Bank Tricks

A new report shines light on some of the practices banks use that can really disadvantage their customers.

Basically, banks are incenting employees to sell certain products. Sometimes, employees push customers into products that are not right for them, simply because the employee receives a bonus payment for doing so.

The Consumer Financial Protection Bureau (CFPB) is calling the banks out on these practices in a new bulletin.

It is 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.

This 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.

Keep in mind that credit unions are different than banks. For starters, they are owned by the members (customers), so it is especially important that any incentives provided to employees be in the interests of members.

Also, credit unions are not-for-profit financial institutions. There is no profit motive corrupting the relationship that CU employees have with members.

CFPB’s new bulletin sure does shed light on some of the things that for-profit banks are up to.

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