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This past November, in the wake of the Wells Fargo debacle, the CFPB issued a Compliance Bulletin which addressed employee incentives and the consumer risks associated with them. CFPB Compliance Bulletins are non-binding general statements of CFPB policy. The Bulletin noted that while businesses and consumers alike may benefit from the use of incentives when properly implemented and monitored, incentives may also lead to significant consumer harm when adequate risk controls are not in place.
Key to the CFPB’s November Bulletin is the CFPB’s articulation of what constitutes an effective compliance management system for addressing employee incentives. While effective compliance management systems are not contemplated to be a one size fits all proposition, the CFPB stresses they should take into account the risk, nature, and significance of the incentive program. The Bulletin describes an effective compliance management system as generally addressing the following:
An effective compliance management system will foster strong customer service and should take into account the following components:
The CFPB notes that policies and procedures regarding incentives should provide:
Training should be implemented and should:
Overall monitoring systems should track key metrics and outliers that may be indicative of abuse. Examples provided by the CFPB include:
The Compliance Management Systems should provide for the prompt identification and implementation of corrective actions addressing any areas of weakness. The CFPB expects corrective actions to include:
As was noted in the Wells Fargo Order and confirmed by the Bulletin, the CFPB expects institutions to collect and analyze consumer complaints for indications that incentives are leading to consumer harm or violations of law in order to identify and resolve the root causes of any such issues.
The CFPB expects Compliance Management Systems to provide for periodic independent compliance audits. Institutions’ Compliance Management Systems should, therefore:
Financial institutions who use incentive programs should take some comfort in the fact that the CFPB acknowledges that incentive programs, when properly implemented, may be beneficial to the marketplace. At the same, time, financial institutions should be aware that incentive programs are being carefully scrutinized. It is, therefore, incumbent on financial institutions to carefully review their compliance management programs as to incentive programs. The level of specificity provided by the CFPB Bulletin suggests that this will likely be the measuring stick used in current and upcoming examinations and that incentive programs will be a point of emphasis by regulators in general.
Caren Enloe is a partner who concentrates her practice in consumer financial services litigation and compliance, bankruptcy, and commercial litigation with an emphasis on creditor’s rights. She has a deep understanding of the complex compliance environment surrounding the financial services industry and regularly advises financial service companies on licensing and compliance issues involving state and federal consumer protection and finance statutes. Caren is the author of a daily blog titled: Consumer Financial Services Litigation and Compliance where she posts timely and informative updates regarding the CFPB, FTC, and a host of topical litigation issues involving consumer protection law....LEARN MORE