{"id":1284,"date":"2018-09-06T17:19:22","date_gmt":"2018-09-06T17:19:22","guid":{"rendered":"https:\/\/albanknews.com\/?p=1284"},"modified":"2018-09-06T17:19:22","modified_gmt":"2018-09-06T17:19:22","slug":"branch-employee-sales-compensation-practices-the-sequel","status":"publish","type":"post","link":"https:\/\/albanknews.com\/?p=1284","title":{"rendered":"Branch Employee Sales Compensation Practices: The Sequel"},"content":{"rendered":"

by <\/span>Elena A. Lovoy<\/span><\/em><\/a><\/p>\n

The summer movie line-up always includes sequels or reboots of prior box office hits and this summer has been no exception. \u201cMamma Mia! Here We Go Again\u201d was released on July 20. The Bureau of Consumer Financial Protection (BCFP) also released their own sequel on that date \u2013 and \u201chere we go again\u201d on branch employee sales goals and incentive compensation practices. <\/span><\/p>\n

TCF National Bank (TCF) has become the latest bank to face regulatory scrutiny for its branch sales practices. TCF, with over $21 billion in assets, is headquartered in Wayzata, Minn. and operates approximately 318 retail branches in Arizona, Colorado, Illinois, Michigan, Minnesota, South Dakota and Wisconsin. This <\/span>proposed settlement<\/span>, with TCF in the starring role, should serve as a reminder to all banks to review their sales and incentive compensation practices to ensure that branch sales goals, whether for new account relationships or other services, do not fail at the regulatory box office.<\/span><\/p>\n

Procedural Background<\/b><\/span><\/p>\n

On Jan. 19, 2017, the BCFP (then known as the Consumer Financial Protection Bureau or CFPB) filed <\/span>suit<\/span> against TCF in federal district court alleging that the bank had violated Regulation E, which implements the requirements of the Electronic Fund Transfer Act, and had engaged in abusive and deceptive practices in violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act in connection with its marketing and sale of overdraft services for ATM or one-time debit card transactions. On July 20, the BCFP filed a proposed settlement with TCF. <\/span><\/p>\n

Regulatory Requirements
\n<\/b><\/span>Regulation E was amended in 2009 to establish consumer protections on overdraft fees arising from ATM or one-time debit card transactions. Under the rule at 12 C.F.R. \u00a7 1005.17, which became effective in 2010, a bank must obtain the consumer\u2019s affirmative consent, or opt-in, before the\u00a0bank may\u00a0assess any fee or charge on the consumer\u2019s\u00a0account for paying an ATM or one-time debit card transaction, such as swiping a debit card at a store, pursuant to the\u00a0bank\u2019s overdraft service. If a consumer does not opt-in to the bank\u2019s overdraft service, the bank may decline the transaction, but it cannot charge a fee. The new opt-in rule affected both new and existing accounts.<\/span><\/p>\n

The opt-in rule generally provides as follows:<\/span><\/p>\n

A\u00a0financial institution holding a consumer\u2019s\u00a0account\u00a0may not assess a fee or charge on a consumer’s\u00a0account\u00a0for paying an ATM or one-time debit card transaction pursuant to the\u00a0institution\u2019s overdraft service, unless the institution:<\/span><\/p>\n

(1)\u00a0Provides the consumer with a notice in writing, or if the consumer agrees, electronically, segregated from all other information, describing the\u00a0institution\u2019s overdraft service;<\/span><\/p>\n

(2)\u00a0Provides a reasonable opportunity for the consumer to affirmatively consent, or opt-in, to the service for ATM and one-time debit card transactions;<\/span><\/p>\n

(3)\u00a0Obtains the consumer’s affirmative consent, or opt-in, to the\u00a0institution\u2019s payment of ATM or one-time debit card transactions; and<\/span><\/p>\n

(4)\u00a0Provides the consumer with confirmation of the consumer’s consent in writing, or if the consumer agrees, electronically, which includes a statement informing the consumer of the right to revoke such consent.<\/span><\/p>\n

CFPB\u2019s Assessment of Overdraft Program at TCF<\/b><\/span><\/p>\n

New Account Sales Practices<\/b><\/span><\/p>\n

In the January 2017 complaint, the CFPB alleged that the new opt-in rule posed a \u201cserious threat\u201d to TCF because the bank received over $180 million in overdraft revenue in 2009 and depended on this revenue stream more than its competitors. To protect this revenue stream, the CFPB alleged that the bank conducted consumer testing of its sales practices in late 2009. The CFPB alleged that the bank determined from this \u201cPilot Program\u201d that the less information the bank gave to consumers about opting-in, the more likely it would be that consumers would opt-in for the overdraft service. The \u201cPilot Program\u201d allegedly identified that \u201cover-explaining\u201d the opt-in option was an obstacle to meeting the bank\u2019s opt-in goal<\/span><\/p>\n

The CFPB alleged that the bank determined that if new customers were asked to opt-in at the same time they were being asked to agree to other mandatory terms and conditions of a new account, the \u201ctake rate,\u201d or opt-in rate, more than doubled. So, the CFPB alleged that the bank placed the opt-in decision in its account agreements after a series of mandatory items the consumer had to agree to in order open the account, rather than at the time they received the mandatory notice about their opt-in rights. The bank then provided branch employees with scripts that, as alleged by the CFPB, did not explain that opting-in was optional or that opting-in permitted the bank to authorize transactions that would result in fees. The CFPB alleged that these sales practices resulted in most consumers simply initialing the terms of the account agreement and agreeing to opt-in to the overdraft service.<\/span><\/p>\n

Existing Account Sales Practices<\/b><\/span><\/p>\n

In the January 2017 complaint, the CFPB alleged that TCF also initiated a telephone campaign to get its customers who already had an account to opt-in using a script prepared by the bank. The CFPB alleged that TCF instructed its staff to ask customers if they wanted their \u201cTCF Check Card to continue to work as it does today?\u201d rather that asking customers whether they wanted to have their overdrafts covered for a $35 charge. The CFPB alleged that many customers did not understand that by choosing to have their debit card \u201ccontinue to work as it does today,\u201d they were granting the bank permission to authorize transactions and charge overdraft fees that the customers would not otherwise have to pay.<\/span><\/p>\n

Employee Training, Incentive Compensation Practices, and Sales Goals<\/b><\/span><\/p>\n

In the January 2017 complaint, the CFPB alleged that TCF instructed its staff not to \u201cover explain\u201d the terms and conditions of its opt n program. If new or existing consumers challenged or questioned opting-in, the bank instructed its staff to sell the product by suggesting a hypothetical situation, such as an emergency with high stakes where they would desperately need access to money.<\/span><\/p>\n

The CFPB\u2019s complaint also alleged that TCF\u2019s opt-in sales strategy in 2010 included paying bonuses to branch staff for obtaining opt-ins from consumers. A TCF Director had allegedly indicated that the incentives were meant to \u201cachieve as high an Opt-In [rate] as possible.\u201d\u00a0 <\/span>The complaint alleged that the tellers and branch supervisors \u201cserved as front line troops in the Opt-In campaign.\u201d\u00a0 <\/span>Branch managers at the bank\u2019s larger branches could earn up to $7,000 in bonuses for obtaining a high number of opt-ins on new checking accounts. Frontline branch employees were also offered financial incentives to meet certain opt-in goals. <\/span><\/p>\n

After TCF phased out the direct incentives in early 2011, the CFPB alleged that certain regional managers then instituted similar opt-in goals for their branch employees. Under this campaign, branch employees were generally required to maintain an opt-in rate of 80 percent or higher for all new accounts. Branch managers were required to meet this same goal for all accounts opened at their branch. Although the bank\u2019s official policy was that an employee could not be terminated for low opt-in rates, the CFPB alleged that many employees believed they could lose their job if they did not meet their opt-in sales goals.<\/span><\/p>\n

Measuring Results
\n<\/b><\/span>The CFPB alleged that the bank\u2019s opt-in campaign was so successful that by mid-2014, 66 percent of the bank\u2019s checking account customers had opted in to the bank\u2019s overdraft service. This rate was more than triple the average opt-in rate at other banks. According to the January 2017 complaint, TCF\u2019s senior executives were so pleased with the bank\u2019s effectiveness at convincing consumers to opt-in that they had parties to celebrate reaching sales milestones, including a party to celebrate 300,000 opt-ins and another party at 500,000 opt-ins. The CFPB alleged that senior TCF executives attended both parties. <\/span><\/p>\n

Proposed Settlement<\/b><\/span><\/p>\n

Monetary Restitution and Penalties<\/b><\/span><\/p>\n

TCF did not admit or deny any of the allegations in the January 2017 complaint. Under the terms of the proposed settlement with the BCFP, TCF has agreed to pay $25 million in restitution to its customers who were charged overdraft fees and an injunction to prevent future violations. The proposed order would also impose a civil money penalty of $5 million. This penalty would be adjusted to account for a $3 million penalty imposed by the Office of the Comptroller of the Currency (OCC) in a separate order entered on the same day. <\/span><\/p>\n

Consumer Reporting Remediation<\/b><\/span><\/p>\n

The proposed order also requires TCF to contact all consumer reporting agencies to which it furnished information reflecting covered overdraft fees for affected consumers within the past 7 years and request that the reported information be corrected to update or remove such information. If a checking account was closed due to a negative balance caused by overdraft fees, the bank must contact ChexSystems and similar consumer reporting agencies to whom it furnished such information and request that they correct any such negative reporting in connection with the closed account.<\/span><\/p>\n

Elena A. Lovoy<\/i><\/span><\/a>\u00a0is of counsel in the Birmingham office of\u00a0<\/i>McGlinchey Stafford<\/i><\/span>\u00a0and concentrates her practice in banking, mortgage lending and servicing, and consumer financial services regulatory compliance matters at both the federal and state levels. She also assists companies in all industries on data privacy issues, including the management of incident response plans. <\/i><\/p>\n","protected":false},"excerpt":{"rendered":"

by Elena A. Lovoy The summer movie line-up always includes sequels or reboots of prior box office hits and this summer has been no exception. \u201cMamma Mia! Here We Go Again\u201d was released on July 20. The Bureau of Consumer Financial Protection (BCFP) also released their own sequel on that date \u2013 and \u201chere we go again\u201d on branch employee sales goals and incentive compensation practices. TCF National Bank (TCF) has become the latest bank to face regulatory scrutiny for its branch sales practices. TCF, with over $21 billion in assets, is headquartered in Wayzata, Minn. and operates approximately 318 […]<\/p>\n","protected":false},"author":1,"featured_media":860,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[32,19,25,28,3,23],"tags":[],"class_list":["post-1284","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-board-briefs","category-breaking","category-industry-reports","category-legal","category-politics","category-publications","has_thumb"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/albanknews.com\/wp-content\/uploads\/2016\/09\/BB-web-header.jpg?fit=1109%2C858&ssl=1","jetpack_shortlink":"https:\/\/wp.me\/p4Y3P2-kI","jetpack_sharing_enabled":true,"jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/posts\/1284","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1284"}],"version-history":[{"count":1,"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/posts\/1284\/revisions"}],"predecessor-version":[{"id":1285,"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/posts\/1284\/revisions\/1285"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=\/wp\/v2\/media\/860"}],"wp:attachment":[{"href":"https:\/\/albanknews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1284"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1284"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/albanknews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1284"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}