Don Lawson Knoxville“Unchecked Incentives Can Produce Unauthorized Account Openings, Deceptive Sales Tactics, and Other Illegal Practices” according to the CFPB.

In the wake Wells Fargo’s phony account scandal, see here, the Consumer Financial Protection Bureau (CFPB) issued a bulletin warning financial companies that linking bonuses and incentives of their employees to sales goals or other business goals can lead to abuse if not property managed.  Banks and other financial companies use bonuses, commissions, promotions and other incentives to encourage their employees to accomplish business objectives.  Many times these programs commonly reward employees or services providers for selling or referring new products or services to existing customers, signing up new customers, selling products and services at higher prices, or meeting target amounts for debt collections.

“Tying bonuses and job security to business goals that are unrealistic or not properly monitored can lead to illegal practices like unauthorized account openings and deceptive sales tactics,” said CFPB Director Richard Cordray. “The CFPB is warning companies to make sure that their incentives operate to reward quality customer service, not fraud and abuse.”

Specific examples by the CFPB of problems include:

  • Opening accounts without the consumer’s consent.
  • Misrepresenting the benefits of the product just to get the sale.
  • Steering consumers towards less favorable products or terms in order to get a particular number of that product or to make a higher sales goal.

The CFPB bulletin outlines various steps that institutions can and should take to detect, prevent, and correct such production incentives so that they do not lead to abuse of the consumer, including oversight by the board of directors and management, transparent policies and procedures, clear controls for managing the risk for abuse and potential conflicts, training, monitoring and a consumer complaint program.

 

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