Tied selling giving banks an unfair advantage?

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Brokers have a tough enough time competing with the banks, and one industry professional believes tied selling -- going by a different name -- continues to skew the playing field.

“[Bank employees] have a target on a weekly basis for not just selling mortgages but other products that they have to cross-sell, and to meet that target they have to look at other ways to changing their wording in delivering their speech to customers to cross-sell other products,” Deepak Bansal of Dominion Lending Centres told MortgageBrokerNews.ca. “They have to watch their discretions as well – if their discretions allow them to go on a five-year rate down to 2.69 but 2.79 is competitive, they’ll offer 2.79 but [say] ‘Mr. Smith if you’re able to open a bank account with us and apply for a Visa we might be able to bring that rate down to 2.74 or 2.69.’”

Bansal, who worked in the banking industry for a number of years, says this kind of practice has gone on since he was a banker. And bank employees are using this method to hit their sales targets for a number of products, not just mortgages.

According to Bansal, it’s called coercive tied selling and is in breach of the Financial Consumer Agency of Canada Act.

The Act states that banks are not permitted to engage in “coercive tied selling” or “forced purchases” – meaning banks cannot force clients to buy certain products as a condition of approval for others, such as mortgages.

But is what Bansal is describing in violation of the Act?

Not according to the wording on the FCAC’s own website.

“Banks (and their affiliates) are allowed to offer consumers, in conjunction with one of their products, another product or service on more favourable terms than they normally would provide. This is similar to a company offering a deal or discount to its customers if they purchase more than one item from the company,” the FCAC page on tied selling states. “For example, if you obtain a loan from a bank to purchase a Registered Retirement Savings Plan (RRSP) investment, the bank might offer you a better rate on your loan if you also purchase your RRSP investment from them.”
  • Andrew on 2015-02-11 12:11:03 PM

    It is called "relationship pricing" - not tied selling. If they say you cannot have the mortgage if you do not take these other products, that is tied selling. But nothing wrong with reducing the rate if they take other services. We not have to like it but lets be sure we compare apples to apples. No different in our industry when brokers buy down rates for their top clients and referral sources but not for all clients.

  • John Greenlee on 2015-02-11 12:12:13 PM

    I had a situation where a client came to me and said the bank offered the same rate as I had offered them with the promise of a discount on their banking fees.

    With this information I did the math on how much I was going to make on the deal really quickly if I bought it down 5 points and then offered to cover the costs of their entire banking fees for the 5 year term which came out to around $700.

    Fact is at that point I was going to make $0 if I didn't do something. The client took my offer and I closed the deal. I made less, but it was better than zero.

  • James Robinson on 2015-02-11 12:16:44 PM

    Andrew is bang on with his comments and it is just good business. As much as we all dislike the power the big banks have, we have to compete and fortunately, we have expertise and experience while a large number of bank employees only have price. How many "Financial Advisors" as the bank likes to call their salespeople, haven't even bought their fisrt car, much less a piece of real estate. Don't sell yourself short by thinking your only value is price.

  • Chris on 2015-02-11 12:17:47 PM

    Similar to buying a Big Mac at McDonald at a certain price but if you make it a Combo then it will be cheaper. I would not consider that as tied selling. A lot of other businesses have similar practice, the more items you buy the better deal you can get, it simply makes sense.

  • Ken on 2015-02-11 12:41:09 PM

    I'm a recently retired Branch Manager for one of the Big 5, now working as a Broker.
    This is definitely what was called relationship pricing and the one I worked with was very careful telling staff what lines not to cross. Having said that I know that tied selling was going on.

    In today's bank world, especially in active and growing markets the number of experienced and effective "Advisors" is dwindling and many in the branch network have little more than 1 or 2 years in the industry, often having moved up from teller positions within that time frame so actual sales and knowledge of credit products and delivery is limited at best.
    A few simple questions about the interaction these rate/fee shoppers have with their bank "Advisor" should make it pretty clear that they are more than likely to have a problem along the way with their financing than not.
    There are some experienced, knowledgeable staff in the branches who know the ins and outs but for the most part, if they are good lenders they don't stay in the branch for a long time, they move onto the bank Mobile Mortgage teams where they aren't micromanaged for how many add ons they sell and can focus on one product area.
    A broker with a good background and experience should be able to win out in most situations.

  • Brian Matthey on 2015-02-11 12:43:02 PM

    Big advantage with a CFF centre-I can offer no fee banking,line of credit,interest on money in their chequing account,TFSA.HISA,RSP,RSP loan,GIC's at the best 5 year rate in the market-plus competitive bank rate-allows me to compete head to head-check it out!

  • judy on 2015-02-11 1:36:01 PM

    We were in our local CIBC branch on Saturday to open a US$ savings account(these have been pushed at us for years by the tellers) and there was an easel advertising 12% returns on RSP's. After banking there 30+ years we were told we needed an expert to talk to us, no one in the branch could until Tuesday(as of this morning they still have not called). The analogy used by the teller supervisor had something to do with rifles and mortars(my husband suffers from PTSD). So we bundled up our meagre $US draft and resolved to shop around for RRSP's. In our experience the so called "experts" at the banks have lost us more money than we could have ever spent chasing our dreams. They do a lousy job of handling your money and recognizing long-term relationships. We are both former bankers and are slowly moving to CWB as it seems to value relationships, you don't get a telephone tree and our life savings don't sound like they are being held hostage in India/China. We can actually talk to someone whose face we know and speech we understand!

  • Bob on 2015-02-12 3:32:46 AM

    Someone please remove that comment from Neil Murphy advertising for Fortress. We dont want these forums to turn into spam from pitching of websites!

  • Bob on 2015-02-12 1:31:32 PM

    Bundled pricing is available in many industries, its not that the mortgage approval is based on the cross sell, but the rate is lowered based on the cross sell which is different.

    Its all about the profitability of a bank client. Wonder what Brokers would do if suddenly a option was available where bank/Financial institutions bid for a clients mortgage/HELOC business based on what banking products/services the client was willing to also accept, bypassing brokers all together. With reduced built in cost of not paying broker commissions banks/financial institutions could offer lower bundled rates, whcih would have a big impact on monoline banks spreads & maybe some of them would no longer operate

  • Frank on 2015-02-12 5:31:17 PM

    Why anyone would get a mortgage directly through the bank is beyond me. They do not train their mortgage specialists. The branch staff are all college grads who know nothing about mortgages, with the exception of some branch managers. Jack of all trades, master of none.
    Let the bank do loans and credit cards, small RRSPs and LOCs...let brokers who specialize in mortgages refer their clients to the bank after choosing the appropriate product and let the insurance companies handle insurance. By the way, insurance in the banks is more along the lines of tied selling and staff are overly pressured to sell push it...someone needs to better govern the banks and stop letting them do whatever they want.

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