'Someone Needs to Go to Prison': CUs Sound Off on Wells Fargo Scandal
As Wells Fargo CEO John Stumpf heads to Capitol Hill to publically atone for the banking giant's fraudulent practices, credit union advocates are using the scandal as another opportunity to point out the CU difference – but also emphasizing that there should be consequences.
"Someone needs to go to prison," said Dan Berger, president and CEO of the National Association of Federal Credit Unions, further characterizing Wells Fargo's illegal sales practices as an "egregious violation" of consumer trust, "despicable" and "flat-out fraud."
"To put an end to this type of behavior, there has to be personal accountability," Berger said. "Consumers deserve better; our country deserves better. Did the banks not learn anything from the financial crisis they caused?"
Berger's comments echo the outrage from much of the rest of the credit union community following the news that Wells Fargo committed massive fraud by creating more than 2 million fraudulent accounts in order to meet sales targets and trigger bonus payments. Specifically, the bank's employees applied for about 1.5 million deposit accounts and 565,000 credit cards in the name of existing customers without their authorizations.
Credit unions, Berger added, have their members' best interests at heart. "By contrast, big banks and Wall Street banks are clearly driven by their shareholders' interests at any cost," he said. "The flagrant disregard exhibited by Wells Fargo for their customers' trust confirms that."
John McKechnie, a partner at Total Spectrum and former official at CUNA and NCUA, told Credit Union Journal that the scandal represents a "prime example" of how the banking industry is often the best advocate for the credit union proposition.
Dave Adams, the CEO of the Michigan Credit Union League, said in a statement that "there's a reason credit unions are consistently named one of the most trusted industries when it comes to consumer confidence. Whether it's their low rates and fees or steadfast commitment to their communities, people know credit unions put members' best interests – and not profits – above all else."
Implications for CUs?
According to a release from the Consumer Financial Protection Bureau, the Wells incident was tied to cross-selling, and "gave the employees credit for opening the new accounts, allowing them to earn additional compensation and to meet the bank's sales goals," CFPB stated release read. "Consumers, in turn, were sometimes harmed because the bank charged them for insufficient funds or overdraft fees because the money was not in their original accounts."
But cross-selling members into additional products is part-and-parcel of the sales business and a tactic thousands of CUs rely on to grow their business and deepen relationships with members.
So what are the implications for CUs? Could something like what happened at Wells Fargo take place at a credit union?
Roy MacKinnon, president and CEO at Edwards Federal Credit Union, a $183 million institution based in Edwards, Calif. (just north of Los Angeles), explained that cross-selling is widespread in credit unions, banks and virtually all other businesses.
"You could say that the first act of cross-selling occurred when a clerk at McDonald's asked the customer if he'd like fries to go with his burger," MacKinnon quipped.
Dennis Bromley, SVP Member Development & Engagement at Mountain America Credit Union, a $5.7-billion institution based in West Jordan, Utah, said cross-selling is an important part of his credit union's strategy for growth.
"But where we differ from a bank like Wells Fargo is that we suggest financial products to members that they really need. We don't pressure them into buying things they neither want nor need," Bromley said. "Our employees are not bound by some arbitrary quota system that would compel them to push certain products to members – in fact, we don't 'push' our products and services to them at all. But if a product meets the need of the member then they would be encouraged to purchase them."
But MacKinnon cautioned that the types of abuse and misconduct witnessed at Wells Fargo would be unlikely to occur at a credit union. "Some credit unions do have performance and target-based incentive programs for their loan officers and other employees, but their scale is much smaller than what is found at the big banks," he stated.
Anecdotally, MacKinnon noted that he has heard that some employees at big banks like Wells Fargo are under "enormous pressure" to meet their sales targets in order to obtain lucrative bonus payments. At credit unions, incentive programs are not nearly as remunerative.
Nothing Wrong With Cross-Selling and Incentives
Even if credit unions do engage in cross-selling practices, MacKinnon noted that there are enormous cultural differences between CUs and banks. "We [credit unions] are service-oriented, whereas banks are sales-oriented," he noted. "Banks have big incentives to sell products to their customers, while we are more focused on providing good service to ours."
Mia Perez, chief administrative officer at Louisiana Federal Credit Union, a $211 million institution based in La Place, La., emphasized that, despite the negative repercussions from the Wells Fargo debacle, there is no need for credit unions to scale back their cross-selling practices as long as the cross-sales culture is "solid and founded on the premise that cross-selling is positioned to result in a solution or convenience for the consumer."
Louisiana FCU, Perez added, believes in cross-selling, as it results in "more informed members, more loyal members and stronger financial relationships" with those members.
Perez further said that every credit union should have performance targets for their employees, and that such systems are perfectly valid. "This is the way the organization – at every level – ensures alignment with the overall strategic plan of the organization," she said. "Some of those may be growth or product goals which include incentives. On the other hand, some credit unions establish product cross sales goals with no incentives."
Perez also pointed out that cross-selling products that end up being an expense on the shelf due to under-utilization makes no sense for anyone.
"We have members that have five or six products and services with us, and, conversely, those that have been with us for decades with only a small savings account," she added. "We'll take both and we are okay with that."
Should CUs Re-Evaluate Strategies?
But Perez cautioned that financial institutions would be wise to evaluate their approach and culture when it comes to cross-selling strategies.
We have processes in place that ensure members are not pursued for products or services they did not agree to," she explained. "Further, growth goals are not set so high that employees are set up to fail or resort to unscrupulous practices to accomplish goals."
Credit unions should always be reviewing their sales incentive programs, she added. "They should be testing to ensure the program has integrity and audits are in place," she said. "Further, from a talent acquisition and retention standpoint, they should ensure their program is competitive enough to align with compensation strategies in their market."