The Consumer Financial Protection Bureau warned financial companies on Monday to properly manage employee incentives that can pose significant risks to consumers, part of the ongoing fallout from Wells Fargo's phony account openings.
Though the agency did not mention Wells by name in its bulletin, it provided examples of past enforcement and supervisory actions where incentives played a role. The CFPB said it wanted to remind companies about the downside risks of incentives and the use of sales quotas, and how companies should monitor them.
"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 press release. "The CFPB is warning companies to make sure that their incentives operate to reward quality customer service, not fraud and abuse."
The CFPB said that improper incentives may lead to violations of federal consumer financial law, public enforcement actions, supervisory actions, private litigation, reputational harm and a consumer backlash – all issues that have come to pass for Wells Fargo.
Wells agreed to fines and restitution of $190 million on Sept. 8 after revealing that 5,300 employees were fired for opening roughly 2 million bank and credit card accounts that consumers had not authorized.
Supervised companies that use incentives must have a robust compliance management system that can detect and prevent violations, the CFPB said.
The bureau said an effective compliance management system includes oversight by a company's management and board of directors, an independent compliance audit, and policies and procedures that include training, monitoring and corrective action.
The CFPB expects strict controls when incentives concern products or services that are "less likely to benefit consumers or that have a higher potential to lead to consumer harm, [or] reward outcomes that do not necessarily align with consumer interests, or implicate a significant proportion of employee compensation."
The bureau highlighted specific problems involving incentives such as opening of accounts without consent, misrepresenting the benefits of products and steering consumers to products with less favorable terms or conditions such as higher interest rates.
So far, the CFPB has resolved 12 different cases against credit card companies where incentives may have encouraged the deceptive marketing of add-on products. In some cases, a lack of proper controls allowed deceptive marketing practices to go unchecked for years, the CFPB said. The bureau also has found telemarketers that signed up consumers for overdraft services without their consent.