Should the CFPB Run a Yelp for Financial Services Providers?

Last week, Mick Mulvaney, interim director of the U.S. Consumer Financial Protection Bureau (CFPB) said in reference to the CFPB’s consumer complaints database, “I don’t see anything in [the Dodd-Frank Act] that says I have to run a Yelp for financial services sponsored by the federal government. I don’t see anything in here that says that I have to make all of those [complaints] public.”

Mulvaney’s comments refer to the complaints database CFPB has been running for several years, which allows anyone to view, sort, and filter complaints submitted by customers regarding their treatment by their financial service provider. Since the database was created, roughly 1.5 million complaints have been logged. This database has functioned as a tremendous resource for prospective customers who want to check out financial institutions, for analysts of consumer risks in the U.S. financial system, and for financial institutions who want to see how they stack up against others. Its publication may also induce financial service providers to be more vigilant in avoiding bad practices and handling customer complaints well.

I share this because Mulvaney has put forth a call for comments and information from interested parties on how the CFPB handles consumer complaints. CFPB is required by law to collect, investigate, and respond to consumer complaints regarding financial products and services. But it isn’t legally required to make these comments public.

What do you think? Should the CFPB do away with the public side of the database? Mulvaney’s comment has sparked fierce debate in the country, including vehement opposition from consumer protection advocates.

How the Consumer Complaints Database Works

When a consumer lodges a complaint into the system, before the complaint is published, the CFPB verifies the relationship between the consumer and the financial service provider, and routes the complaint directly to the provider. The provider then has 15 days to respond to the complaint. The complaint is published once the provider responds, or after 15 days, whichever comes first. The consumer is invited to review and comment on the provider response and indicate whether their concern has been alleviated. This system is meant to allow both provider and customer to have a voice.

In addition to public uses of the database, CFPB uses it to identify patterns of bad behavior. It has prompted action against student loan services, debt collectors, mortgage lenders, and credit card companies, among others. For example, it helped the CFPB identify the systemic fraudulent activity of Wells Fargo employees opening bank accounts without consumer permission.

It’s estimated that 97 percent of consumer complaints receive a timely response and 80 percent are resolved to the customer’s satisfaction. Over 185,000 complaints have resulted in some form of compensation or relief for the consumer complaint, including through monetary relief and the changing of the financial institution’s practices.

Use of the consumer complaints database is robust, with consumers submitting more than 320,000 complaints in 2017. Each week CFPB sends thousands of consumer complaints about financial products and services to companies for response.

The Case for Revoking Publication

Opponents of publishing the database cite several concerns. The first question is whether the consumer complaints are substantiated. The CFPB might be able to verify that the consumer is a client of the institution, but it does not verify that the consumer’s complaint is valid before publishing. Even though the financial institution has the opportunity to respond before the complaint is published, publishing unsubstantiated complaints can create undeserved negative attention for the provider.

Another issue is that the database does not allow the frequency of complaints to be adjusted for the size of the institution. The biggest financial institutions in the country appear frequently in the database simply because they have so many more customers. It is not possible to determine the rate of complaints per customer.

Finally, some opponents question the need for complaint resolution channels beyond those financial services providers are already required to have. They argue that little is gained by using public funding for an additional level of complaints, and would prefer to see customers depend on privately managed online tools for consumers to rate financial institutions and products. Shouldn’t these be enough?

The Case for Keeping It Public (Our View)

“Daylight is a great disinfectant. And, you know, the American people have a right to know when tens of thousands of their fellow citizens are complaining about a financial institution,” said Karl Frisch of consumer advocacy group Allied Progress. Although it is not required by law, taking down the public database might reduce incentives for providers to behave fairly and respond adequately to complaints. Proponents of publication assert that the current approach helps to hold these institutions accountable.

Regulators around the world, as well as consumer protection organizations including the Smart Campaign, generally create and support two tiers of grievance redressal, with primarily responsibility lying with providers, but appeals available from an independent ombudsman, either at a provider association level or at the regulatory level or both.

In regards to the concern about the proportionality of complaints to clients, this could be ameliorated with the inclusion on the platform of relevant ratios. Adding such information to the current site would not be difficult.

A new report by Senate Banking Committee members Elizabeth Warren, Robert Menendez, and Brian Schatz illustrated that complaints about Equifax to the CFPB nearly doubled after the data breach was announced in September. There were roughly 12,000 complaints in the six months preceding the company’s announcement, and in the six months thereafter the CFPB has received more than 7,000 complaints about Equifax’s improper use of credit reports, 7,000 complaints regarding incorrect information on credit reports, 3,000 complaints about Equifax’s measures taken to resolve issues related to the breach, and 1,500 complaints regarding Equifax’s identity theft protections. For example, we’re able to know that even though the CFPB has received over 20,000 complaints on the breach, it hasn’t yet taken public action against Equifax.

As to the argument that Yelp and other review sites are sufficient, we have reviewed the information on such sites, and we find often confusing and disappointing. Moreover, many of those sites are paid for by the very companies that are reviewed.

“Hiding this information from the public would directly harm consumers and allow financial institutions to shield even widespread scams from public view,” the three Senate Banking Committee members assert. We tend to agree.

Have you read?

Exchanging Cash for Freedom: Predatory Bail Bonds in the U.S. Criminal Justice System

What a Repeal of the Affordable Care Act Would Mean for Financial Inclusion in the U.S.

The U.S. Consumer Financial Protection Bureau and the Smart Campaign

 

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