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CFPB Warns Banks About Risks of Sales Incentives

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11/28/2016 | 04:15pm EDT

WASHINGTON-The Consumer Financial Protection Bureau on Monday warned banks about creating incentives tied to sales goals, underscoring its intention to keep a tight rein on banks in the aftermath of the phony-accounts scandal at Wells Fargo & Co.

In a special bulletin, the CFPB said incentives for employees and service providers "can pose risks to consumers, especially when they create an unrealistic culture of high-pressure targets."

The watchdog agency laid out steps that banks should take to strengthen their compliance management systems to prevent and detect incentives that could lead to violations of the law.

The CFPB said that in addition to opening accounts without customer consent, banks could violate consumer financial law through behaviors caused by unchecked incentives, such as misrepresenting product benefits to customers or steering consumers toward less favorable products or terms.

While noting that it doesn't mandate any particular structure for compliance management, the agency listed several features that it said make up an effective system. Among them are more hands-on oversight from the bank's board members and top management, stronger policies and procedures, and comprehensive training of employees to clarify expectations and risks involved.

Another key component, the CFPB said, is compliance monitoring to track key metrics that could signal improper behaviors by employees or service providers. Such metrics include product penetration rates, employee turnover and financial incentive payouts.

"The risks these incentives may pose to consumers are significant and both the intended and unintended effects of incentives can be complex, which makes this subject worthy of more careful attention by institutional leadership, compliance officers and regulators alike," the CFPB said in the compliance bulletin.

The CFPB was among the regulators that in September fined Wells Fargo $185 million over opening of as many as 2.1 million accounts without customer authorization. Regulators and employees pointed to tough sales goals and incentive compensation tied to those goals as the root of the problem. Signaling its continued interest in the case, the Office of the Comptroller of the Currency, another regulator on the case, imposed new restrictions on the bank on Nov. 19, and said it was considering placing tougher limits on large banks if they violate banking laws.

Write to Yuka Hayashi at yuka.hayashi@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
ONE STOP SYSTEMS, INC. 0.43% 2.31 Delayed Quote.14.36%
THE LEAD CO., INC. -1.73% 341 End-of-day quote.-12.56%
WELLS FARGO & COMPANY -0.67% 25.02 Delayed Quote.-53.49%
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Financials (USD)
Sales 2020 71 476 M - -
Net income 2020 641 M - -
Net Debt 2020 - - -
P/E ratio 2020 3 314x
Yield 2020 4,93%
Capitalization 103 B 103 B -
Capi. / Sales 2020 1,44x
Capi. / Sales 2021 1,42x
Nbr of Employees 266 300
Free-Float 75,0%
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Last Close Price 25,02 $
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Charles William Scharf President, Chief Executive Officer & Director
Charles H. Noski Chairman
Scott E. Powell Chief Operating Officer & Senior Executive VP
John Richard Shrewsberry Chief Financial Officer & Senior Executive VP
Saul van Beurden Senior Executive VP & Head-Technology
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