Bank customers shut out of Commerce Commission banking market study

Wednesday, 15 November 2023

The Commerce Commission appears to have an open door to the big banks during its market study into the banking sector, but faces criticism its decisions are keeping the general public at arm’s length.

The Commerce Commission ranked consumers as the lowest influence group, and the lowest priority for engagement, in a confidential early plan for conducting its banking market study.

The market study was ordered by the Labour government after a rising crescendo of anger at high bank profits, even as households were struggling.

But when veteran consultant Kent Duston used the Official Information Act to get his hands on the commission’s “In-confidence – Internal Use Only” planning documents, he found a ranking of “stakeholders” putting consumers at the bottom.

Big banks and other government agencies topped the list for “influence”, and the commission intended to “manage closely” its engagement with them.

Next came the smaller banks, and Tiriti partners, both of which were characterised as having a “medium” level of influence. Engagement for them would be “targeted”.

At the bottom of the ranking was the general public, which the commission marked as having “low” influence. The main way the commission wanted to hear from consumers was through a guided survey.

It seemed to confirm Duston’s concerns that the commission had an undemocratic, “technocratic” approach to studying the banking sector, and was disinterested in hearing directly from the general public.

In a statement, the commission said it continued to evolve its approach to stakeholder engagement, and was confident its financial report, to be published by August, would reflect a range of “perspectives and experiences”.

Duston started sleuthing after becoming concerned the public were being discouraged from having a say by the commission. He saw scant publicity, no social media advertising, no print advertising, a jargon-filled technical consultation paper, and an extremely short window of time for people to make submissions.

“This is entirely puzzling,” Duston said.

Kent Duston, from the wellbeing and social investment consultancy Habilis in Auckland.

“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.”

Yet “the commission appears disinterested in wider inputs from the very consumers who are being disadvantaged by the Australian banks, because it has not designed the process to be inclusive or acted to reduce the barriers to participation”.

The commission was taking a “technocratic rather than democratic approach,” he said. The language of the issues paper was “disempowering and exclusionary”.

The commission has published the submissions, and cross-submissions, it has so far had.

There were 48 in all, with just 12 from members of the public, compared with 17 from banks and financial services companies.

Rangiora woman Lisa Cowe is a wahine toa fighting to get the Government to make having a bank account a human right after being debanked when she was bankrupted temporarily in 2017.

She told the commission that Bank of New Zealand’s submission falsely claimed the bank “is committed to ensuring its products and services are accessible to all people in New Zealand”.

Lisa Cowe is lobbying for access to banking to be a human right.

She called BNZ to check whether it would let her have a simple transaction account, and said BNZ “confirmed that not only is this statement untrue but also that BNZ will not be giving bank accounts to bankrupts in the future”.

“I do have concerns about the outcomes of this market study,” said Cowe.

“How can the Commerce Commission make any reasonable recommendations with only a tiny fraction of personal customer input?”

The lack of balance in submissions, and non-bank submitter firepower, was a concern for anti-monopolist Tex Edwards, founder of 2degrees, whose Monopoly Watch NZ organisation made five of the 48 submissions.

Edwards says the banks had massive financial muscle, and access to the biggest consultancy and economic analytics firms, and had the ear of the commission, which intended to engage with them closely.

He says on the other side was the underfunded Consumer NZ, and a few activists like Cowe, and himself.

“Tex Edwards is not a thundering herd,” the anti-monopolist said.

Consumers were ranked as the lowest influence group, and the lowest priority for engagement, by the Commerce Commission in a confidential early plan for conducting its banking market study.

The documents Duston secured using the Official Information Act left him concerned at the number of things the commission appeared to be intending not to probe too deeply, or appeared hesitant to use its powers to secure information from the banks on.

The National Party and independent economist Cameron Bagrie have been critical about small business banking being excluded, and that credit cards are largely being set to the side.

The documents Duston secured included the commission’s draft analysis plan for the banking study.

The plan said the commission “may” request internal net interest income and product net interest margins data, which banks probably used for internal purposes.

“How do banks compete on price? We could ask for, and if available, review, their internal pricing models for key products”, the plan said, but that sentence was marked “lower priority”.

And, it said: “We do not propose to conduct our own internal calculations of profitability, to conduct a robust benchmarking of profitability, or to offer commentary as to whether bank profitability in New Zealand is above a competitive level.”

The commission also did not plan on probing concerns that banks were engaged in “coordinated effect”, effectively all doing the same thing at the same time, instead of competing, such as failing to cut lending rates when the Reserve Bank dropped the official cash rate.

“We are not proposing to substantively address a coordinated effects theory of harm at this stage, nor are we proposing to undertake a comprehensive assessment of the extent of market power for each of the four major banks,” it said.

Finance Minister Grant Robertson (second from right) and Commerce Minister Dr Duncan Webb (nearest the camera) announced a Commerce Commission investigation into the banking sector in June.

And again: “We are not currently proposing to undertake a detailed assessment of market power for each of the major banks in respect of individual product markets, such as current accounts or residential mortgages.”

Another area the commission did not intend to look at was home loan discounting, which is a term used for giving lower lending rates to some borrowers, while not giving them to others.

“Our preliminary analysis plan does not include a detailed assessment of the extent to which prices for residential mortgage products may be transparent or opaque. While this will be covered at a high level (by looking at internal documents about pricing strategy), we may not delve deeply into: the proportion of customers on ‘headline rates’; the size and scale of discretionary discounts, and the way in which these are determined; or the size and scale of differences between deals offered to ‘new customers’ compared to existing customers.”

The commission said the draft analysis plan had been superseded by the Preliminary Issues paper, though none of those issues appeared to have been elevated in the commission’s planning in that document.

Antonia Horrocks, general manager for competition at the commission, said: “As new information has come to light in the course of our work, our approach continues to be refined in a number of areas. The latest public description of our proposed approach is reflected in the Preliminary Issues paper.”

She also said it was not too late for the public to share its stories, though the timeline for the commission’s work, which Duston secured using the OIA, appeared to show anyone who had not shared their story with the commission yet had missed an opportunity to help develop the commission’s analysis plan.

“There will also be plenty of opportunity for stakeholders and interested parties – including members of the public - to engage again when the Draft Report is published for consultation,” Horrocks said.

The project timeline showed the commission planned to publish the draft report in early March. The public would then have until April 1 to have their say.

Chapters for the final report would begin to be drafted in the last week in May, the timeline showed, leaving just a few weeks for the commission to investigate any fresh evidence brought to light in submissions.

Timeline to a market study

A market study is an in-depth study by the Commerce Commission into the factors affecting competition for particular goods or services, to find out how well competition is working and whether it can be improved.

2018 and 2019: First market study undertaken focusing on the retail petrol market in which the petrol companies had been making persistently higher profits over the previous decade than would be expected in a workably competitive market

2020, 2021 and 2022: Market study of the $21 billion grocery market at the time was ordered following media coverage questioning whether consumers and supermarket suppliers were getting a fair deal.

2021 and 2022: Market study of building supplies undertaken after concern at the high cost of building homes.

November 2022: Prime Minister Dame Jacinda Ardern criticises high bank profits in a cost-of-living crisis, saying banks risk losing their social licence to operate.

March 2023: MonopolyWatch publishes ‘terms of reference’ for a banking market study. Simplicity KiwiSaver founder Sam Stubbs calls for a market study. National’s Nicola Willis reveals Labour Government planned to announce one.

June 2023: Government orders the commission to carry out a market study into retail banking, but not to probe rural banking or small business business banking.