March 27, 2013

The CFPB Provides a Snapshot of Consumer Complaints Received to Date

The CFPB recently released a report entitled “Consumer Response: A Snapshot of Complaints Received” (the Report)1. Release of the Report coincided with the CFPB’s announcement of an expanded consumer complaint database. The Report not only provides information regarding how complaints are processed, but details the number of complaints that are received by the CFPB and the types of complaints received.

From its inception on July 21, 2011 through February 28, 2013, the CFPB received approximately 131,300 consumer complaints that consisted of approximately:

  • 36,600 credit card complaints;
  • 63,700 mortgage complaints;
  • 19,800 bank account and service complaints;
  • 4,600 private student loan complaints;
  • 4,100 consumer loan complaints; and
  • 6,700 credit reporting complaints.

Predictably, most of the complaints, 48 percent of them, were reported to the CFPB via its website. The CFPB received nine percent of its complaints via telephone. Significantly, however, 32 percent of all complaints received by the CFPB were referrals from other regulators and agencies – a source that can only be expected to increase as the CFPB moves to implement greater sharing of information among state and federal law enforcement officials as indicated by Director Cordray in his remarks announcing the CFPB’s expanded consumer complaint database.

March 28, 2013

CFPB Announces Expanded, but Unverified, Consumer Complaint Database

The CFPB’s Director, Richard Cordray, announced that the CFPB is expanding its current consumer complaint searchable database from approximately 19,000 viewable credit card complaints to more than 90,000 complaints regarding a variety of financial products, including mortgages, bank products, student loans and consumer loans. Director Cordray classified such development as an effort in “creating greater transparency in consumer financial products and services.” Many consumer financial service providers and industry groups, however, have raised concerns about the database because it consists of consumer complaints that are being published publically without first being verified.

In announcing the availability of such complaints, Director Cordray conceded that the CFPB does not “verify each and every allegation that consumers make in their complaints.” Instead, he stated, the CFPB only verifies that “a commercial relationship exists between the consumer and the named company . . . . [and that] [t]he complaint only gets uploaded onto the database after the company verifies that the consumer is in fact its customer.” In other words, consumers will be permitted to make allegations of wrongdoing against companies and the CFPB will publish those allegations without investigation so long as the consumer is an actual customer of the company. Such a de minimis standard has the potential to cause substantial harm to companies’ reputations.

Indeed, the CFPB is even encouraging third parties to rate companies based upon this new publically available, but unverified, information. In an effort to protect their ratings, affected companies will therefore have to aggressively monitor, respond to, and address all complaints – including those without merit. Such responses by affected companies will also be needed to ward off future potential regulatory actions, because the CFPB intends to expand its sharing of consumer complaint information with other federal and state agencies that could possibly use such information to launch their own investigations. Moreover, the complaint database could also serve as a potential treasure trove of information for future consumer plaintiffs and will certainly be a frequent target of discovery in lawsuits.

Despite its many areas of concern for impacted companies, the complaint database may provide some benefit to those companies that utilize it properly. For example, companies can use the publically-available information for self-performance assessments because it will serve as a roadmap to what companies should expect to be examined for and what conduct may raise certain complaints. Such information may also provide the opportunity for companies to learn from the mistakes of their competitors, and assist in developing and adopting appropriate remedial measures without a formal regulatory action against them.

The use of unverified allegations and complaints was described by Director Cordray to be like a mosaic – implying that although a database consisting of unverified complaints “is certainly not perfect . . . you can still step back from it and see something new.” As a result, companies will need to actively monitor and respond to complaints in the database to help paint the picture they want the consumer to see.

The CFPB Amends Regulation Z

The CFPB published in the Federal Register its final rule amending its Truth in Lending credit card rules in Regulation Z to exclude any pre-account opening fees for credit cards from the 25 percent maximum of the credit limit placed on such fees. 78 Fed. Reg. 18795 on March 28, 2013.

When originally enacted, section 127(n)(1) of the Truth in Lending Act, 15 U.S.C. § 1637(n)(1), stated that

[i]f the terms of a credit card account under an open-end consumer credit plan require the payment of any fees (other than any late fee, over-the-limit fee, or fee for a payment returned for insufficient funds) by the consumer in the first year during which the account is opened in an aggregate amount in excess of 25 percent of the total amount of credit authorized under the account when the account is opened, [then] . . . no payment of any fees (other than any late fee, over-the-limit-fee, or fee for a payment returned for insufficient funds) may be made from the credit made available under the terms of the account.

The Federal Reserve Board’s original implementing regulation for this provision stated that only fees incurred during the first year after an account was opened would count towards the 25 percent limit.

However, a little over a year later, on April 2011, the Federal Reserve expanded this rule to say that all fees paid before an account was opened also contributed to the 25 percent limit. This expanded rule was never implemented due in part to a U.S. District Court preliminary injunction obtained by an impacted credit card issuer. As a result, the validity of the expanded rule was called into question.

The CFPB, as the agency now responsible for Truth in Lending rulemaking, sought to remove the uncertainty by issuing a final rule addressing the issue. In essence, the revised final rule reverts back to the Federal Reserve’s original rule that only fees incurred after an account opening count against the 25 percent limit on fees. Acknowledging that this rule may be considered less favorable to consumers, the CFPB noted that the rule was necessary to reestablish certainty in this area. The CFPB reiterated that it was also committed to continuing to monitor the market to determine if consumer-focused regulations would be necessary to address any resulting abuses.