What the CFPB Has to Say About Your Production Incentives

  • Written by Debra J. Ciskey

ciskey debra jCollectors are the beating heart of a collection agency. Over the years I have heard described any number of tactics collection management has used to make collectors happy in an effort to prevent them from jumping ship, including giving the best collectors the most desirable parking spaces, providing food nearly daily, providing cushy chairs and treadmill desks, using flexible scheduling, providing a special, private lounge for the top dogs, and providing creative and lucrative commission and bonus plans.

“Collectors will leave for a dime an hour increase.”

As much as management may do to create a comfortable, even festive work environment, I have heard it said that for collectors, it all comes down to the paycheck. I would propose that for nearly all workers, except maybe members of Saint Teresa of Calcutta’s Order of the Sisters of Charity, this would be a true statement. Management tries to come up with the most lucrative commission and/or bonus plan so that the hourly wage can remain low while top performers are well compensated.

CFPB’s Opinion

What does the regulator say? The Consumer Financial Protection Bureau shared its position on production incentives in a compliance bulletin in 2016 (CFPB Compliance Bulletin 2016-03). It feels that production incentives may pose risks to consumers that are “significant, and both the intended and unintended effects of incentives can be complex. . .” However, the CFPB acknowledges the value of production incentives and says they can be beneficial: “When properly implemented and monitored, reasonable incentives can benefit all stakeholders and the financial marketplace as a whole.” They acknowledge that incentive programs can assist with retention of high performing employees, and can benefit consumers by leading to improved customer service or introduction to services that may benefit them. The CFPB fears programs that result in overly aggressive collection tactics, for example, and outright violations of consumer financial protection laws.

The CFPB is very clear related to its expectations regarding incentive programs: “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.” The compliance management system should include board and management oversight of incentive programs, policies and procedures governing incentive programs, training which includes standards of ethical behavior, monitoring, and corrective action, as well as complaint monitoring and compliance audits to oversee the application of the incentive program.

In Writing or Else

Incentive programs must be well framed, well documented, and considered from the point of view of management (how will this increase production?), collectors (how much can I realistically make under this plan?), consumers (does this guy hear what I am saying? It seems like he only wants his money) and the compliance officer (can’t we just pay everyone straight salary? No, okay, let me write a policy). The CFPB is concerned about unintended consequences that can occur when incentive programs are too lucrative—think about the Wells Fargo debacle. The compliance team will want to build controls intended to prevent occurrences of consumer harm caused by overzealous attempts to make bonus.

Focused call monitoring will be necessary to ensure the controls are effective. Training and retraining related to ethical conduct and negative consequences for displays of improper conduct, offsetting any potential gain from such conduct are necessary components of a compliance focused production incentive program.

Using speech analytics can support your effort to reward collectors for the use of compliant, ethical production practices. If your plan includes, for example, a provision to make any collections that resulted from calls in which policy violations occurred ineligible for inclusion in the bonus calculation, the use of speech analytics can help by flagging calls that need to be reviewed for potential violations. Unless one has an army of call reviewers, this would be impossible to perform without such automation. Incentives with a compliance component could actually help you attract good performers without investing in creature comforts and daily pizza runs.

Debra Ciskey is the Chief Compliance Officer at Wakefield & Associates. Inc. She is a member of the board of directors and a certified instructor for ACA International.