Last month marked the fourth birthday of the Consumer Financial Protection Bureau (CFPB). Five years ago, in direct response to the Great Recession, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the most significant overhaul of financial services regulation since the Great Depression. One year later the CFPB opened for business.
So, how did the CFPB celebrate? Well, like many four-year olds… with complaints.
One of the agency’s top priorities is collecting, aggregating and analyzing consumer complaints about financial products and services. Complaints are usually the first sign of compliance problems for a financial institution, so the CFPB is especially interested in companies that have recurring and unresolved complaints. Recently CFPB Director Richard Cordray explained, “Each complaint that people take time to submit to the Consumer Bureau can provide invaluable information and insight. Consumer complaint data is part of our DNA….”
In 2012, the CFPB began operating an online, searchable database listing individual consumer complaints. To date, the CFPB has collected over 650,000 consumer complaints. Most concern mortgages, debt collection and credit reporting, but consumers can complain about other consumer financial products like payday loans and student loans.
Beginning in late June 2015, consumers can now include a narrative in the database. And in July 2015, the CFPB began publishing a monthly complaint snapshot analyzing the massive amount of data it collects. Each month’s report will highlight an industry area and a geographic area—the first being debt collection and Milwaukee, Wisconsin. The report will also identify a list of “most-complained-about companies.” Equifax, Experian and Bank of America topped the inaugural list.
Financial institutions are keenly aware of the CFPB’s emphasis on consumer complaints. Having an agency of government place such a strong emphasis on public-generated data is a new approach. That is why the CFPB calls itself a “21st Century Agency”.
But, this approach is not without problems. Financial institutions are concerned that the CFPB uses complaint data, at least in part, in formulating its supervision and enforcement strategy. Many of these complaints are unverified, unsubstantiated, and unproven. While there are many legitimate complaints in the database, there is no way to separate the legitimate from the not-so-legitimate. Imagine if the IRS used Yelp! in determining its audit targets.
The CFPB’s new policy of publishing consumer narratives compounds the problem. Looking at a sampling of complaint narratives, many make legal conclusions that are simply wrong (e.g., the company violated my Fair Credit Reporting Act rights). Others claim fees and practices are “unethical” or “immoral”. Companies can only respond with a finite list of structured responses, but no ‘rebuttal’ narratives. Some companies are also concerned that competitors will begin keying in on this data.
And, now, the CFPB is publishing its list of most-complained-about companies. As Director Cordray noted, “[The monthly complaint reports] will include information about a new category in the lexicon of consumer finance, which we call the ‘most-complained-about companies.’” A new category in the lexicon of consumer finance? Is this going to become a ‘CFPB’s 10 Most Wanted’? It certainly sounds like the agency has moved beyond just analyzing raw data. Other than complaint-shaming, what does the CFPB gain by doing this?
The CFPB’s focus on consumer complaints is beneficial to consumers and the financial services industry. However, the data needs to be viewed strictly for informational purposes to help financial institutions better serve customers.
But, of course, what would a four-year old’s birthday be without hundreds-of-thousands of complaints?