On November 28, 2016, the Consumer Financial Protection Bureau (CFPB) issued a compliance bulletin that provides guidance to the financial industry concerning detecting and preventing consumer harm related to incentive programs.
The bulletin compiles guidance that was previously provided by the CFPB in other contexts and also highlights examples from the CFPB’s supervisory and enforcement experience. In addition, the bulletin sets forth steps institutions should take from a compliance perspective to mitigate risks posed by incentive programs.
Examples of the incentive-based programs that may pose a risk to consumers include:
- Sales goals for employees;
- Sales benchmarks for employees;
- Paying employee compensation based on terms and conditions of transactions;
- Paying employees additional compensation for certain types of transactions as compared to other types of transactions; and
- Setting unrealistic quotas for employees that require them to sign up or enroll a certain number of consumers for products or services.
The bulletin notes that the CFPB has found issues with incentive programs that are tied to credit card add-on matters, overdraft opt-in matters, and unfair and abusive sales practices.
In order to mitigate the risks associated with incentive based programs, the bulletin suggests that financial institutions include in their compliance management system (CMS) effective controls to deal with these issues. In order to ensure that an institution’s CMS is effective in this regard, the following steps should be taken:
- Ensure board of director and management oversight over incentive based programs;
- Compile and implement robust policies and procedures regarding incentive based programs;
- Implement extensive employee training;
- Monitor the programs to ensure compliance with appropriate policies and procedures;
- Promptly take correct action when necessary;
- Collect and analyze consumer complaints related to incentive based programs; and
- Schedule and implement audits of incentive based programs.
The bulletin states that it is non-binding and is a general statement of policy. However, it comes on the heels of the CFPB’s recent enforcement action against Wells Fargo related to allegations that product incentive programs likely played a role in employees opening accounts for consumers without those consumer’s permission or knowledge. That enforcement action led the CFPB to state publicly that it was going to begin scrutinizing other financial institution’s incentive programs.