A group of Democratic U.S. Senators sent a letter to federal regulators questioning if they are incorporating reviews of sales practices by financial institutions into their supervisory oversight policies.
The letter was sent 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).
The inquiry was sparked by a recent report by the National Employment Law Project (NELP) on how bank employees, two years after the Wells Fargo scandal, continue to be expected to meet high-pressure sales goals.
The Securities and Exchange Commission (SEC) was hit with a $4 million penalty, plus reimbursements, for misconduct in the sale of financial products known as market-linked investments (MLI) to retail investors. The SEC found that Wells Fargo generated large fees by encouraging retail customers to actively trade the investments, which were intended to be held to maturity, and investing the proceeds in new MLIs. This generated substantial fees for Wells Fargo, said the SEC, and reduced customers’ investment returns.
“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,” the senators wrote.
The senators asked the regulators if they are incorporating reviews of sales practices into ongoing supervision of regulated institutions. They also want to know if they plan to incorporate input from employees and investigate the potential risks aggressive sales practices can pose for the institution as well as the entire banking system. The letter was signed by Sens. Bob Menendez (D-NJ), Sherrod Brown (D-OH), Jack Reed (D-RI), Elizabeth Warren (D-MA), Chris Van Hollen (D-MD), and Catherine Cortez Masto (D-NV).
“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 wrote. “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.”