Banks failed to disclose all personal loans information to mystery shoppers

Banks are not disclosing key information on personal loans when customers first enquire about them, a mystery shopping exercise conducted by the financial services watchdog has revealed.

The exercise also showed that costs were sometimes not explained clearly and customers were directed to the bank’s website instead of being given immediate answers.

The Malta Financial Services Authority said that 62% of the mystery shoppers were not provided with conditions related to early repayment of loans.

The exercise consisted of 50 interactions and was undertaken by the MFSA in collaboration with the European Banking Authority. In a statement, revealing the findings, the MFSA said several credit institutions have proactively taken steps to enhance consumer service levels based on the authority’s recommendations.

The MFSA said that a good practice identified during the interactions was that the absolute majority (96%) of banks under review did not try to increase the amount of credit requested by the mystery shopper by for example, automatically adding a payable fee, such as a commitment fee, to the amount of the loan.

It also emerged that client-facing staff was not actively cross-selling other products offered by the bank, which suggests that banks are avoiding practices that could lead to financial product mis-selling.

In a separate evaluation involving another 50 mystery interactions with credit institutions offering payment accounts, the MFSA found limitations in the information provided to clients.

“In only 11% of face-to-face interactions were the mystery shoppers offered details about the full range of payment accounts available, while a significant 75% neglected to discuss optional services associated with these accounts,” the MFSA said.

Another finding revealed that in onsite visits, 63% of credit institutions did not proactively provide the essential document detailing account fees.

These documents were often difficult to locate on the banks’ websites or were provided only upon shopper prompting.

“Nevertheless, the exercise has shown that the Fee Information Document was generally in the standard format as required by the applicable regulations,” the report said.

Sarah Pulis, head of Conduct Supervision at the MFSA, said the exercise wanted to ensure that institutions comply with regulatory requirements and prioritise consumer protection.

“While certain positive practices were observed, the findings highlight areas where institutions need to improve. Information on costs and rights should be readily available and presented clearly to consumers, across all channels, as early as at enquiry stage. The MFSA also expects bank staff to be regularly trained on product knowledge, professional conduct, and accurate information provision. In our interaction with these institutions after the study, we have noticed a significant commitment by banks to work on these areas for enhancement for the benefit of consumers,” she said.

Christopher P. Buttigieg, chief officer Supervision, said a primary objective of the MFSA was to ensure that the interests of consumers are properly safeguarded.

“Our supervision also focuses on the business conduct of financial service entities, to make sure they always act in the best interest of consumers. This mystery shopping exercise continues to underline the importance that we give to consumer protection,” Buttigieg said.

The authority said it will continue to engage with banks and work collaboratively to address observations flagged during the exercise and promote continued compliance with regulations.

Get the EBA report on the mystery shopping exercise here.