Every employee of a financial institution to a greater or lesser degree is a sales person. Whether you are a teller, a customer service representative, a loan officer, the president or even a compliance officer, you have a sales responsibility. Historically, sales people have been compensated to some extent based on a commission on their sales. Moreover, if their sales didn’t match their quota, their job was on the line.
It is a basic principal of management that if you want to achieve a result you incent the achievement and punish the failure. Financial institutions have done this for years. Employees are incented to cross-sell other products and services of the institution to new and existing customers. The danger is that an incentive program can get out of hand. The recent woes of Wells Fargo is an anomaly; it was truly an incentive program run amuck. Before Wells Fargo, the Consumer Financial Protection Bureau (CFPB) had brought twelve enforcement actions against organizations selling credit card add-on products claiming that the sales efforts were either abusive, deceptive or both.
Prompted primarily by Wells Fargo on January 5, 2017, the CFPB issued a bulletin on production incentives that was published in the January 18 Federal Register. The bulletin provides little direction other than generalities on how to handle an incentive program and to advise that it be closely monitored, with the monitoring being in direct proportion to the potential that the product being sold is not in the customer’s best interest. Moreover, what is in the customer’s best interest is problematic. If I purchase insurance on my home and have no claim, was the insurance in my best interest? More importantly, the bulletin is a warning shot to all financial institutions that have an incentive program to make sure that their programs meet the CFPB ideas of what is fair.
To enforce its bulletin, on January 19, 2017 the CFPB brought suit against TCF National Bank based on its overdraft protection opt in/opt out program for ATM and POS transactions. TCF has approximately $21 billion in assets. Prior to the amendment to Regulation E requiring an opt-in from customers who wanted an overdraft protection feature for their debit cards, the bank had approximately $180 million in annual revenue from debit card overdraft fees. Recognizing that this revenue stream was in jeopardy management of the bank created a program to incent its personnel responsible for opening accounts and their managers to have customers opt in to the overdraft program. They also tested account opening procedures and scripts to see which produced the best results. They eventually dropped the incentive program, but retained the tested account opening procedures and pressured managers to pressure their folks to get the results the bank wanted.
When a new customer opened an account, he or she was given the appropriate Regulation E disclosure along with the other account disclosures. If he or she questioned the overdraft program, the bank employee described its advantages. I once had a bank president tell me that salesmanship is “telling the truth attractively”. The employees did not detail the fees and any other disadvantages of the service, however all of that was described in the notice the customer had been previously given. The banks program was highly successful, its opt-in rate was about three times that of most banks.
In reading the CFPBʼs complaint, I couldn’t find anything that the bank did that was illegal or in violation of Regulation E. Apparently it is the CFPBʼs position that if you are selling a product, in addition to any required disclosures, if you say anything advantageous about the product in your sales presentation, you must also inform the customer of any aspect of the product that could be detrimental. This puts a huge strain on the sales process but while the CFPB is on this witch hunt, you must be cautious.
One other note. According the USA Today and the Washington Post, the former CEO of TCF named his boat the “Overdraft”. Not a good idea.