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Are Your Incentive Programs Exposing You to UDAAP Risks?

Mar 01, 2017

With the recent fines and consent order issued to Wells Fargo, financial institutions are taking a look at their sales culture and incentive programs. In response to the Wells Fargo findings, the Consumer Financial Protection Bureau (CFPB) issued a bulletin November 28, 2016, titled “Detecting and Preventing Consumer Harm from Production Incentives,” informing financial institutions of the risks of consumer harm that may result from poorly established and managed incentive programs.  

Incentive compensation programs are established by financial institutions as a means to attract and retain quality employees, promote employee performance, and foster growth while managing personnel costs.  In the bulletin, the CFPB acknowledged that incentive programs may be beneficial to all involved if the programs are properly implemented and managed. Financial institutions are able to attract and retain quality employees who will enhance the institution’s overall competitive performance. Consumers may also benefit if these programs lead to improved customer service or introduce them to new products or services to meet their financial interests and needs. 

Incentive Programs and UDAAP Risks

While the initial intent for incentive programs was to encourage growth for financial institutions while benefiting employees and consumers, aggressive sales goals may result in significant consumer harm and encourage employees to violate consumer laws. The incentive programs and sales goals established by Wells Fargo resulted in deposit accounts, credit cards, and debit cards being opened without the consumer’s consent. These actions caused the consumers to be assessed fees while the employees earned financial rewards. Other violations noted by the CFPB at other financial institutions relate to credit card add-ons, overdraft protection opt-ins, and unfair and abusive sales practices.  

Monitoring and Managing Incentive Programs

The CFPB expects financial institutions to implement an effective compliance management system (CMS) to detect and prevent violations of consumer law.  Incentive programs should be included in CMS oversight. Financial institutions are encouraged to review their incentive programs to identify practices that could encourage or result in UDAAP issues and violations of consumer law. Some things to consider when reviewing incentive programs:

  • Do sales goals encourage employees to open accounts or enroll consumers in services without the consumers’ knowledge or consent?
  • Is compensation paid based on terms or conditions of transactions? Are employees encouraged to overcharge consumers or sell them more credit or services than they need?
  • Is a higher compensation paid for certain types of products or services that could encourage employees to steer consumers to those products or services instead of another one that may be more suited to their needs?
  • Are sales quotas unrealistic? Are employees encouraged to open fraudulent accounts or use deception in order to meet sales expectations? 
  • Has the institution received complaints from consumers regarding sales practices?

Answering yes to any of these questions could be an indication your incentive program is opening you up to a high risk of UDAAP violations or violations of consumer laws as well as consumer harm. 


While incentive programs could result in violations of consumer laws or UDAAP issues, an effective CMS will help mitigate these risks. With appropriate management, monitoring, and oversight, incentive programs could be beneficial to both consumers and financial institutions.  


Shelley Foster, CRCM, CCBIA
Senior Manager, Internal Audit and Regulatory Compliance
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