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We fined Wells Fargo a historic $100 million for the illegal practice of secretly opening hundreds of thousands of unauthorised deposit and credit card accounts."

Log in to the home page of the US watchdog Consumer Financial Protection Bureau (CFPB) http://www.consumerfinance.gov/, a government agency set up to ensure that consumers of financial products are treated fairly by banks and other lenders, and you see this as the top featured story.

What’s the Wells Fargo story and why is it relevant to us? Wells Fargo is one of the biggest banks in the US, and is known to be an aggressive cross-seller of financial products. Cross-selling is something we’re all familiar with—you have a savings account with a bank and it pushes other products at you: loans, funds, insurance, cards.

The Bureau has fined Wells Fargo $100 million for illegally opening about 2 million fake deposit and credit card accounts for its existing customers without their consent, moving money around into these secret accounts and earning millions of dollars in fees and other charges.

The Bureau found that stiff sales targets and compensation packages encouraged Wells Fargo staff to sign up existing clients for deposit accounts, credit cards, debit cards and online banking without their knowledge or consent.

The Bureau got Wells Fargo to refund all customers who were cheated. Plus, there is almost $185 million in fines: $100 million to CFPB, $50 million to city and county of Los Angeles and $35 million to the Office of the Comptroller of the Currency. About 5,300 Wells Fargo employees have lost their jobs for this misconduct.

But the buzz on the street is this: shouldn’t some of the ‘well-compensated’ heads roll rather than punish frontline staff for responding to an incentive structure that the top management had put in place?

The heat has turned on chief executive officer John Stumpf, who (according to marketwatch.com) was paid $19.3 million in 2015 (read: http://on.mktw.net/2cpe300 ) and is well-known for his ability to get his bank to cross-sell.

CFPB director Richard Cordray said: “Wells Fargo employees secretly opened unauthorised accounts to hit sales targets and receive bonuses. Because of the severity of these violations, Wells Fargo is paying the largest penalty the CFPB has ever imposed. Today’s action should serve notice to the entire industry that financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences."

Indian customers are familiar with sharp sales practices that banks employ to cross-sell financial products, but they are unfamiliar with regulators punishing such misconduct.

Till recently, regulators were in denial that there was misconduct at all, but there is a growing acceptance that not only does this happen, but is fairly rampant.

Economist Renuka Sane and I wrote a paper showing how rampant mis-selling is in the Indian banking channel. You can read the paper at: http://bit.ly/2b0djMk.

The Reserve Bank of India has now been using its own mystery shopping audits to figure out if the problem is severe.

What I hear from informal conversations is that the audits are pointing at widespread misconduct across banking channels—the problem is severe even in the smaller towns and cities; it is not just a problem of the urban mass affluent.

The insurance regulator has finally accepted that banks mis-sell policies.

The capital market regulator needs to do more to check the churning of mutual funds that continues. There is enough evidence on the ground in India that retail investors have lost trillions of rupees through mis-selling of financial products. Mis-sold unit-linked insurance plans (Ulips) cost us over Rs1.5 trillion across just 7 years: http://bit.ly/1acOq6t .

When the capital market regulator banned the front incentives in open-ended funds, the industry moved to selling closed-end funds some years ago. Academics Santosh Anagol and Hugh Hoikwang Kim estimated that Indian investors paid $350 million more in these hidden fees over a 22-month period. You can read the paper at: http://bit.ly/2ci3yZw .

The evidence is out there but the penal action is not. Indian regulators need to come together to first accept there is a problem on the ground. And then to take action.

The tiny, half-hearted fines they levy on the financial firms and banks do not even cause a blip in the balance sheet. Additionally, policymakers, who function at 35,000 ft and bemoan the fact that average Indians are irrational and invest in gold, need to see it from ground up—give us a market we can trust and we will make smart decisions.

Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint, consultant NIPFP, member of the Financial Redress Agency Task Force and on the board of FPSB India. She can be reached at monika.h@livemint.com.

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