Compliance Bulletin 2016-03: Detecting and Preventing Consumer Harm From Production Incentives, 5541-5543 [2017-01021]

Download as PDF 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, Deputy Assistant Administrator for 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:
---------------------------------------------------------------------------

    \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/.
---------------------------------------------------------------------------

     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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

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
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.