The Consumer Financial Protection Bureau is warning financial companies about tying employee incentives to unrealistic sales or business goals which can harm consumers.
The CFPB bulletin outlines steps financial institutions can and should take to prevent or such correct incentives so they do not lead to abuse of consumers and regulatory violations.
“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,” CFPB Director Richard Cordray said in a news release. “The CFPB is warning companies to make sure that their incentives operate to reward quality customer service, not fraud and abuse.”
Banks and other financial companies use incentives, such as bonuses or monetary compensation, to encourage their employees and service providers to accomplish certain business objectives, according to the release. In some cases, these programs are tied to benchmarks that affect whether an employee or service provider will remain employed or retained. These programs commonly reward employees 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, the release stated.
Reasonable incentives that are properly overseen can benefit consumers and improve an institution’s overall performance, but if incentives are not carefully managed they may encourage and reward behaviors by employees or service providers that can harm consumers and lead to violations of consumer financial law, according to the release. Examples of specific problems the CFPB has found include the opening of accounts without customer consent; misrepresenting the benefits of products; and steering consumers to less favorable products or terms.
In a number of cases, the CFPB has taken action against credit card companies where incentives may have encouraged deceptive marketing of add-on products, according to the release. Another bureau investigation revealed thousands of bank employees secretly opened unauthorized deposit and credit card accounts to satisfy sales goals and earn financial rewards under the bank’s incentive program, the release stated.
A copy of the compliance bulletin can be read by clicking here.