Lack of Ethics in a Financial Product

The other day, I received a letter from Royal Bank of Canada, promoting a “0% interest” campaign. It states that any cash advances I would make on my credit card would be interest-free for a period of six months. Being a businessman, free money always gets my attention. Being analytical-minded, I read the fine print. And, there I find the details, which led me to write this about the ethics of product positioning and product definition.

Here is what made me think that the offer was unethical: The fine print states that any payments I would make would be applied to various components of the bill, in the following order:

1. Interest, fees, penalties – this makes sense
2. Balance with LOWER interest rate – this made me curious!
3. Balance with HIGHER interest rate!

Do you see what I see? They leave the higher interest balance to the end.  In other words, the so-called 0% promotion is nothing but! It is a method to take advantage of the trust of most people or, worse, pull those who need the cash most even further into debt.

Now, if one considers the objective of a bank, which is simply to make more money, the product is quite cleverly designed and promoted. The bank gives you a carrot and makes you pay the cheaper debt first, leaving your more expensive debt open for a longer period of time and collecting their fees, interest and whatever else along the way.

This situation exemplifies the importance of alignment between an organization’s objectives and those of their clients. Royal Bank, at least in this case, chose a “we win-you lose” strategy, which is costing them at least one client (yours truly). The challenge for the organization is to find “win-win” scenarios where the clients are happy with to buy the products of an organization where they see value and the organization makes money.

Many brick and mortar companies learned this a while ago and took specific steps to ensure ethical compliance (at least relatively speaking) in the way they source and sell their products. Take, for example, Wall-Mart’s “roll-back prices” tag line. They found a way to align their bottom line objectives with those of their customers. It appears like financial organizations have a few things to learn from Wall-Mart, Costco, and many other goods re-sellers.