Maryland Legal Alert for Financial Services

The CFPB recently released a compliance bulletin addressing the use of incentive compensation programs in connection with the marketing of consumer financial products/services.  In the bulletin, the CFPB acknowledges that not all incentive compensation programs are suspect, but the CFPB cautioned that such programs need to be carefully structured and monitored to avoid consumer harm.  The bulletin highlights several incentive compensation features that the CFPB views as problems: (1) unrealistic sales goals that encourage employees to open accounts without consumer knowledge/consent or through deception; (2) incentive compensation based on the terms of a transaction (e.g., based on interest rate); and (3) paying more incentive compensation for some types of transactions when other types would be more beneficial to consumers.  The bulletin outlines the CFPB's expectations for properly structured incentive compensation programs: (a) incentive compensation programs need to be subject to oversight by board/management and be subject to written policies/procedures; (b) employees and managers must be properly trained concerning company policies/procedures and applicable law; (c) employees must be carefully monitored for potential violations of company policies/procedures (company must take swift action when violations are discovered); and (d) consumer complaints should be regularly analyzed to ensure that incentive compensation is not inadvertently causing poor consumer service/treatment.  Financial institutions should review their incentive compensation programs to make sure that they meet CFPB expectations.  Please contact  Christopher Rahl for questions concerning this topic.