishonest for an institution to advertise `We’re here for you’ when really you’re nothing but an asset that can be bought and sold,” says John Waggoner, author of Bailout: What the Rescue of Bear Stearns and the Credit Crisis Mean for Your Investments. “Expecting kindness from your mortgage lender is like expecting kindness from a soft-shell crab.”

The banker image used to be of a local businessman you could trust, but what of the modern banker. Sure we still have local bankers that care because they live in the communities they serve but the largest banks seem to put little effort in restoring a culture of ethics into banking or financial services.

I’m left pondering if it is even possible for a bank to act ethically in the interest of the customer and the bank or are we not left with a legacy that it is more appropriate to field strip a consumer from their money and bad on them if they actually trusted the bank.

There is one thing that really makes me frustrated, it’s when banking situations arise from personal experience. It’s just less stressful when banking problems happen to the other guy.

I just posted Citibank Staff Incompetence Costs Me $1,000 and Stranded for a Weekend in Philly and it made me wonder about when it is ethical to say you’re sorry.

When is it okay for a banker to really apologize for a mistake? I’m not talking about the “I’m sorry you’ve had that experience but I can’t help you.”, pathetic excuse. I’m looking for that old fashioned, “I value you you as a banking customer, sincerely apologize for the error and we’ll do everything we can to fix the problem for you?”

Are modern banking ethics more about maximizing profit, avoiding liability and have we lost the ability to deliver good customer service with an insufficient investment in customer service?

What do you think?

One of the recent credit offers that has been sent to me from my efforts at I Buy Junk Mail contained this flyer below.It made me wonder where the line was between clever loan marketing and an out and out bribe to take out a loan?Is a cash bonus the same as paying someone to take out a loan?Cash out from a loan has been around for a long time but this advertisement seems to present it in a different way.What is your reaction to this flyer?Click on image below for bigger image.

Today I was activating a replacement credit card and as I sat on hold I listened to the banks recorded sales pitch for credit insurance or payment protection insurance, it made me wonder. And then I heard it and then it hit me.

An argument that I made recently was that shouldn’t banking contracts contain some leniency for consumer repayment problems instead of trying to hold consumers to the letter of the contract when they are having financial problems, and yes I do understand the concept of give them an inch and they’ll take a mile.

But what strikes me today is that the biggest problem that I run into dealing with the front line of banks is persuading them to take payments and to get repaid rather than just continue to force the delinquent debtor towards bankruptcy.

On the front end of the consumer relationship is a marketing message which encourages the customer to come on board with near abandon and impulsivity but at the back end of the relationship, in collections it certainly feels like a take no prisoner attitude. Truly a good cop, bad cop scenario.

So if creditors want credit agreements to be absolute and without flexibility then why do most banks around the world today sell credit insurance with the marketing message of “We all know life is unpredictable”.  Isn’t this recognition that the lives and circumstances of the customer are not absolute and may be in adjustment of flux?

My question is, in light of this agreed unpredictability of life, what do you think the banks ethical responsibility is to their customer when they fall on hard times? Is it to hold them to the contract or to be individual flexible to the individual customer circumstances and allow the debtor to repay what they can afford without driving them towards bankruptcy?

My background in medicine taught me at an early age that the ethics of medicine are to do no harm to the patient and put the patient’s needs first. If medicine was only about the rate of financial return then more patients would be put through unnecessary tests to generate income or given medicines that provided financial incentive to the doctor. We view those situations as wrong and unethical.

I’d love to hear your feedback on how different professions can have different ethical norms or should banking be like medicine and place the best care and treatment of the customer as a cornerstone in ethical banking?

Here are the principal of medical ethics and do they seem to vary from what we consider to be the principals of banking ethics?

Principles of medical ethics

I. A physician shall be dedicated to providing competent medical care, with compassion and respect for human dignity and rights.

II. A physician shall uphold the standards of professionalism, be honest in all professional interactions, and strive to report physicians deficient in character or competence, or engaging in fraud or deception, to appropriate entities.

III. A physician shall respect the law and also recognize a responsibility to seek changes in those requirements which are contrary to the best interests of the patient.

IV. A physician shall respect the rights of patients, colleagues, and other health professionals, and shall safeguard patient confidences and privacy within the constraints of the law.

V. A physician shall continue to study, apply, and advance scientific knowledge, maintain a commitment to medical education, make relevant information available to patients, colleagues, and the public, obtain consultation, and use the talents of other health professionals when indicated.

VI. A physician shall, in the provision of appropriate patient care, except in emergencies, be free to choose whom to serve, with whom to associate, and the environment in which to provide medical care.

VII. A physician shall recognize a responsibility to participate in activities contributing to the improvement of the community and the betterment of public health.

VIII. A physician shall, while caring for a patient, regard responsibility to the patient as paramount.

IX. A physician shall support access to medical care for all people.

If the business of banking today is ethical in profit performance only and banking has become solely focused on the return and does not care to develop more personal relationship as a trusted financial adviser and someone who can be a bit flexible in difficult times, why should the consumer not become numb to their responsibility of repaying bank debt and look at it simply on the numbers and find greater value in discharging their debt rather than repay a friend?

A recent statement from a claimed Northern Rock debt management department employee raises new evidence and concerns about the banking policies of Northern Rock and their flagrant and abusive disregard for consumers with repayment problems.

In the past I have written about the blanket IVA refusals by Northern Rock and how a solicitor is pursuing those cases. How the refusal by Northern Rock to treat their debtors either sympathetically, fairly or individually is a violation of the Banking Code and how under Office of Fair Trading guidelines that creditors are not permitted to contact the consumer once they have been notified that they are being represented by a third-party, in this case, an Insolvency Practitioner.

Chris, the alleged employee stated the following in response to a recent article:

“As an employee in the Debt Management department of Northern Rock, I can assure you that the last thing we wish to do is force customers into bankruptcy.

We reject IVA’s out of hand, [VIOLATION] but this is to protect our interest. And why shouldn’t we? We lend someone money - they agree to pay x amount per month. Simple as. Now if a customer contacts us to advise they are having some difficulty repaying their loan/mortgage then we will do what we can to help them.

However, the majority of times the first we hear of any difficulty is from an Insolvency Practitioner.

We still try to contact the customer [VIOLATION] to come to an agreement to repay their loan - even offering lower than average interest rates.”

(Yes, I added the [VIOLATION] marks to show you the important sections.)

And Therein Lies The Problem

If a Northern Rock debt management employee feels this strongly about a position which is clearly wrong then certainly this reflects either a purposeful disregard for compliance with the British Bankers Association and the Office of Fair Trading or this is a reflection of complete disregard for the rules and a failure in staff training.

The issue here is that under specific, clear and written directives by the Banking Code, to which Northern Rock subscribes to honor and according to the OFT Debt Collection Guidelines that Northern Rock must honor they simply are not honoring either.

These issues have left me wondering about the greater issues of banking ethics and business ethics and I’m eager to have an open, frank and honest dialog about these issues at the site I created, The Ethical Banker.

There is no doubt that Northern Rock appears to be in clear violation of the policies, codes and guidelines mentioned above but isn’t the mark of a good bank not if they make mistakes, but how they remedy them?  In this case it appears that more than a memo is needed to help change the culture inside the banks collection department to reflect good business ethics and not good self-serving profit making ethics.

Shouldn’t banks be offering a product with fairness rather than a GOTCHA product where once you sign on the line you are held to absolutes? How can a bank hold consumers to an absolute in an non-absolute world? Does signing on the line for a financial product move the banks interests ahead of all others in the case of a situational life change?

If a bank determines that a consumer is a good risk as long as he has his current level of employment but loses that employment through no fault of his own has the agreement been modified and shouldn’t consideration be granted to incorporate the debtors new circumstances? And before you start flaming me on this, aren’t these just the risks that are inherent in extending forward promises or repayment in an imperfect and uncertain world?

Northern Rock Ethical Considerations

I’m wondering if we as a society consider it to be ethical for a bank to extend sub-prime or relaxed loans to consumers but not to extend the same degree of laxness or flexibility on the back end if a consumer gets into financial troubles or is that entrapment?

If a bank knows they are not in compliance with a code or regulation but continues to operate in non-compliance surely that must be against the banks ethics or is it if compliance would impact profitability?

Are banking ethics based on profit or the fair treatment of banking customers in good times and in bad?

So I wrote an article about HBOS, Northern Rock, Bradford & Bingley, Abbey, Lloyds TSB and Alliance and Leicester banks in the UK in which I questioned if putting profits over people was the desired outcome and someone, who reported works for a major bank said the following in response.

1. Banks lend to MAKE MONEY. Defaults on loans are not in their interest.
2. Banks are NOT charities, nor are they public bodies. The fact the government supported Northern Rock is a reflection of the competence of government and I personally think the bank should have been allowed to become insolvent. Nationalizing banks would kill the economy because there would be less incentive to MAKE MONEY.
3. Bank charges are there to MAKE MONEY, as well as penalize people who don’t manage their finances. I have previously had a terrible credit rating (after badly managing my own finances) so my bank refused me a current account and instead gave me a ‘card-cash’ account which I COULDN’T abuse, so never got any bank charges. This was appropriate and sensible and got me sorted. In the long run I will stay with the bank so they can continue to MAKE MONEY. Penalties (in all walks of life) will hopefully bring a bit more personal responsibility into society.
4. Businesses are there to MAKE MONEY
5. Do you work for NOTHING? Or are you on benefits? Can you get a job or are you trapped under something heavy?
6. If banks didn’t exist modern society wouldn’t be anywhere near it is today. If you disagree with this then I trust you are want to revert to Constable country (where the pictures don’t show the death and suffering everywhere).
7. Banks are NOT natural monopolies like gas, electricity, rail, post services etc. They should be allowed to compete and I trust that since there are so many of them competition is reasonable. Think about it - if you don’t screw with your current account banks won’t hit you with charges and you will not pay monthly fees so effectively they hold your cash for a very reasonable fee (the difference between what they pay you in interest and what they charge other banks in interest).
8. I work for a REPUTABLE bank. We strive (every day, constantly) to ensure we meet both the letter AND spirit of the law. We have a reputation to maintain and ACTIVELY REFUSE business that could damage this reputation, even if we know we can MAKE MONEY from a particular transaction.
9. Banking is NOT interesting, fulfilling, life-affirming or anything you would want your kids to do. People work in banks because they can make MORE money than if they were a teacher. If teachers earned the same as bankers there would be a lot more teachers, and no banking system to pay the teachers’ salaries. Sad yes, but true. Banks are the engine room of the economy and trust me they are just as un-glamorous. You need to be smart but smart people get bored more easily - hence the higher salaries. If you can suggest a better system for driving an economy then we would all like to hear it (with the exception of Stalin-creating politics of-course).

The person leaving the comments felt very strongly about defending the banks right to MAKE MONEY but missed a discussion about what, if any, the ethical or moral responsibility is there of banking and financial services to grant prudent access to credit. Does responsibility in lending mean that the bank is to only be responsible to maximize profit by engaging in loans or extensions of credit which are risky or sub-prime? Or does responsible lending mean that banks should refrain for extending credit to people that might maximize profits but also maximize risk at the same time?

Why is it that the morals and ethics of general society do not carry through to the banking and financial services industry. The typical reaction I get from people when I ask if we owed each other money and I couldn’t pay, what would you expect of me, is communication and a plan.

Yet it is my experience that when customers of banks run into financial problems and reach out to banks for consideration that the front line answer is generally that there is little to no help available. Either the banks internal policies and procedures prevent a sufficient modification to the repayment plan or lenders want to avoid any reporting of loans that would show poor performance. In both cases the banking position is one of little to no meaningful help or assistance for the consumer in trouble.

If societies ethics and response would be to be flexible and seek a balanced solution, and the bank does not strive to do that, are the banks morals or ethics out of balance with societies and not reflective of the moral norm?

What do you think about that situation and what do you think the ethical goal of the bank should be on the lending side and on the collection side or should the moralities and ethics be the same on both sides of the bank?

Finally, should the morals and ethics of business attempt to mirror those of society or should business ethics serve as enforcement of the corporate profit goals?

So let’s jump right in. There are so many different situations and issues we can explore but I’d like to talk about banking and ethics on a macro level at the moment.

Is it even possible for a bank, credit card company, lender or major extender of credit to even have a belief or policy of balancing the treatment of customers over or equal to the pursuit of profits?

Does the pressure of a publicly traded banking institution create such a tremendous burden on performance that when faced with the intersection of performance or ethical management, one of those forces must give way?

Are business ethics adjustable or bendable or are there absolutes beyond which they can’t bend?

Looking around the web for information on banking and ethics has been enlightening. There seems to be an absence of information, in fact a huge black hole on this subject. While there is much discussion about business ethics about lying, cheating and stealing, there is not much talk about  the ethical intersection between the pursuit of profit in banking and the treatment or regard for customers. Is that or should that even be a concern at all?

Banking pursues profit but does banking pursue the ethical treatment of customers as well? Should it?

One research paper argued that corporate and financial ethics do not exist ‘to do good’, but rather to act reflexively to consolidate and sanction internal activity, with the consequence that the employee is called on to be ethical not on the individual’s own terms, but on the profit-motivated terms of the institution. In the end, profit remains as the bottom line. If that is the case then a corporate banking code of ethics will always be out of step with the code of normative ethics that society holds.

I know I’ve asked some very broad questions in this post but I am anxious to start a discussion and hear what you have to say.

Steve

Banks should have an ethical responsibility and are not protected by limited liability from the consequences of their actions. A company’s record and the preception of its ethics affect its reputation and ensure long term success or failure.

The financial community has a history of placing moral considerations above legal or opportunistic expedients. But are the dangers of contamination, increasing in the pursuit of profit?

Historically the bankers’ role is one of stewardship based on trust. Bankers were trusted by the general population to look after their money and bankers do have a duty to lend that money responsibly. Don’t they?

Banking is about rewards reflecting real risks and ethical considerations form an important part of our risk-taking activities. The welfare of our borrowing customers, in good times and bad, is of major concern in any business proposition. Sometimes commercial considerations can be at odds where ethics and politics combine and which is more important?