Lessons in Banking: Feeding Frenzies

When I worked at the TBTF (To Big To Fail) Bank customer service call center, mortgages were king in the couple years leading up to the economic meltdown in 2008. Customer service representatives were under pressure to convince callers to open and apply for all types of new accounts and loans with a big emphasis on mortgages and home equity loans. 

We earned commission for each new account we could convince a customer to open. After mortgage loans, checking accounts were especially profitable, probably because fees associated with them were a big source of revenue. Even if the customer never used that checking account and ended up closing it with a zero balance, the rep who convinced them to open it would have already received their commission. 

Nobody in management would have ever admitted that checking accounts were opened without a customer’s knowledge and consent, but I saw it every day. Part of my job was to call people who had brand new accounts and everyday I talked to people who had no recollection of opening a new checking account, but who had recently called customer service. 

In fairness, most of these new accounts had been opened with the customer's consent, but because there was so much pressure to sell checking accounts and so much money to be made doing it, reps used all kinds of tactics to sell them. 

In banking, there are two major types of fraud or  compromise that occur on checking accounts and they each need to be dealt with differently. The first involves the debit card. If a debit card is lost, stolen or compromised, that debit card number has to be closed and replaced with a new one as quickly as possible. As soon as the debit card is closed, there is no further risk to the account it is attached to.

Compromise of an actual checking account number as opposed to the debit card number is much more complicated and nothing short of closing the whole account and opening a new one will eliminate the risk.

Large scale debit/credit card compromises are fairly common when a retailer or payment processing company has a theft of data that includes debit and credit card numbers. When this happens, banks are notified that a large group of their customer's card numbers may have been stolen and need to be closed and replaced. In these situations, all that needs to be done for each customer affected is to replace their debit card with one with a new number. It's inconvenient, but not nearly as inconvenient as closing the whole checking account and transitioning to a new one, which involves switching direct deposits, automatic bill payments, ordering new checks, etc. 

Two such large-scale card compromises took place while I worked at TBTF Bank and both were high profile in the media, triggering panicked customers to call in even as the bank was sending letters and new cards to them. No one earned commission just for closing and replacing a debit card, so sure enough, customer service reps had a feeding frenzy advising customers to close their checking accounts and open new ones over the phone.

I heard this going on all around me, knowing full well that it was unnecessary and a terrible inconvenience to the customers. I don't necessarily think management was encouraging this and they may not have been aware of it, but they should have been. There just wasn't that much accountability.