Last Monday, the Consumer Financial Protection Bureau tried to shed light on employee-incentive plans like the one that recently pummeled Wells Fargo Bank. The extent to which the CFPB’s guidance will help members of the real estate industry is unclear. Nonetheless, it does offer a few useful tips.
This past fall, news broke that thousands of Wells Fargo employees had created millions of bogus accounts for existing customers in order to satisfy company quotas. Fallout from the debacle is on-going. The CFPB’s compliance bulletin from last week (2016-13) never mentions Wells Fargo by name, but the publication does discuss “detecting and preventing consumer harm from production incentives.” The CFPB’s overall advice is that incentive programs can be lawful, but companies should develop dedicated processes for policing them.
The bulletin does not address the principal incentive statute covering the real estate industry, the Real Estate Settlement Procedures Act (RESPA). That law generally bars kickbacks and referral schemes, so incentive programs among different companies are often problematic. But an internal incentive program—like one that rewards a title agent for selling more expensive policies—would not necessarily run afoul of RESPA. But if employees are using high-pressure tactics to get customers to buy coverage they do not need, the CFPB may reach into its tool bag and charge a company with violating a different statute, for instance an unfair-and-deceptive practices act (UDAAP).
The members of the real estate industry most likely to need this sort of guidance are mortgage brokers, who often earn increased fees through different interest rates. The most concrete recommendation from the CFPB for that situation is that “the strictest controls will be necessary where incentives concern products or services less likely to benefit consumers or that have a higher potential to lead to consumer harm, reward outcomes that do not necessarily align with consumer interests, or implicate a significant portion of employee compensation.” That means mortgage brokers must be able to explain benefits that consumers obtain from pricier products.