RSSIncentives for employees and service providers to meet sales goals can lead to consumer harm if not properly managed, the Consumer Financial Protection Bureau said in new guidelines issued in the wake of fines recently levied against Wells Fargo.
The CFPB bulletin outlines various steps that institutions can – and should, the bureau said – take to detect, prevent and correct such incentives so that they do not lead to abuse of consumers.
The bureau acknowledged the widespread use of incentives and the positive effect they can have on companies and consumers alike. Financial institutions that use these programs, however, need a “robust compliance management system,” the bureau said, including board and management oversight, compliance and consumer complaint management programs – including training, monitoring and corrective action – and an independent compliance audit.
“The strictest controls will be necessary where incentives concern products or services less likely to benefit consumers,” the bureau said, “or that have a higher potential to lead to consumer harm, reward outcomes that do not necessarily align with consumer interests, or implicate a significant proportion of employee compensation.”
The bureau specifically listed opening accounts without consumer consent, which was at the heart of the Wells Fargo enforcement action, although the bureau didn’t mention the bank by name. Other activities include misrepresenting the benefits of products and steering consumers toward less-favorable products or terms.
The CFPB has resolved 12 different cases involving improper marketing practices for credit card add-on products. In some cases, a lack of proper controls allowed deceptive marketing practices to continue unchecked for many years, the CFPB said. Some telemarketers also signed up consumers for overdraft protection without their consent.
The bulletin outlines existing CFPB guidance given in other contexts and reiterates the bureau’s expectations about how to properly implement and monitor incentives.
“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.”
