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16 Nov 2021, by Amy Sarcevic
From exploiting the vulnerable, to heavily penalising hardship, it is often easy to recognise what fairness is not within financial services. Defining what exactly fairness is, however, in the realms of marketing, product or contract design, can be a deceptively complex task; one which even ethically-motivated firms trip up on, explains Professor Deen Sanders of Deloitte.
Despite a willingness by many to do the right thing by consumers, fairness is a subjective concept, and regularly substituted with compliance. While fairness has always been coded into the Corporations Act (section 912A) – obliging services to be provided ‘efficiently, honestly and fairly’ – the Act does not detail any specific regulatory guidelines to support its fairness intention. This makes compliance alone insufficient from a fairness standpoint.
“When companies are analysing whether their practices are fair, they often turn to the law and ask what the legislation prohibits them from doing; then from there make decisions, investments, and build new products. Fairness at its heart doesn’t work this way, though. The question isn’t ‘can we’, but rather ‘should we’ be pursuing this business model, technology, or strategy,” said Sanders.
“[Moreover] I’m not sure we always think about the ethics and fairness of something that sounds like a good idea,” he added. “As an example, apps designed to remove the friction from credit applications may seem to be in the best interests of consumers, but they enable impulsive financial behaviour and can result in harm. When dealing with major financial decisions, friction can be important, as it buys the consumer time to reflect on what they are doing and decide whether or not it is a sensible move.”
Compounding this, technologies like Artificial Intelligence are treading new ground within banking, with some applications yet to accrue long term data on how consumers may be affected. This leaves firms unclear on whether there may be ethical implications in the long run.
A cultural shift
The push for ethical business conduct is becoming stronger, he said, with fairness felt more profoundly in unequal societies.
“Where there are high levels of inequality, the community is much less forgiving when unfairness occurs,” said Sanders. “In Australia at the moment inequality is growing, and lenders cannot afford to be seen as unfair. Consumers, stakeholders and even staff will have much higher expectations for ethical conduct, and companies that don’t display this will increasingly lose out on business, talent, and ultimately profit.”
Indeed, recent statistics show that income inequality is on the rise in Australia. Between 2017 and 2018, the top 20 per cent of households had six times the income of the lowest 20 per cent – up from a five-fold difference in 2015-16. Over the same period, the wealth gap was also large with the highest percentile of wealth-holders owning 90 percent ($3,255,000) more than the lowest ($36,000).
Today’s COVID-induced deficit and a rapidly shifting job market, threaten equality further.
“Everybody is concerned about what is coming around the corner. How credit providers act in the face of changing rates, property and employment markets will truly expose their values,” said Sanders.
Alongside income and wealth disparities, cultural norms can also influence the degree to which fairness is felt. For Prof Sanders, a First Nations man, the concept of fairness is deeply woven into his cultural fabric.
“Indigenous communities places a high value on fairness and integrity. In Aboriginal culture we talk a lot about ‘responsibility’, which differs from the notion of ‘accountability’ discussed often in financial services. The former has a strong ethical underpinning, while the latter relates to compliance,” he said.
So what does fairness actually look like?
Within financial services, fairness can take many forms, but is best achieved through re-imagining client relationships, Sanders said.
“Once upon a time, credit and banking was about how we built things together and shared in the success of a new business, venture, or investment. It was less transactional than it is today. We need to re-incorporate this mindset into our modern day business models and practices. As lenders, we are not just here to provide consumers with money, but rather to share in each other’s success,” he said.
“Having this relationship with our community is an opportunity, not a constraint, and businesses that recognise this will have a strong foundation on which to build consistently ethical practices,” he added.
Practically, fairness can show up in the way lenders build contracts, on-board clients, and recruit staff. Here, small tweaks can make a big impact, Sanders said.
“If you are handing out a twenty page disclosure agreement, why not begin the contract with a ‘principles of fairness’ section which details how we will be in a relationship together,” he suggested.
Within collections, more radical reforms may be needed.
“Rethinking the nature of collections is one of the most important differences a financial services provider can make in their journey to becoming more ethical. Ideally, the collections process should not be shaming, punitive, or judgemental. Exorbitant fees should be reconsidered, as should the nature of customer service,” he concluded.
Sharing more practical tips on how financial services providers can embed fairness into their everyday practices, Prof Deen Sanders will present at the 31st Annual Credit Law Conference. This year’s event will be held 8-10 December at the Hilton Sydney.
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