6-month moratorium: Dear banks, you need to work on your public relations

Over the past two weeks, the banking sector lost not just money, but a lot of goodwill from its customers. The former was unavoidable due to Covid-19, the latter was all their own doing.

We are talking about how banks managed the communications to their customers regarding the 6-month moratorium for bank loans. Do banks not have any PR strategy at all?

Hands up if you had trouble understanding Bank Negara’s first announcement on 25-March, which said:

“It is important to note that the interest/profit will continue to accrue on loan/financing repayments that are deferred and borrowers will need to honour the deferred repayments in the future. Borrowers should therefore ensure that they understand and discuss with their banking institutions on the options available to resume their scheduled repayments after the deferment period. Individuals and SMEs that do not wish or need to avail of these flexibilities can continue with their current repayment structures.”

Who is going to explain this to Makcik Kiah? What is accrue? What is a moratorium? Is it a cross between a mortuary and a crematorium, but for your finances?

It’s understandable if the central bank, which because of the nature of its position as a regulatory body had to use industry jargons but not a single bank showed the slightest understanding in public relations and customer care, in explaining to customers what it all meant.

It further confirms the public’s suspicion that financial institutions operate with the mindset of, in order to sell a financial product, the strategy is to confuse the customer with complicated terminologies and concepts, before making the customer rely on them.

Yes, the financial sector is heavily regulated so it limits how a message can be conveyed, but the aviation and pharmaceutical industries are bounded by equally strict laws.

Scarcity of information can be a powerful tool for businesses, to the detriment of consumers. Yes, banks make all the necessary information available, but the law doesn’t say anything about making these information in a user-friendly way. There's no carrot/stick for banks to do any better because it's an unspoken rule for the banking industry to keep things complicated since it benefits them.

Regulations for the car industry are just as strict, especially in Europe and USA. When Volkswagen was managing Dieselgate, did it try to confuse customers with words like United Nations Regulation 101, Regulation 83, Global Technical Regulation No.15?

When the European Union fast-tracked the implementation of the World Harmonized Light Vehicle Test Procedure (WLTP), it caused a backlog of Vehicle Type Approvals (VTA), which in turn meant that many new models were suddenly no longer road legal.

The customer cannot understand why he is not getting the car that he had already paid for, or why a particular model has been dropped from the line-up.

Worse, VTAs done with WLTP now show higher fuel consumption and exhaust emission ratings than the previous New European Driving Cycle (NEDC), which meant that the customer now need to pay more tax. Customers don’t know what is NEDC or WLTP and they shouldn’t need to.

Did car companies blame the EU Commission or tried to deflect their customers’ attention with confusing terminologies?

No, nearly every manufacturer tried their best to communicate the issue using easy to understand words and animations.

Here's a good example of how to communicate complex regulatory related issues that affect consumers:

Back to our local banks. The central bank said interest will continue to accrue for all loans, but conveniently left out hire purchase – which is a big chunk of borrowings but has a different way of calculating interest.

Many banks kept quiet and chose to not give a clear answer to questions about deferred repayments for hire purchase borrowings. CIMB and Maybank are notable exceptions so kudos to them but the language used could have been simpler.

Many other banks have until today, not said anything about hire purchase on their websites. Customers are expected to call the helpline and wait on the line to get an answer.

When you do not communicate to address an issue, consumers will make their own conclusions, which could make things worse. That’s just public relations 101.

Some banks later said that interest/late payment charges will be waived. Others used the term ‘no compounding of interest’ – which confused Makcik Kiah even further.

Then on 30-April, banks communicated to their customers that deferred installments will incur interest charges.

Hang on, some banks had earlier explained to customers that because interest for hire purchase is calculated based on the principal amount, there can be no further changes to the interest, but now we are being told that there will be further interest charges?

Banks defended themselves by saying that they never said interest for hire purchase was waived. It was at this point that the banks angered many of their customers. Fed up with the poor response from banks and long waiting time for their helpline, many contacted us but we wouldn't know any better. You can ask us about cars, but finance is not our area of expertise. 

Put aside the fact that banks are charging an interest over an existing interest, banks just can’t seem to communicate things in a decisive, clear manner.

The Ministry of Finance later gave his opinion that the additional interest charge was not appropriate and soon banks retracted their earlier announcement.

It didn’t end there. Initially, banks said that the 6-moratorium was automatic. Yesterday, the Minister of Finance said that although the moratorium is automatic, a borrower’s consent is legally required.

Do banks not have a PR manager? Are they actually PR professionals or are they generalists who somehow found themselves in a PR position.

Perhaps it is because the barrier of entry into the banking sector is high and limited by Bank Negara, competition is low so the industry operates as if it’s cocooned from changes in communication methods and expectations of consumers.

It is for this reason that we should welcome fintech start-ups to provide some competition to these old lumbering dinosaurs who operate as if the financial sector is an exclusive old boys club.