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CFPB Issues Compliance Bulletin on Production Incentives

Tuesday, December 6, 2016   (0 Comments)
Posted by: Liz Slovenkay
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This week the Consumer Financial Protection Bureau (CFPB) issued a Compliance Bulletin: “Detecting and Preventing Consumer Harm from Production Incentives.”  While not mentioning Wells Fargo by name, the Bulletin is clearly written in response to the CFPB's action against the bank. insideARM wrote about the action on September 9, 2016


CPF's Editorial Review Board Weighs In


JOHN BEDARD, Bedard Law Group: I am surprised it has taken this long for such a bulletin. Much of the collection industry has been comfortably ahead of the “regulatory curve” on this issue by long ago implementing procedures to prevent, detect, and correct consumer harm caused by misaligned compensation programs.


CAREN ENLOE, Smith Debnam: What I find problematic is that the Bulletin attempts to provide a 5,000 foot high approach without providing any specific guidelines as to specific product lines.  This is of concern.  I think we can all agree that various business lines have different external controls outside of numeric metrics which may provide additional controls on the validity of employee incentives.  Debt collection, of course comes to mind where behaviors are controlled by factors aside from those set aside in the Compliance Bulletin.  Still, the Bulletin does provide good insight as to the CFPB’s focus in its examinations.  Key components that should be carefully considered by all covered entities is the role management is expected to play, an emphasis on internal complaint systems designed to root out improper behavior, an emphasis on internal monitoring of metrics and outliers, and consumer complaint management.


For a more in-depth look at the Compliance Bulletin, please see visit Caren's blog.


TOM PAHL, Arnall Golden Gregory: It's useful first to understand the context in which this Compliance Bulletin arose.  As Tim Bauer noted in his insideARM piece, this Bulletin really is a follow-on to the CFPB’s case against Wells Fargo.  When the CFPB brought its case against Wells Fargo, Congressional Republicans criticized the agency for not acting more promptly against Wells Fargo because it had received consumer complaints about Wells Fargo’s conduct for some time before the agency acted.  The CFPB thus probably issued this Bulletin both to convey its concern on the merits about the risks to consumers from production-based incentives and to provide the agency with a ready defense against criticism about it not being proactive enough in preventing or minimizing such risks.
Motive aside, the Bulletin reflects a fundamental CFPB skepticism about the use of production-based incentives, such as collectors being paid on commission, although the Bulletin does mention some economic benefits of such incentives.  The Bulletin identifies general risks to consumers from production-based incentives with most of them involving conduct that was deceptive or that was undertaken without consumer knowledge or consent.  The good news is that compliance-focused collection agencies are focused already on preventing or minimizing such conduct, including doing so through fostering a compliance-oriented culture.  However, in light of the CFPB’s focus on these issues it would be prudent for them to conduct a quick review to confirm that their compliance management systems are in line with the CFPB’s expectations as laid out in the Bulletin.  The Compliance Bulletin also cites specific examples in which it has found production-incentives caused or contributed to consumer protection problems (such as credit card add-on products, overdraft opt-in, and sales practices).  More good news for collection agencies in that these examples did not arise in the collection context. 
The one aspect of the Bulletin which bears watching is its discussion at various points about companies making sure their employees act in the interest of consumers.  It is not clear to me, however, how collection agencies as a practical matter could apply such a standard in deciding what payments to accept or not accept to settle a debt.  My suspicion is the CFPB was focused more on entities acting in the interest of consumers in contexts other than collections, such as when the law requires a lender to consider the consumer’s ability to pay a loan.  However, because the Bulletin does not expressly limit the application of this consideration to such a context and because the concept of “abusiveness” under the Dodd-Frank Act covers situations in which a firm has taken unreasonable advantage of consumers, this issue bears watching and would be an appropriate subject for future CFPB clarification.

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