A court-appointed monitor has found that Financial Education Services is making progress on compliance—but still doesn't fully understand what compliance means.
The Monitor filed his second report on April 27th, tracking FES's efforts to overhaul its practices. In his first report last November, he noted the company had far to go. Now, he's cautiously optimistic about the shift in corporate culture.
The company has moved from "having the right things nominally in place so we can point to those if someone challenges us" to genuinely "striving to do the right thing," the Monitor wrote. It's a marked difference. But significant gaps remain.
FES launched new Fintech Products without doing the basic work first. The company never consulted lawyers about regulatory implications or compliance requirements. Instead, it rushed to roll out offerings to keep pace with competitors and satisfy agents hungry for new products to sell. The company only sought legal advice shortly before announcing the products publicly at its February convention.
The Monitor views this as a fundamental failure. FES apparently doesn't grasp when legal consultation is necessary—a serious shortcoming for any regulated company.
Beyond the Fintech misstep, the Monitor flagged a list of ongoing red flags. FES compensation is concentrated among a small number of top agents. Too much of the company's revenue comes from internal consumption rather than actual retail sales. The company keeps pushing agent recruitment. The compensation plan itself confuses people trying to understand it. And sales calls may violate telemarketing laws.
Most troubling is FES's marketing strategy. The company targets African-Americans and Hispanics with deceptive messaging promoting a "lifestyle" without saying so explicitly.
Here's the glaring problem: Over 95% of FES's agents and customers are African-American or Hispanic. Yet in the United States, the vast majority of middle to lower-income households are white. FES deliberately ignores this massive market segment—choosing instead to concentrate on communities of color in specific geographic regions using targeted messaging.
The Monitor noted this isn't accidental. From the beginning, FES has built its entire network around middle to lower-income individuals of color. The company's marketing and event locations deliberately exclude the broader market.
The pattern suggests FES knows exactly who it's reaching and why. It's not targeting based on income alone. It's targeting based on race and ethnicity—aiming promotional messaging at communities the company apparently views as more receptive to its "lifestyle" pitch.
The Monitor credits FES for moving in the right direction on compliance. But the company still hasn't grasped the fundamentals. More importantly, it shows no sign of reconsidering the discriminatory targeting at the heart of how it operates.
🤖 Quick Answer
What progress has FES made on compliance according to the Monitor's second report?Financial Education Services has shifted from a nominal compliance approach to genuinely striving to do the right thing, demonstrating improved corporate culture. However, significant gaps persist, including the launch of new Fintech products without proper legal consultation or regulatory review.
What deficiencies were identified in FES's compliance practices?
The company launched new Fintech products without conducting foundational compliance work, failing to consult legal advisors regarding regulatory implications. These gaps indicate incomplete understanding of compliance requirements despite recent cultural improvements.
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