The CFPB is warning financial services companies to carefully evaluate their employee incentive programs. Specifically, companies should scrutinize bonus structures that tether compensation and employment status to unrealistic sales goals. Such bonus structures, the CFPB cautions, “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 expounded on its warning in a Compliance Bulletin dated November 28, 2016. The Bulletin acknowledges that employee incentive programs are commonplace in the financial services industry due to the positive contributions that such programs provide in the workplace (i.e., attracting and retaining high-performing employees). Despite these benefits, the CFPB urges companies to assess whether their programs have promoted unrealistic goals that incentivize consumer abuse. The CFPB notes that misaligned employee incentive programs may provide perverse incentives to employees to engage in the following abusive tactics:
- Opening accounts or enrolling consumers in services without their knowledge or consent;
- Marketing a product deceptively to a consumer in order to meet sales benchmarks; and
- Steering consumers to less favorable products or encouraging consumers to purchase services that offer more credit than needed.
The Bulletin alleges that these abusive tactics are especially prevalent when there are incentives tied to promoting credit card add-on products. The CFPB opines that, in marketing credit card add-on products, employees will often deviate from prepared call scripts and instead employ deceptive sales techniques to increase consumer sales.
The above-mentioned sales practices may, depending on the circumstances, violate various consumer protection statutes, including Dodd-Frank Act, Electronic Fund Transfer Act, Fair Credit Reporting Act, Truth in Lending Act, and the Fair Debt Collection Practices Act. At the very least, pervasive consumer abuse may expose companies to unwanted CFPB investigations and negative media coverage.
The CFPB encourages institutional leadership and compliance officers of financial services companies to reduce consumer abuse by:
- Promoting from the top down a culture of providing exceptional customer service by aligning customer need with product recommendations;
- Enacting policies and procedures that promote transparency and fair, independent processes for investigating allegations of consumer abuse;
- Training employees about products and services and how to match customer need with the appropriate product or service;
- Monitoring sales calls to ensure employees are staying on script, especially in companies that are marketing credit card add-on products;
- Reviewing incentive programs and seeking feedback from employees about whether sales goals and benchmarks are realistic; and
- Taking necessary corrective action to change incentive structures as necessary.
The long-term potency of the CFPB hangs in the balance, given the D.C. Circuit’s recent action in PHH Corporation v. CFPB and the Donald J. Trump Administration’s pledge to dismantle the Dodd-Frank Act. Speculation about the Bureau’s future aside, though, the CFPB’s warning to financial companies to reevaluate employee incentive programs should be heeded by all consumer-facing financial services providers. Guidance from competent counsel is highly recommended during these times of change.