CFPB Warns Financial Companies About Sales and Production Incentives That May Lead to Fraud or Consumer Abuse

Unchecked Incentives Can Produce Unauthorized Account Openings, Deceptive Sales Tactics, and Other Illegal Practices

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) issued a bulletin today warning supervised financial companies that creating incentives for employees and service providers to meet sales and other business goals can lead to consumer harm if not properly managed. Tying bonuses or employment status to unrealistic sales goals or to the terms of transactions may intentionally or unintentionally encourage illegal practices such as unauthorized account openings, unauthorized opt-ins to overdraft services, deceptive sales tactics, and steering consumers into less favorable products. The CFPB bulletin outlines various steps that institutions can and should take to detect, prevent, and correct such production incentives so that they do not lead to abuse of consumers.

“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.”

Banks and other financial companies use incentives to encourage their employees and service providers to accomplish business objectives. Incentives can range from financial bonuses and other monetary compensation to benchmarks that affect whether an employee or service provider will remain employed or retained at all. These programs commonly reward employees or services providers 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.

Although they are not unique to the financial sector, these incentives are used in many consumer financial markets, such as credit cards, mortgages, checking accounts, and debt collection. Reasonable incentives that are properly overseen can benefit consumers and enhance an institution’s overall performance. Consumers may receive improved customer service or companies may be able to attract and retain more high-performing employees. However, incentives that are not carefully managed may encourage and reward behaviors by employees and service providers that harm consumers.

Today’s bulletin warns financial companies that unchecked incentives may lead to violations of consumer financial law. Specific examples of problems include:

  • Opening accounts without consent: Sales goals and incentives may encourage employees and service providers, either directly or indirectly, to open accounts or enroll consumers in services without their knowledge or consent. Unrealistic quotas to sign consumers up for financial services, or quotas that are not properly monitored, may incentivize employees to achieve this result without actual consent or by means of deception. Consumer harm can include unauthorized fees, improper collections activities, or negative effects on their credit scores.
  • Misrepresenting benefits of products: Sales benchmarks may encourage employees or service providers to market products deceptively to consumers who may not benefit from or even qualify for the products. Employees or service providers may misrepresent the value or utility of a product or service to consumers in order to meet sales targets and reap rewards.
  • Steering consumers towards less favorable products or terms: Rewarding certain terms or conditions of transactions – such as interest rate – may encourage behaviors that overcharge consumers. Consumers may be placed in less favorable products than they qualify for or may be sold more products or credit than they requested or needed. In other instances, incentives could lead employees or service providers to steer consumers to transactions that may not benefit them or may affirmatively harm them.

The bulletin outlines existing CFPB guidance given in other contexts and reminds institutions of the Bureau’s longstanding expectations about how to properly implement and monitor incentives. In a number of matters, the CFPB has taken action against credit card companies where incentives may have encouraged deceptive marketing of add-on products. In another matter where a bank’s telemarketers were rewarded for hitting specified sales targets, the CFPB found the telemarketers deceptively signed up consumers for overdraft services without their consent. Another Bureau investigation revealed that 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.

A copy of the compliance bulletin is available at: http://www.consumerfinance.gov/documents/1537/201611_cfpb_Production_Incentives_Bulletin.pdf

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The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov .