Compliance Bulletin 2016-03: Detecting and Preventing Consumer Harm From Production Incentives, 5541-5543 [2017-01021]
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Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Notices
inform a decision of the best way to
account for factory halibut in a
regulated program.
This EFP would be valid upon
renewal until either the end of 2017 or
when the annual halibut mortality
apportionment is reached in areas of the
BSAI open to directed fishing by the
various sectors, whichever occurs first.
EFP-authorized fishing activities would
not be expected to change the nature or
duration of the groundfish fishery, gear
used, or the amount or species of fish
caught by the participants.
The fieldwork that would be
conducted under this EFP is not
expected to have a significant impact on
the human environment as detailed in
the categorical exclusion prepared for
this action (see ADDRESSES).
In accordance with § 679.6, NMFS has
determined that the renewal application
warrants further consideration and has
forwarded the application to the
Council to initiate consultation. The
Council is scheduled to consider the
EFP renewal application during its
February 2017 meeting, which will be
held at the Renaissance Seattle Hotel,
Seattle WA. The applicant has been
invited to appear in support of the
renewal application.
Public Comments
Interested persons may comment on
the application at the February 2017
Council meeting during public
testimony or until February 7, 2017.
Information regarding the meeting is
available at the Council’s Web site at
https://www.npfmc.org. Copies of the
renewal application and categorical
exclusion are available for review from
NMFS (see ADDRESSES). Comments also
may be submitted directly to NMFS (see
ADDRESSES) by the end of the comment
period (see DATES).
Authority: 16 U.S.C. 1801 et seq.
Dated: January 12, 2017.
Samuel D. Rauch III,
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Regulatory Programs, National Marine
Fisheries Service.
[FR Doc. 2017–01063 Filed 1–17–17; 8:45 am]
BILLING CODE 3510–22–P
mstockstill on DSK3G9T082PROD with NOTICES
BUREAU OF CONSUMER FINANCIAL
PROTECTION
Compliance Bulletin 2016–03:
Detecting and Preventing Consumer
Harm From Production Incentives
Bureau of Consumer Financial
Protection.
ACTION: Compliance Bulletin.
AGENCY:
VerDate Sep<11>2014
17:41 Jan 17, 2017
Jkt 241001
5541
The Bureau recognizes that
many supervised entities may choose to
implement incentive programs to
achieve business objectives. When
properly implemented and monitored,
reasonable incentives can benefit
consumers and the financial
marketplace as a whole.
This bulletin compiles guidance that
has previously been given by the CFPB
in other contexts and highlights
examples from the CFPB’s supervisory
and enforcement experience in which
incentives contributed to substantial
consumer harm. It also describes
compliance management steps
supervised entities should take to
mitigate risks posed by incentives.
DATES: The Bureau released this
Compliance Bulletin on its Web site on
November 28, 2016
FOR FURTHER INFORMATION CONTACT:
Vanessa Careiro, Attorney-Advisor,
Office of Supervision Policy, 1700 G
Street NW., 20552, (202) 435–9394.
SUPPLEMENTARY INFORMATION:
service providers, from their
compensation levels to whether they
will continue to be employed or
retained at all. Incentives are found in
many markets for consumer financial
products and services, and span the life
cycle from marketing to sales, servicing,
and collection. Common examples
include sales or referrals of new
products or services to existing
consumers (‘‘cross-selling’’), sales of
products or services to new customers,
sales at higher prices where pricing
discretion exists, quotas for customer
calls completed, and collections
benchmarks.
This 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. It also describes compliance
management steps that supervised
entities should take to mitigate risks
posed by incentives.
1. Compliance Bulletin
A. Risks to Consumers From Incentives
Financial services companies,
including entities supervised by the
Consumer Financial Protection Bureau
(CFPB or Bureau), may accomplish
business objectives through programs
that tie outcomes to certain benchmarks,
both required and optional. Companies
may apply these production incentives,
including sales and other incentives,
(‘‘incentives’’) to employees or service
providers or both. The risks these
incentives may pose to consumers are
significant and both the intended and
unintended effects of incentives can be
complex, which makes this subject
worthy of more careful attention by
institutional leadership, compliance
officers, and regulators alike. We thus
will continue to invite further dialogue
and discussion around the issues
addressed in this Bulletin.
The Bureau acknowledges that
incentives have been common across
many economic sectors, including the
market for consumer financial products
and services. When properly
implemented and monitored, reasonable
incentives can benefit all stakeholders
and the financial marketplace as a
whole. For instance, companies may be
able to attract and retain highperforming employees to enhance their
overall competitive performance.
Consumers may also benefit if these
programs lead to improved customer
service or introduce them to products or
services that are beneficial to their
financial interests.
Such incentives can affect a wide
range of outcomes for employees or
Despite their potential benefits,
incentive programs can pose risks to
consumers, especially when they create
an unrealistic culture of high-pressure
targets. When such programs are not
carefully and properly implemented and
monitored, they may create incentives
for employees or service providers to
pursue overly aggressive marketing,
sales, servicing, or collections tactics.
Through its supervisory and
enforcement programs, the CFPB has
taken action where employees have
opened accounts or enrolled consumers
in services without consent or where
employees or service providers have
misled consumers into purchasing
products the consumers did not want,
were unaware would harm them
financially, or came with an unexpected
ongoing periodic fee.
Depending on the facts and
circumstances, such incentives may
lead to outright violations of Federal
consumer financial law 1 and other risks
to the institution, such as public
enforcement, supervisory actions,
private litigation, reputational harm,
SUMMARY:
PO 00000
Frm 00020
Fmt 4703
Sfmt 4703
1 Selected examples of these violations previously
identified by the Bureau include the Dodd-Frank
Act’s prohibition of unfair, deceptive, and/or
abusive acts or practices (UDAAPs) (Dodd-Frank
Act, §§ 1031 & 1036(a), codified at 12 U.S.C. 5531
& 5536(a); the Electronic Fund Transfer Act (EFTA),
as implemented by Regulation E (15 U.S.C. 1693 et
seq.; 12 CFR part 1005); the Fair Credit Reporting
Act, as implemented by Regulation V (15 U.S.C.
1681–1681x; 12 CFR part 1022); the Truth in
Lending Act (TILA), as implemented by Regulation
Z (15 U.S.C. 1601 et seq.; 12 CFR part 1026); and
the Fair Debt Collection Practices Act (15 U.S.C
1692–1692p).
E:\FR\FM\18JAN1.SGM
18JAN1
5542
Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Notices
and potential alienation of existing and
future customers. Specific examples of
problems include:
• Sales goals may encourage
employees, either directly or indirectly,
to open accounts or enroll consumers in
services without their knowledge or
consent. Depending on the type of
account, this may further result in, for
example:
Æ Improperly incurred fees;
Æ Improper collections activities;
and/or
Æ Negative effects on consumer credit
scores.
• Sales benchmarks may encourage
employees or service providers to
market a product deceptively to
consumers who may not benefit from or
even qualify for it;
• Paying compensation based on the
terms or conditions of transactions
(such as interest rate) may encourage
employees or service providers to
overcharge consumers, to place them in
less favorable products than they qualify
for, or to sell them more credit or
services than they had requested or
needed;
• Paying more compensation for some
types of transactions than for others that
were or could have been offered to meet
consumer needs, which could lead
employees or service providers to steer
consumers to transactions not in their
interests; and
• Unrealistic quotas to sign
consumers up for financial services may
incentivize employees to achieve this
result without actual consent or by
means of deception.
Whether conduct like that described
in this Bulletin violates Federal
consumer financial law will depend on
all relevant facts related to the practices
encouraged by the incentives. Further
detail on some of the Bureau’s work and
findings in these areas is recapped
below:
mstockstill on DSK3G9T082PROD with NOTICES
Credit Card Add-On Matters
To date, the CFPB has resolved 12
different cases involving improper
practices to market credit card add-on
products or to retain consumers once
enrolled in these products.2 The Bureau
notes that incentives frequently
enhanced the risk that banks would
engage in such improper practices. In
some cases, employees or service
providers received incentives, and a
lack of proper controls allowed
deceptive marketing practices to
continue unchecked for many years.
2 For more information on all of the matters noted
in this Bulletin, please refer to the Bureau’s Web
site at https://www.consumerfinance.gov/policycompliance/enforcement/actions/.
VerDate Sep<11>2014
17:41 Jan 17, 2017
Jkt 241001
Tapes of sales calls showed that
employees and service providers
deviated from the prepared call scripts
in order to market the add-on products
more aggressively, and often
deceptively, to sign up more consumers.
In all these matters, the companies’
compliance monitoring, vendor
management, and quality assurance
programs failed to prevent, identify, or
correct these practices in a timely
manner.
Overdraft Opt-In Matters
Incentives played a role in at least one
matter where consumers were deceived
into opting in to overdraft services. The
Bureau found that, as a result of
incentives for hitting specific targets, a
bank’s telemarketing service provider
had deceptively marketed overdraft
services and enrolled certain bank
consumers in those services without
their consent.
Unfair and Abusive Sales Practices
In another public enforcement action,
a Bureau investigation revealed that
thousands of bank employees had
opened unauthorized deposit and credit
card accounts to satisfy sales goals and
earn financial rewards under the bank’s
incentives. Specifically, the Bureau
found that employees engaged in
‘‘simulated funding’’ by opening
hundreds of thousands of deposit
accounts without consumers’
knowledge or consent, which caused
consumers to incur improper fees. The
Bureau also found that employees
issued tens of thousands of
unauthorized credit cards that incurred
improper fees, opened debit cards and
created PINs to activate them without
consumers’ knowledge or consent, and
enrolled consumers in online banking
services using false email addresses.
B. The CFPB’s 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. As the CFPB has emphasized
repeatedly, a robust compliance
management system (CMS) is necessary
to detect and prevent violations of
Federal consumer financial law.3 An
entity’s CMS should reflect the risk,
nature, and significance of the incentive
3 Supervision and Examination Manual:
Compliance Management Review, available at
https://www.consumerfinance.gov/policycompliance/guidance/supervision-examinations/;
Supervisory Highlights, multiple editions, available
at https://www.consumerfinance.gov/policycompliance/guidance/supervisory-highlights/.
PO 00000
Frm 00021
Fmt 4703
Sfmt 4703
programs to which they apply.
Accordingly, 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. While the
CFPB does not mandate any particular
CMS structure and recognizes that CMS
structures may appropriately vary based
on the size and complexity of an
organization, the Bureau’s supervisory
experience has found that an effective
CMS commonly has the following
components:
• Board of directors and management
oversight;
• Compliance program, which
includes:
Æ Policies and procedures;
Æ Training; and
Æ Monitoring and corrective action;
• Consumer complaint management
program; and
• Independent compliance audit.
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:
• 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;
Æ Board members and senior
management should consider not only
the outcomes these programs seek to
achieve, but also how they may
incidentally incentivize outcomes that
harm consumers. They should authorize
compliance personnel to design and
implement CMS elements that address
both intended and unintended
outcomes, and provide adequate
resources to do so.
Æ The ‘‘tone from the top’’ should
empower all employees to report
suspected incidents of improper
behavior without fear of retaliation,
providing easily accessible means to do
so.
• Policies and procedures: Ensuring
that the policies and procedures for
incentives contain:
Æ Employee sales/collections quotas
that, if a part of an entity’s incentive
program, are transparent to employees
and reasonably attainable;
Æ Clear controls for managing the risk
inherent in each stage of the product life
cycle (as applicable): marketing, sales
(including account opening), servicing,
and collections;
E:\FR\FM\18JAN1.SGM
18JAN1
mstockstill on DSK3G9T082PROD with NOTICES
Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Notices
Æ Mechanisms to identify potential
conflicts of interest posed for
supervisory personnel who are covered
by incentives but also are responsible
for monitoring the quality of customer
treatment and customer satisfaction; and
Æ Fair and independent processes for
investigating reported issues of
suspected improper behavior.
• Training: Implementing
comprehensive training that addresses:
Æ Expectations for incentives,
including standards of ethical behavior;
Æ Common risky behaviors for
employees and service providers to
foster greater awareness of primary risk
areas;
Æ Terms and conditions of the
institution’s products and services so
that they can be effectively described to
consumers; and
Æ Regulatory and business
requirements for obtaining and
maintaining evidence of consumer
consent.
• 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:
Æ Overall product penetration rates
by consumer and household;
Æ Specific penetration rates for
products and services (such as
overdraft, add-on products, and online
banking), as well as penetration rates by
consumer segment;
Æ Employee turnover and employee
satisfaction or complaint rates;
Æ Spikes and trends in sales (both
completed and failed sales) by specific
individuals and by units;
Æ Financial incentive payouts; and
Æ Account opening/product
enrollment and account closure/product
cancellation statistics, including by
specific individuals and by units, taking
into account the terms of the incentive
programs (i.e., requirements that
accounts be open for a period of time or
funded in order for employees to obtain
credit under the program).
• Corrective Action: Promptly
implementing corrective actions to
address any incentive issues identified
by monitoring reviews as areas of
weakness:
Æ Corrective actions should include
the termination of employees, service
providers, and managers, as necessary,
and these termination statistics should
be analyzed for trends and root cause(s);
Æ Corrective actions should include
changes to the structure of incentives,
training on these programs, and return
of funds to all affected consumers as
VerDate Sep<11>2014
17:41 Jan 17, 2017
Jkt 241001
appropriate in light of failed sales or
heightened levels of customer
dissatisfaction;
Æ All corrective actions should
ensure that the root causes of
deficiencies are identified and resolved;
and
Æ Findings should be escalated to
management and the board, particularly
where they appear to pose significant
risks to consumers.
• 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
• 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.
For more information pertaining to
the oversight of incentive programs,
please review the CFPB’s Supervision
and Examination Manual.4 Specific
modules referencing these programs
include: Compliance Management
Review, Unfair, Deceptive, and Abusive
Acts or Practices, Debt Collection,
Credit Card Account Management,
Consumer Reporting, Mortgage
Origination, Short-Term Small Dollar
Lending, and the Equal Credit
Opportunity Act. Other relevant Bureau
guidance includes: CFPB Bulletin 2012–
06 (Marketing of Credit Card Add-on
Products),5 and CFPB Bulletin 2016–02
(Service Providers, amending and
reissuing CFPB Bulletin 2012–03).6
2. Regulatory Requirements
This Compliance Bulletin is a nonbinding general statement of policy
articulating considerations relevant to
the Bureau’s exercise of its supervisory
and enforcement authority. It is
therefore exempt from notice and
comment rulemaking requirements
under the Administrative Procedure Act
pursuant to 5 U.S.C. 553(b). Because no
notice of proposed rulemaking is
required, the Regulatory Flexibility Act
does not require an initial or final
4 CFPB Supervision and Examination Manual,
available at https://files.consumerfinance.gov/f/
201210_cfpb_supervision-and-examinationmanual-v2.pdf.
5 CFPB Bulletin 2012–06, available at https://files.
consumerfinance.gov/f/201207_cfpb_marketing_of_
credit_card_addon_products.pdf.
6 CFPB Bulletin 2016–02, available at https://
www.consumerfinance.gov/documents/1385/
102016_cfpb_OfficialGuidanceServiceProvider
Bulletin.pdf.
PO 00000
Frm 00022
Fmt 4703
Sfmt 4703
5543
regulatory flexibility analysis. 5 U.S.C.
603(a), 604(a). The Bureau has
determined that this Compliance
Bulletin does not impose any new or
revise any existing recordkeeping,
reporting, or disclosure requirements on
covered entities or members of the
public that would be collections of
information requiring OMB approval
under the Paperwork Reduction Act, 44
U.S.C. 3501, et seq.
Dated: January 5, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial
Protection.
[FR Doc. 2017–01021 Filed 1–17–17; 8:45 am]
BILLING CODE 4810–AM–P
DEPARTMENT OF THE ARMY
Notice of Intent To Prepare an
Environmental Impact Statement in
Connection With Dakota Access, LLC’s
Request for an Easement To Cross
Lake Oahe, North Dakota
Department of the Army, DoD.
Notice.
AGENCY:
ACTION:
This notice advises the public
that the Department of the Army
(Army), as lead agency, is gathering
information necessary to prepare an
environmental impact statement (EIS) in
connection with Dakota Access, LLC’s
request to grant an easement to cross
Lake Oahe, which is on the Missouri
River and owned by the US Army Corps
of Engineers (Corps). This notice opens
the public scoping phase and invites
interested parties to identify potential
issues, concerns, and reasonable
alternatives that should be considered
in an EIS.
DATES: To ensure consideration during
the development of an EIS, written
comments on the scope of an EIS should
be sent no later than February 20, 2017.
The date of all public scoping meetings
will be announced at least 15 days in
advance through a notice to be
published in the local North Dakota
newspaper (The Bismarck Tribune) and
online at https://www.army.mil/asacw.
ADDRESSES: You may mail or hand
deliver written comments to Mr. Gib
Owen, Office of the Assistant Secretary
of the Army for Civil Works, 108 Army
Pentagon, Washington, DC 20310–0108.
Advance arrangements will need to be
made to hand deliver comments. Please
include your name, return address, and
‘‘NOI Comments, Dakota Access
Pipeline Crossing’’ on the first page of
your written comments. Comments may
also be submitted via email to Mr. Gib
Owen, at gib.a.owen.civ@mail.mil. If
SUMMARY:
E:\FR\FM\18JAN1.SGM
18JAN1
Agencies
[Federal Register Volume 82, Number 11 (Wednesday, January 18, 2017)]
[Notices]
[Pages 5541-5543]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01021]
=======================================================================
-----------------------------------------------------------------------
BUREAU OF CONSUMER FINANCIAL PROTECTION
Compliance Bulletin 2016-03: Detecting and Preventing Consumer
Harm From Production Incentives
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Compliance Bulletin.
-----------------------------------------------------------------------
SUMMARY: The Bureau recognizes that many supervised entities may choose
to implement incentive programs to achieve business objectives. When
properly implemented and monitored, reasonable incentives can benefit
consumers and the financial marketplace as a whole.
This bulletin compiles guidance that has previously been given by
the CFPB in other contexts and highlights examples from the CFPB's
supervisory and enforcement experience in which incentives contributed
to substantial consumer harm. It also describes compliance management
steps supervised entities should take to mitigate risks posed by
incentives.
DATES: The Bureau released this Compliance Bulletin on its Web site on
November 28, 2016
FOR FURTHER INFORMATION CONTACT: Vanessa Careiro, Attorney-Advisor,
Office of Supervision Policy, 1700 G Street NW., 20552, (202) 435-9394.
SUPPLEMENTARY INFORMATION:
1. Compliance Bulletin
Financial services companies, including entities supervised by the
Consumer Financial Protection Bureau (CFPB or Bureau), may accomplish
business objectives through programs that tie outcomes to certain
benchmarks, both required and optional. Companies may apply these
production incentives, including sales and other incentives,
(``incentives'') to employees or service providers or both. The risks
these incentives may pose to consumers are significant and both the
intended and unintended effects of incentives can be complex, which
makes this subject worthy of more careful attention by institutional
leadership, compliance officers, and regulators alike. We thus will
continue to invite further dialogue and discussion around the issues
addressed in this Bulletin.
The Bureau acknowledges that incentives have been common across
many economic sectors, including the market for consumer financial
products and services. When properly implemented and monitored,
reasonable incentives can benefit all stakeholders and the financial
marketplace as a whole. For instance, companies may be able to attract
and retain high-performing employees to enhance their overall
competitive performance. Consumers may also benefit if these programs
lead to improved customer service or introduce them to products or
services that are beneficial to their financial interests.
Such incentives can affect a wide range of outcomes for employees
or service providers, from their compensation levels to whether they
will continue to be employed or retained at all. Incentives are found
in many markets for consumer financial products and services, and span
the life cycle from marketing to sales, servicing, and collection.
Common examples include sales or referrals of new products or services
to existing consumers (``cross-selling''), sales of products or
services to new customers, sales at higher prices where pricing
discretion exists, quotas for customer calls completed, and collections
benchmarks.
This 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. It also describes compliance management steps that
supervised entities should take to mitigate risks posed by incentives.
A. Risks to Consumers From Incentives
Despite their potential benefits, incentive programs can pose risks
to consumers, especially when they create an unrealistic culture of
high-pressure targets. When such programs are not carefully and
properly implemented and monitored, they may create incentives for
employees or service providers to pursue overly aggressive marketing,
sales, servicing, or collections tactics. Through its supervisory and
enforcement programs, the CFPB has taken action where employees have
opened accounts or enrolled consumers in services without consent or
where employees or service providers have misled consumers into
purchasing products the consumers did not want, were unaware would harm
them financially, or came with an unexpected ongoing periodic fee.
Depending on the facts and circumstances, such incentives may lead
to outright violations of Federal consumer financial law \1\ and other
risks to the institution, such as public enforcement, supervisory
actions, private litigation, reputational harm,
[[Page 5542]]
and potential alienation of existing and future customers. Specific
examples of problems include:
---------------------------------------------------------------------------
\1\ Selected examples of these violations previously identified
by the Bureau include the Dodd-Frank Act's prohibition of unfair,
deceptive, and/or abusive acts or practices (UDAAPs) (Dodd-Frank
Act, Sec. Sec. 1031 & 1036(a), codified at 12 U.S.C. 5531 &
5536(a); the Electronic Fund Transfer Act (EFTA), as implemented by
Regulation E (15 U.S.C. 1693 et seq.; 12 CFR part 1005); the Fair
Credit Reporting Act, as implemented by Regulation V (15 U.S.C.
1681-1681x; 12 CFR part 1022); the Truth in Lending Act (TILA), as
implemented by Regulation Z (15 U.S.C. 1601 et seq.; 12 CFR part
1026); and the Fair Debt Collection Practices Act (15 U.S.C 1692-
1692p).
---------------------------------------------------------------------------
Sales goals may encourage employees, either directly or
indirectly, to open accounts or enroll consumers in services without
their knowledge or consent. Depending on the type of account, this may
further result in, for example:
[cir] Improperly incurred fees;
[cir] Improper collections activities; and/or
[cir] Negative effects on consumer credit scores.
Sales benchmarks may encourage employees or service
providers to market a product deceptively to consumers who may not
benefit from or even qualify for it;
Paying compensation based on the terms or conditions of
transactions (such as interest rate) may encourage employees or service
providers to overcharge consumers, to place them in less favorable
products than they qualify for, or to sell them more credit or services
than they had requested or needed;
Paying more compensation for some types of transactions
than for others that were or could have been offered to meet consumer
needs, which could lead employees or service providers to steer
consumers to transactions not in their interests; and
Unrealistic quotas to sign consumers up for financial
services may incentivize employees to achieve this result without
actual consent or by means of deception.
Whether conduct like that described in this Bulletin violates
Federal consumer financial law will depend on all relevant facts
related to the practices encouraged by the incentives. Further detail
on some of the Bureau's work and findings in these areas is recapped
below:
Credit Card Add-On Matters
To date, the CFPB has resolved 12 different cases involving
improper practices to market credit card add-on products or to retain
consumers once enrolled in these products.\2\ The Bureau notes that
incentives frequently enhanced the risk that banks would engage in such
improper practices. In some cases, employees or service providers
received incentives, and a lack of proper controls allowed deceptive
marketing practices to continue unchecked for many years. Tapes of
sales calls showed that employees and service providers deviated from
the prepared call scripts in order to market the add-on products more
aggressively, and often deceptively, to sign up more consumers. In all
these matters, the companies' compliance monitoring, vendor management,
and quality assurance programs failed to prevent, identify, or correct
these practices in a timely manner.
---------------------------------------------------------------------------
\2\ For more information on all of the matters noted in this
Bulletin, please refer to the Bureau's Web site at https://www.consumerfinance.gov/policy-compliance/enforcement/actions/.
---------------------------------------------------------------------------
Overdraft Opt-In Matters
Incentives played a role in at least one matter where consumers
were deceived into opting in to overdraft services. The Bureau found
that, as a result of incentives for hitting specific targets, a bank's
telemarketing service provider had deceptively marketed overdraft
services and enrolled certain bank consumers in those services without
their consent.
Unfair and Abusive Sales Practices
In another public enforcement action, a Bureau investigation
revealed that thousands of bank employees had opened unauthorized
deposit and credit card accounts to satisfy sales goals and earn
financial rewards under the bank's incentives. Specifically, the Bureau
found that employees engaged in ``simulated funding'' by opening
hundreds of thousands of deposit accounts without consumers' knowledge
or consent, which caused consumers to incur improper fees. The Bureau
also found that employees issued tens of thousands of unauthorized
credit cards that incurred improper fees, opened debit cards and
created PINs to activate them without consumers' knowledge or consent,
and enrolled consumers in online banking services using false email
addresses.
B. The CFPB's 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. As the CFPB has
emphasized repeatedly, a robust compliance management system (CMS) is
necessary to detect and prevent violations of Federal consumer
financial law.\3\ An entity's CMS should reflect the risk, nature, and
significance of the incentive programs to which they apply.
Accordingly, 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. While the CFPB does
not mandate any particular CMS structure and recognizes that CMS
structures may appropriately vary based on the size and complexity of
an organization, the Bureau's supervisory experience has found that an
effective CMS commonly has the following components:
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\3\ Supervision and Examination Manual: Compliance Management
Review, available at https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/; Supervisory
Highlights, multiple editions, available at https://www.consumerfinance.gov/policy-compliance/guidance/supervisory-highlights/.
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Board of directors and management oversight;
Compliance program, which includes:
[cir] Policies and procedures;
[cir] Training; and
[cir] Monitoring and corrective action;
Consumer complaint management program; and
Independent compliance audit.
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:
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;
[cir] Board members and senior management should consider not only
the outcomes these programs seek to achieve, but also how they may
incidentally incentivize outcomes that harm consumers. They should
authorize compliance personnel to design and implement CMS elements
that address both intended and unintended outcomes, and provide
adequate resources to do so.
[cir] The ``tone from the top'' should empower all employees to
report suspected incidents of improper behavior without fear of
retaliation, providing easily accessible means to do so.
Policies and procedures: Ensuring that the policies and
procedures for incentives contain:
[cir] Employee sales/collections quotas that, if a part of an
entity's incentive program, are transparent to employees and reasonably
attainable;
[cir] Clear controls for managing the risk inherent in each stage
of the product life cycle (as applicable): marketing, sales (including
account opening), servicing, and collections;
[[Page 5543]]
[cir] Mechanisms to identify potential conflicts of interest posed
for supervisory personnel who are covered by incentives but also are
responsible for monitoring the quality of customer treatment and
customer satisfaction; and
[cir] Fair and independent processes for investigating reported
issues of suspected improper behavior.
Training: Implementing comprehensive training that
addresses:
[cir] Expectations for incentives, including standards of ethical
behavior;
[cir] Common risky behaviors for employees and service providers to
foster greater awareness of primary risk areas;
[cir] Terms and conditions of the institution's products and
services so that they can be effectively described to consumers; and
[cir] Regulatory and business requirements for obtaining and
maintaining evidence of consumer consent.
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:
[cir] Overall product penetration rates by consumer and household;
[cir] Specific penetration rates for products and services (such as
overdraft, add-on products, and online banking), as well as penetration
rates by consumer segment;
[cir] Employee turnover and employee satisfaction or complaint
rates;
[cir] Spikes and trends in sales (both completed and failed sales)
by specific individuals and by units;
[cir] Financial incentive payouts; and
[cir] Account opening/product enrollment and account closure/
product cancellation statistics, including by specific individuals and
by units, taking into account the terms of the incentive programs
(i.e., requirements that accounts be open for a period of time or
funded in order for employees to obtain credit under the program).
Corrective Action: Promptly implementing corrective
actions to address any incentive issues identified by monitoring
reviews as areas of weakness:
[cir] Corrective actions should include the termination of
employees, service providers, and managers, as necessary, and these
termination statistics should be analyzed for trends and root cause(s);
[cir] Corrective actions should include changes to the structure of
incentives, training on these programs, and return of funds to all
affected consumers as appropriate in light of failed sales or
heightened levels of customer dissatisfaction;
[cir] All corrective actions should ensure that the root causes of
deficiencies are identified and resolved; and
[cir] Findings should be escalated to management and the board,
particularly where they appear to pose significant risks to consumers.
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
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.
For more information pertaining to the oversight of incentive
programs, please review the CFPB's Supervision and Examination
Manual.\4\ Specific modules referencing these programs include:
Compliance Management Review, Unfair, Deceptive, and Abusive Acts or
Practices, Debt Collection, Credit Card Account Management, Consumer
Reporting, Mortgage Origination, Short-Term Small Dollar Lending, and
the Equal Credit Opportunity Act. Other relevant Bureau guidance
includes: CFPB Bulletin 2012-06 (Marketing of Credit Card Add-on
Products),\5\ and CFPB Bulletin 2016-02 (Service Providers, amending
and reissuing CFPB Bulletin 2012-03).\6\
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\4\ CFPB Supervision and Examination Manual, available at https://files.consumerfinance.gov/f/201210_cfpb_supervision-and-examination-manual-v2.pdf.
\5\ CFPB Bulletin 2012-06, available at https://files.consumerfinance.gov/f/201207_cfpb_marketing_of_credit_card_addon_products.pdf.
\6\ CFPB Bulletin 2016-02, available at https://www.consumerfinance.gov/documents/1385/102016_cfpb_OfficialGuidanceServiceProviderBulletin.pdf.
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2. Regulatory Requirements
This Compliance Bulletin is a non-binding general statement of
policy articulating considerations relevant to the Bureau's exercise of
its supervisory and enforcement authority. It is therefore exempt from
notice and comment rulemaking requirements under the Administrative
Procedure Act pursuant to 5 U.S.C. 553(b). Because no notice of
proposed rulemaking is required, the Regulatory Flexibility Act does
not require an initial or final regulatory flexibility analysis. 5
U.S.C. 603(a), 604(a). The Bureau has determined that this Compliance
Bulletin does not impose any new or revise any existing recordkeeping,
reporting, or disclosure requirements on covered entities or members of
the public that would be collections of information requiring OMB
approval under the Paperwork Reduction Act, 44 U.S.C. 3501, et seq.
Dated: January 5, 2017.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2017-01021 Filed 1-17-17; 8:45 am]
BILLING CODE 4810-AM-P