CFPB Warns Banks About Risks of Sales Incentives
November 28 2016 - 4:30PM
Dow Jones News
WASHINGTON—The Consumer Financial Protection Bureau on Monday
warned banks about creating incentives tied to sales goals,
underscoring its intention to keep a tight rein on banks in the
aftermath of the phony-accounts scandal at Wells Fargo &
Co.
In a special bulletin, the CFPB said incentives for employees
and service providers "can pose risks to consumers, especially when
they create an unrealistic culture of high-pressure targets."
The watchdog agency laid out steps that banks should take to
strengthen their compliance management systems to prevent and
detect incentives that could lead to violations of the law.
The CFPB said that in addition to opening accounts without
customer consent, banks could violate consumer financial law
through behaviors caused by unchecked incentives, such as
misrepresenting product benefits to customers or steering consumers
toward less favorable products or terms.
While noting that it doesn't mandate any particular structure
for compliance management, the agency listed several features that
it said make up an effective system. Among them are more hands-on
oversight from the bank's board members and top management,
stronger policies and procedures, and comprehensive training of
employees to clarify expectations and risks involved.
Another key component, the CFPB said, is compliance monitoring
to track key metrics that could signal improper behaviors by
employees or service providers. Such metrics include product
penetration rates, employee turnover and financial incentive
payouts.
"The risks these incentives may pose to consumers are
significant and both the intended and unintended effects of
incentives can be complex, which makes this subject worthy of more
careful attention by institutional leadership, compliance officers
and regulators alike," the CFPB said in the compliance
bulletin.
The CFPB was among the regulators that in September fined Wells
Fargo $185 million over opening of as many as 2.1 million accounts
without customer authorization. Regulators and employees pointed to
tough sales goals and incentive compensation tied to those goals as
the root of the problem. Signaling its continued interest in the
case, the Office of the Comptroller of the Currency, another
regulator on the case, imposed new restrictions on the bank on Nov.
19, and said it was considering placing tougher limits on large
banks if they violate banking laws.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
(END) Dow Jones Newswires
November 28, 2016 16:15 ET (21:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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