I. INTRODUCTION
The Consumer Financial Protection Bureau (CFPB) has issued a bulletin warning supervised financial companies that creating incentives for employees and service providers to meet sales and other business goals can lead to consumer harm if not properly managed. Tying bonuses or employment status to unrealistic sales goals or to the terms of transactions may intentionally or unintentionally encourage illegal practices such as unauthorized account openings, unauthorized opt-ins to overdraft services, deceptive sales tactics, and steering consumers into less favorable products. The CFPB bulletin outlines various steps that institutions can and should take to detect, prevent, and correct such production incentives so that they do not lead to abuse of consumers.
To ensure consumer protection, the CFPB reiterated its expectation that banks using incentive programs have proper compliance management systems (CMS) in place to monitor and quickly respond to any potential violations of consumer protection laws. While the CFPB does not require any particular CMS, it recommended that a CMS be appropriately tailored to reflect the risk, nature and significance of the institution’s incentive programs.
II. RISKS TO CONSUMERS FROM INCENTIVES
The Bulletin compiles guidance the CFPB has already given in other contexts and highlights examples from the CFPB’s supervisory and enforcement experience in which incentives contributed to substantial consumer harm.
The bulletin warns institutions that unchecked incentives may lead to violations of consumer financial law. Specific examples of problems include:
III. CFPB EXPECTATIONS
The CFPB expects supervised entities that choose to utilize incentives to institute effective controls for the risks these programs may pose to consumers, including oversight of both employees and service providers involved in these programs.
The strictest controls will be necessary where incentives concern products or services less likely to benefit consumers or that have a higher potential to lead to consumer harm, reward outcomes that do not necessarily align with consumer interests, or implicate a significant proportion of employee compensation.
The bulletin indicates that an effective CMS commonly has the following components:
To limit incentives from leading to violations of law, supervised entities should take steps to ensure their CMS is effective. These steps may include, but are not limited to:
A. Board of directors and management oversight: Fostering a culture of strong customer service related to incentives. In product sales, for example, ensuring that consumers are only offered products likely to benefit their interests:
B. Policies and procedures: Ensuring that the policies and procedures for incentives contain:
C. Training: Implementing comprehensive training that addresses:
D. Monitoring: Designing overall compliance monitoring programs that track key metrics – and outliers – that may indicate incentives are leading to improper behavior by employees or service providers. Examples of possible monitoring metrics include, but are not limited to:
E. Corrective Action: Promptly implementing corrective actions to address any incentive issues identified by monitoring reviews as areas of weakness:
F. Consumer complaint management program: Collecting and analyzing consumer complaints for indications that incentives are leading to violations of law or harm to consumers in order to identify and resolve the root causes of any such issues; and
G. Independent compliance audit: Scheduling audits to address incentives and consumer outcomes across all products or services to which they apply, ensuring audits are conducted independently of both the compliance program and the business functions, and ensuring that all necessary corrective actions are promptly implemented.