The Consumer Financial Protection Bureau issued a compliance bulletin on November 28, 2016 warning supervised companies about the potential compliance risks of production and sales incentives provided to employees and service providers. Although the CFPB “invite[d] further dialogue and discussion,” the bulletin highlights incentive practices as a continued area of scrutiny for the CFPB. In recent testimony to the Senate Committee on Banking, Housing, and Urban Affairs, Director Richard Cordray noted his “general concern[]” that “unchecked incentives and an unrealistic and uncaring culture of high-pressure sales targets can lead to serious consumer harm. . . . If sales targets and incentive compensation schemes are implemented in ways that threaten harm to consumers and lead to violations of the law, then banks and other financial companies will be held accountable.”

The CFPB’s recent bulletin provides several examples of improper conduct that can be driven by overly aggressive incentive practices—(1) opening accounts or enrolling consumers in services without their consent; (2) misleading consumers into purchasing products the consumers do not want, are financially harmful, or have an unknown recurring fee; and (3) deceptive marketing of credit card add-on products and overdraft services. Each type of conduct identified by the CFPB has been the subject of recent enforcement actions.

On the other hand, the CFPB has made clear that not all incentive practices lead to such conduct and that companies are free to implement such programs, so long as the programs provide realistic incentives and are properly monitored. To prevent incentive programs from spurring improper conduct, the CFPB’s recent bulletin recommends that companies refrain from creating overly aggressive or unrealistic benchmarks for awarding incentives. The CFPB also outlined its expectation that companies maintain sufficient monitoring and quality assurance programs to prevent and correct any improper practices. The CFPB expressly indicated that it expects companies to implement a “robust compliance management system” reflective of the “risk, nature, and significance of the incentive programs.” Specifically, the CFPB recommended that companies employ a compliance management system involving:

• board and management oversight to create a customer service-oriented culture that “empower[s]” employees to report suspected misconduct;

• policies and procedures, training, and monitoring to identify whether incentives lead to improper behavior, as well as corrective action when they do (such as termination of employees and changing the structure of the incentives);

• consumer complaint management programs that analyze complaints to identify and resolve the underlying causes of the complaints; and

• independent compliance audits.

The CFPB’s bulletin is only the latest in a series of guideposts from the CFPB relating to incentive practices. The CFPB’s October 2012 Supervision and Examination Manual cautions that examiners will review incentive practices, including those “tied to the sale and marketing of add-on products” to ensure that the practices “do not create incentives for employees to provide inaccurate information about the products.” The CFPB expressed similar guidance in a July 2012 bulletin, and has previously expressed interest in compensation and incentive practices in areas such as debt collection, mortgage underwriting, payday lending, and auto lending.