Tied selling giving banks an unfair advantage?

Tied selling giving banks an unfair advantage?

Tied selling giving banks an unfair advantage? 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.”
10 Comments
  • Andrew 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.
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  • John Greenlee 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.
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  • James Robinson 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.
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