Banks and other lenders are pushing vulnerable families into higher levels of debt by forcing sales staff to rely on performance bonuses to boost their shrinking base salaries.
Unions are worried that greater numbers of financial sector employees have been placed on individual contracts in recent years which link remuneration to meeting sales targets in the form of loans granted.
In a submission to the federal government’s Green Paper on Financial Services and Credit Reform, the ACTU says this sales target-driven approach has led to increasingly lax lending policies which have caused households to take on more debt than they can afford.
Australian families now owe $1.59 for every dollar of disposable income earned.
The ACTU says banks should be required to provide more details about the commissions earned by loan sales staff, so that customers have a better understanding of the financial risks involved.
“Over time, the proportion of pay linked to performance has grown exponentially while base salaries have shrunk,” said ACTU president Sharan Burrow.
“Bank employees face greater pressures to meet ‘targets’ to earn a living wage despite banks making record profits in recent years.
“Instead of ‘would you like fries with that?’, the mantra for bank customers has become ‘would you like a loan with that?’
“Unfortunately, this has led to high interest products, including mortgages and credit cards, being pushed to people who really can’t afford them.
“We are seeing the consequences now, with the indebtedness of Australians rising sharply over the past year.”
The widespread use of sales targets have been linked to employees’ pay and job security under Australian Workplace Agreements used extensively by big banks in recent years.
A survey by the Finance Sector Union found that 59 per cent of bank workers said they felt pressured to make inappropriate sales of loans and debt products to meet targets.
The union’s research found that there had been threats to the employment of staff who do not want to undertake excessive debt pushing practices, and the use of targets was “the systematic means of weeding out people who have an aversion for pushing debt onto vulnerable people”.
The ACTU’s submission highlights that lending standards have been relaxed in recent years as established financial institutions have responded to competition from non-bank lenders.
Unions are calling for tougher regulation of the finance sector and credit lending, and further investigation of the use of penalties and fines as disincentives for non-compliance with regulations.
The ACTU is also backing the introduction of a uniform national scheme to regulate mortgage and margin lending and to investigate property spruikers.