They are Watching You: How to Handle Complaints

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11-8-13-Wolters.pngSince opening its doors in July 2011, the Consumer Financial Protection Bureau (CFPB) has gone the distance to make sure consumers of financial services know they can lodge complaints pertaining to a broad range of financial products and services. The CFPB receives complaints from consumers concerning credit cards, mortgages, bank accounts or services, private student loans, consumer loans, credit reporting, money transfers and debt collection for institutions of all sizes.

Regardless of the size of your institution, it is prudent to have a formal, fully functional process for receiving, escalating, analyzing and responding to consumer complaints. Meeting the expectations of regulators where consumer complaints are concerned not only shows the bureau your bank is responsive, but also serves as a way to champion the consumer experience and stand out from the crowd.

Complaint Handling from the Examiner’s Point of View

Regulatory Expectation: Consumer complaints and inquiries, regardless of where submitted, are appropriately recorded and categorized.

Depending on the overall size and complexity of your organization, this can be a serious challenge to structure and organize. Keep in mind the following as you determine what controls to build into the complaint intake and tracking workflow:

  1. What’s a complaint?
    Has your institution clearly defined what constitutes a complaint? Well managed and carefully analyzed complaint data provides the opportunity to make key revisions and/or enhancements to products and services, and demonstrate to your customers that you are listening.
  2. Complaint submission
    Consumers seeking to file a complaint should be allowed to do so through mail, email, or phone. Your organization will need to ensure that the infrastructure is in place to fully support all channels for complaint intake. All complaints, regardless of origin or point of submission, including verbal complaints, must be registered and assigned ownership and accountability for response and timely resolution.

As you address these considerations, apply the same thought process to third-party service providers that directly interact with your customers or support your company’s products and services.

Crossing Your T’s and Dotting Your I’s

Examiners will request and review records of recent consumer complaints against your institution from the prudential regulator, from state regulators, from state attorneys general offices or licensing and registration agencies, and from private or other industry sources. It will be essential that your policies and procedures for receiving, escalating and resolving consumer complaints and inquiries from all sources and points of submission are fully defined and clearly documented.

Regulatory Expectation: Complaints and inquiries, whether regarding the entity or its service providers, are addressed and resolved promptly.

In order to not only meet, but also exceed expectations for timely response to complaints, the process you establish for complaint intake should time stamp the complaint and establish an estimated timeline for response, as appropriate. This recognizes, however, that complaints differ in severity and required course of action for response and resolution. As such, policies and procedures addressing timeliness of response should factor for these differences.

Search and Scan

Regulatory Expectation: Complaints that raise legal issues involving potential consumer harm from unfair treatment or discrimination, or other regulatory compliance issues, are appropriately escalated.

Proactively scan your complaint database to identify complaints alleging deception, unfair treatment, unlawful discrimination, or other significant consumer injury. The list you build should be as comprehensive as possible. This will require dedicated task assignment and accountability for maintaining an effective surveillance process.

Complaints alleging discrimination or presenting an elevated legal risk must be escalated to specifically identified departments or individuals within your organization to ensure proper analysis and handling. If your institution maintains multiple customer support centers, enforce a uniform set of complaint escalation practices.

If It’s Broken, Fix It

Regulatory Expectation: Complaint data and individual cases drive adjustments to business practices and result in retrospective corrective action, as appropriate.

Of great interest to regulators is how actively your institution will monitor complaints to identify issues and trends that may require changes in products, procedures and/or training. Examiners will seek to review whether internal evaluations of consumer contacts are shared through regular reports to the board and senior management, and whether such information is used in modifying policies, procedures, training and monitoring.

With effective complaint handling processes firmly in place, you are then in a good position to ultimately drive change should it be determined that a weakness or defect in a product, procedure, system or employee training has been identified. You want to be able to demonstrate that appropriate corrective action resulted, based on efforts to understand the root cause of the issue leading to the complaint.

The Bottom Line

Based on the nature and/or number of complaints received, complaint-driven data is going to be one of the first points of review by regulators. The information could signal weaknesses in your institution’s compliance management system (CMS). Regulators will look for how proactively you manage complaints and demonstrate direct learning from an analysis of your complaint data. It also goes a long way in improving your relationship with your customers, perhaps the most important relationship you have.

Regulatory Punch List of Top Priorities for Bank Directors

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8-26-13-Wolters.pngIn today’s banking world, exams are tougher, the supervisory focus is on fairness to consumers, data is heavily scrutinized and consequences for failing to mitigate risks are more severe than ever. It is incumbent upon bank directors to stay in front of high risk areas and make sure their institutions can survive and thrive in this challenging environment. I put together my punch list of some of the top challenges I see facing the industry to provide guidance on where you will want to focus.

Get Serious about Complaint Management
The Consumer Financial Protection Bureau (CFPB) continues to amass an unprecedented public database of complaints against specific financial institutions. The CFPB’s complaint system is informing many of their decisions about whom to examine and how to regulate. In the face of this, banks should strive to improve their own internal complaint systems. You don’t want those complaints going to the bureau. You want them coming to the bank so you can solve them.

Be Extra Vigilant When Choosing and Managing Vendors
Regulators are looking more closely at the way banks choose and manage their vendors and are holding banks responsible for the faults of their vendors. In fact, recent enforcement actions from the CFPB resulted in a combined $101.5 million in fines plus $435 million in restitution for the financial firms based on flaws in the way the banks monitored their vendors. Additionally, the CFPB issued a bulletin in April 2012, with the message that banks are responsible for any faults of the vendors they work with.

Don’t Let the Ease of Social Media Make Things Difficult
In the social channel, which demands quick responses, an outsider may see what he perceives to be a run-of-the-mill consumer complaint and hastily respond in a way that causes more trouble. Be sure to monitor social media activity continually in real time.

Don’t Wait for Clarity from Regulators—Monitor, Test and Correct Fair Lending Issues Now
The recent OCC order that hit a bank for discriminating against white males may have taken some bankers off guard, and moved several to demand more clarity from regulators. But in this enforcement heavy environment, the best option is for banks to heavily monitor, test and correct, when necessary, all of their credit products now.

Solidify a Regulatory Reform Process
In our Regulatory & Risk Management Indicator survey in June, we asked bankers which regulatory concerns keep them up at night, and 46 percent said regulatory reform—referring to new rules stemming from the Dodd-Frank Act and the CFPB. Make sure your bank can address three primary questions relating to compliance programs:

  1. What are the laws and regulations you are subject to across all the jurisdictions in which you operate?
  2. Are you confident you are complying with all of these laws and regulations?
  3. Can you prove it to third parties (e.g., board members, investors, regulators and other stakeholders)?

Leverage Technology to Adjust to Onslaught of New Rules
Once upon a time, when a bank had an enforcement action of a significant deficiency, the first thing senior management used to say was: Where is our chief compliance officer? How did this happen? Now the question is going to be: Where is our chief technology officer? Why didn’t technology come up with the means to implement these changes in a more effective, efficient and compliant way? If technology and compliance aren’t talking to each other, they need to get together.

When it Comes to Auto Lending, Be in the Driver’s Seat
The CFPB is cracking down on interest rate markups that automobile dealers add to the cost of car loans. If they’re done in a discriminatory manner, then the bank is responsible. The CFPB recently released a bulletin that said lenders must enhance their oversight of auto dealers with which they do business after a recent investigation revealed disparities in interest rates charged to minority borrowers versus non-minorities. The bigger-picture problem for banks is that the regulatory scrutiny requires them to monitor the loans being made by all of the auto dealers they work with. That’s sometimes more than 1,000 dealers. The CFPB is hoping that lenders will voluntarily place compensation restrictions on dealers.

Watch out for UDAAP
The Dodd-Frank Act adds an “A” (which stands for abusive) to UDAP—turning the Federal Trade Commission’s provisions into “unfair, deceptive or abusive acts or practices.” A lot of it depends on the consumer’s ability to understand what is being presented to them. The gap between what is presented to customers and how they perceive what they get as well as its value is where the danger appears to lie. From the moment that a deposit or mortgage product or service is developed and the process begins, compliance folks have to have a seat at the table. I recommend that banks perform some testing to be sure the information being conveyed is perceived by the consumer the way it was meant to be. If there is a complaint, and that complaint goes to the bureau, the lender is going to have to be prepared to defend his ability to provide a product that was not unfair, that was not deceptive and certainly was not abusive.

Gear up for New Mortgage Rules
Several new mortgage rules are on their way from the CFPB. Among the new rules is the QM, or qualified mortgage (ability-to-pay) rule, a provision related to high-cost mortgages, a rule impacting loan officer compensation, new servicing standards, an escrow rule about impounding accounts and tax insurance, an appraisal disclosure rule and another appraisal guideline related to high-cost mortgage. Even now that the QM rule is final and going into effect in January, the industry still has to focus on the qualified residential mortgage (risk-retention rule) and its impact on mortgage lending and the secondary market. For much of the industry, setting up systems to comply with QM is a big concern. Also, we still must find out how all these different rules conflict with each other. It will certainly be a challenge.