In a special bulletin on Monday, the Consumer Financial Protection Bureau (CFPB) cautioned financial companies about creating incentives programs for employees and service providers to meet aggressive internal sales goals. According to CFPB, such goals can lead to the employees taking illegal steps, ultimately affecting customers.
Notably, the U.S. lender – Wells Fargo & Company (WFC - Free Report) with a Zacks Rank #3 (Hold) was fined a combined $190 million by the California and federal regulators, including CFPB in Sep 2016, for illegally opening millions of unauthorized accounts to meet aggressive internal sales goals. The San Francisco-based bank was directed to pay $100 million to the CFPB, the largest in the agency’s history, given the severity of the violations. Further, the bank will pay $35 million to the Office of Comptroller of the Currency and $50 million to the City and County of Los Angeles. In addition, the amount included $5 million in customer remediation.
“Tying bonuses and job security to business goals that are unrealistic or not properly monitored can lead to illegal practices like unauthorized account openings and deceptive sales tactics,” said CFPB Director Richard Cordray. “The CFPB is warning companies to make sure that their incentives operate to reward quality customer service, not fraud and abuse,” he further added.
Employees and service providers could violate consumer financial law even through misrepresentation of benefits of the products offered to the clients, openings accounts without their consent, and steering them toward less favorable terms.
Therefore, CFPB has directed banks to take some steps to make their compliance management systems strong, in order to prevent and detect any violation of law.
No particular directive is prepared by CFPB for compliance management. However, for the effective avoidance of scandals, it directed banks to employ more members from their board of directors and top management for keeping an eye on services. Further, policies and procedures of working should be strong and employees should be completely trained, and be well conversant with the risks involved.
Further, CFPB demands compliance monitoring of key metrics including product penetration rates, employee turnover and financial incentive payouts.
Regulatory authorities are thoroughly investigating issues related to the increasing occurrence of scandals related to business operations and are determined to propose a landmark judgment to terminate such practices and bring justice to the wronged.
Stocks to Consider
The Bank of New York Mellon Corporation (BK - Free Report) has been witnessing upward estimate revisions for the last 60 days. So far this year, the company’s share price has been up more than 17.7%.
Comerica Incorporated (CMA - Free Report) has been witnessing upward estimate revisions for the last 60 days. Further, the stock has surged over 49.0% so far this year.
Fifth Third Bancorp (FITB - Free Report) has been recording upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 29.9% so far this year.
Notably, the above mentioned stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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