The Consumer Financial Protection Bureau (CFPB) will likely be weakened by the incoming Trump administration and its Republican allies in Congress. Exactly how, and how much, remains to be seen, however—and, in the meantime, the agency continues to make its presence felt. Earlier this week, the CFPB warned companies that it oversees to take steps to ensure that their incentive compensation programs are not likely to motivate unethical conduct by employees. The types of unethical conduct that the CFPB wants to ensure that companies are guarding against might include employees creating fake accounts, as happened at Wells Fargo & Co., or enticing consumers to sign up for products they neither want nor need. But the CFPB made clear in its warning to companies that its concerns over sales practices go beyond situations similar to Wells Fargo’s fake account scandal. In other words, as has at times been the case with the CFPB, it is casting a broad net, but not necessarily saying what specifically it intends to catch with that net.
The federal consumer protection watchdog said that banks, mortgage lenders, payday lenders and other firms that it regulates should review their compensation policies on a regular basis. In doing so, these types of companies need to make sure that they are not creating the wrong kinds of incentives, ones that may lead employees to conclude that they must engage in potentially fraudulent activity in order to meet inflated sales goals. In particular, companies should undertake a comprehensive analysis of their compliance management systems. Boards of Directors will be expected to increase their level of oversight to make sure that appropriate policies and incentives are in place and are being followed.
“Tying bonuses and job security to business goals that are unrealistic or not properly monitored can lead to illegal practices like unauthorized account openings and deceptive sales tactics,” CFPB Director Richard Cordray said in a statement.
The CFPB is warning companies to make sure that their incentives operate to reward quality customer service, not fraud and abuse.”
The agency commented that its examiners had encountered incentive-based problems similar to those that led to Wells Fargo’s legal issues at other companies. It specifically mentioned the market for credit card add-on products. The CFPB stated that companies in that market too often misled consumers when signing them up for credit protection plans and other products, as well as in the checking account overdraft fee market and other consumer financial products. As a clear indication that the CFPB is not merely holding companies accountable for their own direct sales practices, but for third parties’ actions on behalf of the company, the bureau has recently entered into settlements with credit card companies over third-party sales practices meant to benefit a credit card company.
Given extensive uncertainty over whether, when, and to what extent the CFPB’s level of activity may be curtailed by the new administration, companies are well advised to follow fully the CFPB’s current guidance and warnings, rather than treating them as merely temporary or unlikely to be enforced. Part of an appropriate response is engaging counsel to assist with a review of existing or contemplated policies, and to help with implementation of modifications that may be needed as a consequence of that review. Among other tangible benefits, taking such a step establishes a favorable written record of having been vigilant in monitoring an issue that is a clear priority to the CFPB (and other regulators, not to mention plaintiffs’ lawyers) in the aftermath of the high-profile Wells Fargo scandal.