WASHINGTON, D.C.–Financial companies should watch how they motivate their employees and service providers to obtain sales or business goals, said the Consumer Financial Protection Bureau (CFPB) on November 28.
Programs that tie outcomes to certain benchmarks, says the Bureau, may lead to consumer harm and pose risks to consumers.
Since both the intentional and unintentional “effects of incentives can be complex” institutional leadership, compliance officers, and regulators should pay “more careful attention,” suggested the agency in a recent compliance bulletin.
The bureau cited illegal techniques such as unauthorized account openings, unauthorized opt-ins to overdraft services, deceptive sales tactics, and steering consumers into less favorable products.
And it directs organizations to detect, prevent, and correct these "production incentives," via steps it highlights in the Bulletin, which would curtail consumer abuse.
“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.”
The warning comes on the heels of an investigation by the CFPB and other regulators into Wells Fargo. It revealed that thousands of employees had "secretly opened unauthorized deposit and credit card accounts to satisfy sales goals and earn financial rewards under the bank’s incentive program."
The bureau says it encourages dialogue and discussion centered around the issues addressed in the Bulletin.
While not “unique to the financial sector,” incentives are also common in consumer financial markets, such as credit cards, mortgages, checking accounts, and debt collection, according to the CFPB.
The agency noted that when particular incentives are “properly overseen,” they can be a plus for consumers. For instance, customers may receive better customer service, says the Bureau, or companies may retain “more high-performing employees.”
But it all boils down to how the incentives are managed, since poorly managed ones can come back to “harm consumers.”
“Unchecked incentives,” though, could precipitate violations of consumer financial law, says the CFPB, and include:
- Opening accounts without consent: Sales goals and incentives may encourage employees and service providers, either directly or indirectly, to open accounts or enroll consumers in services without their knowledge or consent. Unrealistic quotas to sign consumers up for financial services, or quotas that are not properly monitored, may incentivize employees to achieve this result without actual consent or by means of deception. Consumer harm can include unauthorized fees, improper collections activities, or negative effects on their credit scores.
- Misrepresenting benefits of products: Sales benchmarks may encourage employees or service providers to market products deceptively to consumers who may not benefit from or even qualify for the products. Employees or service providers may misrepresent the value or utility of a product or service to consumers in order to meet sales targets and reap rewards.
- Steering consumers towards less favorable products or terms: Rewarding certain terms or conditions of transactions – such as interest rate – may encourage behaviors that overcharge consumers. Consumers may be placed in less favorable products than they qualify for or may be sold more products or credit than they requested or needed. In other instances, incentives could lead employees or service providers to steer consumers to transactions that may not benefit them or may affirmatively harm them.
The bulletin outlines existing CFPB suggestions regarding other areas and reminds institutions of its “longstanding expectations about how to properly implement and monitor incentives.”
And the CFPB has nabbed credit card companies "where incentives may have encouraged deceptive marketing of add-on products," it said.
In another case, "a bank’s telemarketers were rewarded for hitting specified sales targets, [and] the CFPB found the telemarketers deceptively signed up consumers for overdraft services without their consent."