The CFPB has issued a new compliance bulletin (2016-03) on incentive programs.  The issuance of the bulletin reflects the CFPB’s increased focus on such programs.

In the bulletin, the CFPB acknowledges that incentives for employees and service providers to meet sales and other business goals are common and can benefit companies and consumers.  However, drawing on “guidance the CFPB has already given in other contexts” and “examples from the CFPB’s supervisory and enforcement experience in which incentives contributed to substantial consumer harm,” the bulletin highlights the consumer risks that incentive programs can create.  The bulletin provides examples of problems that can arise from sales goals, sales benchmarks, compensation tied to the terms and conditions of transactions, paying more compensation for some types of transactions than for others that were or could have been offered to meet consumer needs, and unrealistic quotas to sign up consumers for financial services.

The CFPB discusses the enhanced risks created by incentive programs in CFPB enforcement matters, such as cases involving credit card add-on products and overdraft opt-in practices.  In the section of the bulletin entitled “The CFPB’s Expectations,” the CFPB details steps a supervised entity should take to ensure that its compliance management system is effective in preventing incentive programs from leading to legal violations.  Such steps involve board of directors and management oversight, policies and procedures, training, monitoring, corrective action, consumer complaint management, and independent compliance audits.