Federal regulators have quietly ended a review of large and midsize banks’ sales practices that found several systemic issues — and hundreds of problems at individual institutions — and have no plans to make the results public.
The Office of the Comptroller of the Currency began a broad examination of more than 40 banks after it was revealed that employees at Wells Fargo employees had opened millions of fake accounts in an effort to meet aggressive sales goals.
The review uncovered specific examples of other banks opening accounts without proof of customers’ consent, an OCC spokesman acknowledged Tuesday. It also spurred the issuance of warnings on five specific industrywide issues that banks needed to address, and more than 250 specific items regulators wanted fixed at individual banks, according to a consultant briefed on the OCC’s findings.
“This has hit home for the C-suite and the boards of the major banks,” said Dan Ryan, who leads the banking practice at PwC and was briefed on the OCC’s findings. “No one buried their head in the sand.”
Yet the results of the review have not been publicly disclosed, and OCC has no plans to release a report, according to Bryan Hubbard, a spokesman for the agency.
Hubbard declined to comment on why the agency is not making the results public, and he did not confirm that the OCC issued “matters requiring attention,” regulatory speak for red flags that need to be addressed, as a result of the review.
But in response to questions from American Banker, he did provide several additional details of the review’s findings. Hubbard said that before the 2016 enforcement action against Wells, few banks approached risk governance over sales practices in an enterprisewide manner, and that the OCC’s review identified some weaknesses in that area.
“Most banks took timely actions during the review to address weaknesses in policies, procedures, and controls; incentive programs; and their risk governance frameworks,” Hubbard said in an email. “As a result, systems and controls in these banks are now better integrated and more apt to identify inappropriate sales activities in a timely manner.”
Hubbard went on to say that when the OCC review found instances at specific banks of accounts being opened without proof of customer consent, the root causes varied. Among the most common factors were short-term sales promotions without adequate risk controls, deficient account opening and closing procedures, and isolated instances of employee misconduct, he said.
“When unauthorized account opening or other inappropriate sales practices occurred, banks have already taken — or are in process of taking — remedial action,” Hubbard said.
Ryan of PwC offered further specifics about what the OCC found, saying that the agency issued a total of 252 Matters Requiring Attention notices to banks whose sales practices under review.
So-called MRAs focus on practices inside a bank that examiners deem to be deficient and lay out corrective actions that banks are expected to take to remedy the situation.
Large banks that are regulated by the OCC include Bank of America, Citibank, JPMorgan Chase, PNC Bank, Capital One Bank and U.S. Bank, as well as Wells Fargo.
As part of the sales practice review, the OCC also issued five industrywide MRAs, according to Ryan. He declined to disclose what specific issues those missives involve.
Ryan said that more banks are putting in place procedures to contact customers after accounts are opened in their names, in order to ensure that they intended to do so. He also said that when bank employees get incentive pay for opening new accounts, another issue in the Wells scandal, banks are more apt to withhold the payout until it is clear that the customer is actually using the account.
In addition, Ryan said that banks have taken steps to ensure that information from whistleblowers gets merged with customer complaint information, in an effort to detect potential patterns of misconduct.
“Most firms had those processes,” Ryan said. “They were just siloed, and there wasn’t a mechanism for escalation.”
The OCC’s multibank review was sparked by the revelation 20 months ago that Wells Fargo employees opened more than 2 million customer accounts without their permission. But the agency’s work was broader than just determining whether other banks had a similar problem with phony accounts. It also looked at incentive compensation and other sales-related issues.
“I have directed our examiners to review the sales practices of all the large and midsize banks the OCC supervises,” then-Comptroller Thomas Curry said in September 2016 congressional testimony.
Since then, however, President Trump has installed new leadership at the agency. Acting Comptroller Keith Noreika was succeeded by Joseph Otting, who was confirmed by the Senate in November. Otting is a former president and CEO of OneWest Bank in Pasadena, Calif., which is wholly owned by CIT Group.
The OCC’s final conclusions were presented to the agency’s senior management in December, and final letters were sent to participating banks earlier this year, according to Hubbard.
Until Tuesday, all that the OCC had said publicly about its findings was that the sales practice review did not identify any systemic issues involving bank employees opening accounts without customer consent.
Bob Hedges, who is global leader of A.T. Kearney’s financial institutions practice, said that there is a spectrum of subpar bank sales practices, ranging from systematic abuse of consumers to what he described as bad hygiene.
“I think what the OCC review process put a light on for all of those banks was they definitely had an opportunity to improve their hygiene,” he said. “The industry’s worked hard to capitalize on the opportunity that the Wells Fargo wake-up call gave them.”
But the industry’s critics say that it is difficult to gauge how much change has really occurred.
Anastasia Christman, research director at the National Employment Law Center, said that while some banks have clearly put more effort into internal audits, “None of them have very clearly stated what their new systems are.”
In June 2016, the National Employment Law Center published a report, “Banking on the Hard Sell,” that focuses on the impact of aggressive sales metrics. Interviews with bank employees for a follow-up report, which is expected to be published this summer, indicate that the industry has made some strides, according to Christman.
“We have gotten some heartening feedback,” she said. “There has been a greater focus on customer service.”
Since the Wells Fargo scandal emerged, sales-related problems have been publicized at a number of other banks.
TCF Financial was sued by the Consumer Financial Protection Bureau for allegedly using shoddy sales tactics to boost overdraft enrollment, though the Wayzata, Minn., bank later won a partial dismissal of those charges.
Some employees of Citizens Financial Group in Providence, R.I., acknowledged fabricating records of meetings with customers in an effort to meet targets. CEO Bruce Van Saun has said that the issue was localized.
Four former employees of Regions Bank in Birmingham, Ala., were banned from banking in connection with sales practices. A bank spokeswoman said they were isolated incidents that were self-reported to regulators.
For its own part, Wells Fargo has been hit for a number of sales-related issues since the phony-accounts scandal broke. Problems in the bank’s auto lending and mortgage businesses led to a $1 billion fine earlier this year.
But absent a report from the OCC, it is hard to assess what is happening in the banking industry as a whole. Though supervisory information about individual banks is confidential, Art Wilmarth, a law professor at George Washington University, argued that the OCC should release its general findings.
“This is a watchdog that’s not barking,” he said.