On November 28, 2016, the CFPB issued Compliance Bulletin 2016-03 on Detecting and Preventing Consumer Harm from Production Incentives. Therein, the CFPB compiled and summarized prior guidance on detecting and preventing consumer harm from production incentives. In the Bulletin, the CFPB acknowledges the benefits of a production incentive plan such as the ability to attract and retain high-performing employees; improved customer service; and the fact that customers are introduced to beneficial products and services tailored to their financial interests. However, the CFPB notes risks to consumers due to production incentives that create an unrealistic culture of high pressure targets.
The CFPB found that production incentives have led to outright violations of federal consumer financial laws such as UDAAP, Electronic Fund Transfer Act, Fair Credit Reporting Act, Truth in Lending Act and the Fair Debt Collection Practices Act. The Bulletin lists specific examples of violations, including sales goals that encourage employees to open accounts or enroll customers in services without their consent or knowledge; sales benchmarks that encourage employees to deceptively market a product; paying compensation based on the terms or conditions of a transaction that encourages creditors to overcharge consumers or to sell them more credit than they need; and paying more compensation for some types of transaction than for others that leads to employees steering consumers to transactions not in their best interest.
In the Bulletin, the CFPB highlights three areas of specific concern: credit card add-on matters, overdraft opt-in matters and unfair and abusive sales practices. From recent enforcement actions, the CFPB found that production incentives lead to abusive and aggressive tactics by employees to sign up unaware consumers to satisfy unrealistic sales goals. The CFPB also found that the lack of proper controls allowed deceptive marketing practices to occur for many years.
In the Bulletin, the CFPB outlines its expectations moving forward, focusing on the implementation and close monitoring of a robust Compliance Management System (“CMS”). The CFPB mentions that, “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.” According to the CFPB, an effective CMS has the following components: board of directors and management oversight; a compliance program which includes policies and procedures, training and monitoring and corrective action; consumer complaint management program; and an independent compliance audit. The CFPB emphasizes that the quotas set for employees should be reasonably attainable and closely monitored by supervisors and the CMS.
The complete CFPB Compliance Bulletin 2016-03 on Detecting and Preventing Consumer Harm from Production Incentives can be found here: https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201611_cfpb_Production_Incentives_Bulletin.pdf.