Menendez, Colleagues Question U.S. Regulators on Banks’ Harmful Sales Practices and Incentive Compensation Programs

Menendez, Colleagues Question U.S. Regulators on Banks’ Harmful Sales Practices and Incentive Compensation Programs

“In recently released documents from the agency’s horizontal sales review, the OCC stated that incentive compensation programs can motivate employees to engage in harmful activities to ‘maximize their earnings potential.’”

   

WASHINGTON, D.C. – U.S. Senator Bob Menendez (D-N.J.), a senior member of the Senate Banking Committee, today led a group of Democratic Senators in a letter to the heads of the Consumer Financial Protection Bureau (CFPB), Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System and Federal Deposit Insurance Corporation (FDIC) questioning if they are incorporating reviews of sales practices into their supervisory’ oversight policies. In June 2018, the National Employment Law Project (NELP) released a report on how bank employees continue to be expected to meet high-pressure sales goals—two years after the Wells Fargo scandal.  

“The Wells Fargo fraudulent account scandal shined a light on dangerous industry practices in which banks place punishing, and oftentimes, impossible sales goals on front line employees,” the Senators wrote. “These sales goals are often tied to compensation incentives, which provide modest yet critical pay increases to employees who earn a median wage of only $13.52 per hour.  In recently released documents from the agency’s horizontal sales review, the OCC stated that incentive compensation programs can motivate employees to engage in harmful activities to ‘maximize their earnings potential.’  Persistently underpaid bank employees are then left with no choice, and are in fact incentivized, to try to meet these unreasonable goals if they hope to increase their pay.”

“We are concerned that recent reports, including the Office of the Comptroller of the Currency’s (OCC) own horizontal sales practices review, indicate that weaknesses around sales practices, incentive compensation programs, and policies regarding account openings and closings persist across the banking industry and may result in additional harm to consumers,” the Senators continued. “As such, we respectfully request information on whether your agencies are incorporating reviews of sales practices and related matters into ongoing supervision of regulated institutions.”

The Senators asked the agencies to provide answers as to whether they are incorporating reviews of sales practices and related matters into ongoing supervision of regulated institutions, if they plan to incorporate input from frontline employees and investigate the potential risks aggressive sales practices and related matters can pose at both the institutional level but also the banking system, as a whole.

Joining Sen. Menendez on the letter were U.S. Senators Sherrod Brown (D-Ohio), Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), Chris Van Hollen (D-Md.), and Catherine Cortez Masto (D-Nev.).

A copy of the letter can be found here and below.

Dear Mr. Mulvaney, Comptroller Otting, Chair Powell, and Chair McWilliams:

We are concerned that recent reports, including the Office of the Comptroller of the Currency’s (OCC) own horizontal sales practices review, indicate that weaknesses around sales practices, incentive compensation programs, and policies regarding account openings and closings persist across the banking industry and may result in additional harm to consumers.   As such, we respectfully request information on whether your agencies are incorporating reviews of sales practices and related matters into ongoing supervision of regulated institutions. 

The Wells Fargo fraudulent account scandal shined a light on dangerous industry practices in which banks place punishing, and oftentimes, impossible sales goals on front line employees.   These sales goals are often tied to compensation incentives, which provide modest yet critical pay increases to employees who earn a median wage of only $13.52 per hour.   In recently released documents from the agency’s horizontal sales review, the OCC stated that incentive compensation programs can motivate employees to engage in harmful activities to “maximize their earnings potential.”   Persistently underpaid bank employees are then left with no choice, and are in fact incentivized, to try to meet these unreasonable goals if they hope to increase their pay.

Due to concerns that Wells Fargo was not the only bank engaged in such practices, in 2016 former Comptroller Thomas J. Curry directed a horizontal review of sales practices at banks supervised by the OCC.  The sales practice inquiry, which covered more than 40 national banks and federal savings associations, resulted in 252 Matters Requiring Attention (MRA), including five industrywide MRAs.   Most banks included in the review received at least one MRA.   Additionally, during Comptroller Otting’s June testimony in front of the Senate Banking Committee, Comptroller Otting announced that 20,000 bank accounts may have been opened without customers’ authorization.   The quantity and scale of the MRAs suggest that abusive sales practices were, and continue to be, more prevalent across the industry than previously understood. 

Additionally, a recent report by the National Employment Law Project (NELP) indicates that bank employees continue to feel pressure to meet demanding sales goals.   For example, 56 percent of employees surveyed reported that their goals were based on the amount of sales made, not customer satisfaction.  Furthermore, 90 percent of bank employees surveyed stated that failure to meet sales quotas still results in bullying, disciplinary action or possible termination.  The experiences of frontline workers are testament to the continued pervasiveness of harmful sales practices in the banking industry. 

Both the NELP report and the OCC’s own review suggest that banks continue to perpetuate sales cultures that may cause unsafe or unsound banking practices or result in consumer harm.  To ensure such practices are addressed and consumers are protected, we respectfully request you provide answers to the following questions:

 

1)         Are your agencies incorporating reviews of sales practices and related matters into ongoing supervision of regulated institutions?  If so, please describe how such reviews have been integrated into your supervisors’ oversight policies.  If your agency does not incorporate review of sales practices and related matters in ongoing supervision of regulated institutions, please explain why.

 

2)         Do your agencies have any plans to incorporate input from frontline employees, in the form of surveys or interviews, as part of the examination process?  If so, please describe any such efforts.

 

3)         In addition to the OCC’s horizontal review of sales practices, are your agencies analyzing and investigating the potential risks aggressive sales practices and related matters can pose at both the institutional level but also the banking system, as a whole?  If so, please describe any such efforts.

 

We appreciate your attention to this matter and look forward to your response by October 19, 2018.

 

Sincerely,