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Promontory Sightlines: Consumer Financial Protection Developments

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November 26, 2012

Dear Friends,

The cornerstone of the Consumer Financial Protection Bureau's approach to consumer protection depends on a commodity that most companies would just as soon do without: customer complaints.

"Each and every time we hear from American consumers about their troublesome transactions with financial products, it gives us important insight," CFPB Director Richard Cordray said when the bureau launched its complaints database in June. Regulated companies can draw useful insights from the CFPB's own complaint-management efforts, including a better understanding of what the bureau is looking for, the scope of its operations, and how it handles and reports complaint data.

The Dodd-Frank Act required the CFPB to set up a Consumer Response unit. Its current headcount of 118 — about 12% of the agency's workforce and roughly the same size as its enforcement team — includes analysts, investigators, and staffers fielding consumer complaints, supplemented by a service provider's call center. Initial efforts focused on credit cards, but the unit's reach continues to expand and it now accepts complaints about most consumer financial products and services. Most recently, it started accepting complaints about credit reporting.

At a glance, CFPB and its prudential peers play comparable roles when they act essentially as mediators between consumers and regulated companies to resolve particular problems. Conceptually, CFPB and the banking agencies also share the view that consumer contacts — with companies or regulators — provide an essential early warning system.

But a closer look suggests that the CFPB is unique in the level of attention it pays to these routine, high-volume consumer contacts that, in time, will prove to be an important analytical engine for all of its efforts. The bureau's approach is reflected in how it handles individual complaints and mines data. For example, Consumer Response has its own investigators to look into matters when consumers contest the explanation or redress offered by regulated entities, and enforcement attorneys routinely support this work.

The bureau also gives consumers an open-ended opportunity to describe their experiences even when they have no specific complaint. These "Tell Your Story" submissions are not reviewed or investigated like complaints, nor are they shared with the involved companies, but they give the bureau additional context about how consumers use various financial products and services.

Consumer complaints help the bureau's operating divisions allocate resources and identify issues in the marketplace that warrant further action through supervision, enforcement, or rulemaking. In particular, examiners and enforcement attorneys regularly monitor and review incoming complaints to define the scope of exams and to identify and focus investigations.

The bureau has said it wants to use complaint data to improve consumers' broad understanding of various financial products and services. Its stated ambition is to support informed consumer choices and promote research and other work by industry, consumer groups, academics, and IT developers. The CFPB's own reports summarizing consumer-response activities are more detailed than those typically published by banking agencies, and describe the outcomes and the average amount of relief for various types of complaints.

The bureau also launched a public database with complaint-level data — absent personally identifiable information — about credit cards. Anyone can now search its data by, for example, company, complaint type, disposition, or ZIP code. The bureau is contemplating the release of more information, including the full complaint narrative provided by the consumer.

The bureau's efforts on consumer complaints send regulated companies strong signals about what it expects of their complaint management. As has always been the case, a company's complaint-management system should detect potential violations of law, regulation, and policy. But as interest in complaints intensifies, companies should also be on the lookout for expressions of consumer confusion or dissatisfaction with particular products and services. Companies should heed these warnings and look for underlying causes — and intervene appropriately before widespread harm can occur. Intervention can range from providing relief to the individual filing the complaint and to similarly affected consumers, revising marketing materials, and discontinuing or redesigning terms and features of products.

CPFB's early enforcement actions also suggest that it expects companies to review both customer complaints and inquiries for regulatory issues. Regulated companies should record every customer contact (including those made to service providers), review it for potential violations of law, regulation, or bank policy, and feed it into the compliance risk-assessment process. The amount of information captured and the process by which it is reviewed need not be uniform; as in other compliance areas, a company's approach to various types of customer contacts should reflect the inherent risk they pose.

Finally, regulated companies should use customer contacts and complaints as rich data source to assess the strength and execution of their compliance program — and to assess customers' experiences with their products and services. Smart, focused mining of this information can and should serve regulatory and business purposes. High volumes or spikes in complaints require enhanced controls and perhaps a fundamental rethinking of the product or service.

The CFPB's launch of its complaint-monitoring unit provides regulated entities with a timely reminder to capture the information their customers provide — and use it. Now, as ever, listening closely to customers is the best policy for meeting regulatory expectations and providing superior products and services.

Yours truly,

P-R Stark, Senior Principal
prstark@promontory.com
+1 202 370 0392

P-R Stark

P-R assists Promontory clients with regulatory and compliance issues, focusing on consumer financial services. P-R joined Promontory from the Consumer Financial Protection Bureau, where she was one of the first employees and worked in its Enforcement and Regulations offices.

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Amy Friend
Managing Director
email | +1 202 384 1056

Amy Friend

BJ Sanford
Managing Director
email | +1 202 384 1020

BJ Sanford

Catherine West
Managing Director
email | +1 202 384 1169

Catherine West

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Please click here to continue receiving Consumer Financial Protection Developments.

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Sightlines InFocus: When Customers Complain, Listen

"When Customers Complain, Listen"

A Sightlines InFocus written earlier this month by Dave Gibbons and Tim Martins offered important guidance on building and using a complaint-management system.

Click here to view the PDF »

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CFPB/FTC Target Deception of Elders, Veterans; OCC Issues SCRA Bulletin

The CFPB on Nov. 19 said its Office of Enforcement and the Federal Trade Commission sent letters to "approximately a dozen" mortgage lenders addressing potential violations of the Mortgage Acts and Practices Advertising Rule, which covers misleading statements in advertisements. The press release included links to sample warning letters. "Many of these potentially misleading practices seem to be directed at older Americans and servicemembers/veterans," the CFPB said in a blog posting. The FTC's release is here. In related news, the Senate Special Committee on Aging, chaired by retiring Sen. Herb Kohl (D-WI), on Nov. 15 held a hearing on financial elder abuse. CFPB assistant director for the Office of Older Americans Skip Humphrey testified in front of the panel and the next day blogged about his testimony. Separately, the OCC put out a bulletin describing legislation passed this summer that amends section 303 of the Servicemembers Civil Relief Act to extend some of its protections until the end of 2014.

CFPB Releases 2012 Financial Report; Fall 2012 Supervisory Highlights

The CFPB on Nov. 16 issued its FY2012 Financial Report, and in a separate press release noted that the Government Accountability Office rendered a clean audit opinion. The report discussed the bureau's vision and mission, and included financial statements, an updated organizational chart, data on FTEs and staffing of various divisions, and the funds transfers it has requested of the Fed. Total program costs for 2012 were $246.2 million, up from $85.3 million in the prior year. Separately, the CFPB on October 31 released a 14-page document outlining its supervisory highlights for fall 2012, "[apprising] the public and the financial services industry about its examination program, including the concerns that it finds during the course of its completed work, and the remedies that it obtains for consumers who have suffered financial or other harm."

CFPB Delays and Integrates Mortgage-Disclosure Rules

The CFPB on Nov. 16 delayed implementation of new mortgage disclosure requirements in title XIV of the Dodd-Frank Act, which were to have taken effect on January 21, 2013. The bureau's press release says the decision will help reconcile the Truth in Lending Act with the Real Estate Settlement Procedures Act — two regulatory frameworks that for many years "have required lenders and settlement agents to give borrowers different, but overlapping disclosure forms in connection with applying for and closing most mortgages loans."

Colleges Adopt Aid Sheet; Card Agreements Database; Private Student Loans Report

Education Secretary Arne Duncan said in a Nov. 15 blog posting that 500 colleges agreed to adopt its Financial Aid Shopping Sheet for the 2013-2014 school year. The CFPB cross-posted the announcement. A Nov. 1 post on the CFPB's blog touted its new database of credit card agreements between universities and card issuers, established pursuant to Section 305 of the CARD Act. One notable data point the blog post pointed out: "FIA Card Services, N.A., a subsidiary of Bank of America Corporation, submitted 633 agreements, which represents nearly 80 percent of all agreements in effect during 2011." The CFPB's student-loan ombudsman on Oct. 16 published a report on private student loans finding that borrowers don't get clear information on repayment or refinancing options. The bureau issued a press release and a PDF of the 21-page report. The report tallied private student loans at $150 billion and defaults of $8 billion, or more than 850,000 individual loans. "In less than seven months, the CFPB has handled approximately 2,900 private student loan complaints," the bureau wrote in the report.

CFPB Launches Project Catalyst

The CFPB issued a Nov. 14 press release announcing the launch of Project Catalyst, "an initiative designed to encourage consumer-friendly innovation and entrepreneurship in markets for consumer financial products and services." As part of the initiative, the bureau said BillGuard, Plastyc, and Simple will share "anonymized data about consumer behaviors and trends." Billguard collects billing-dispute data; Plastyc's data will focus on easy deposits and funds access; and Simple has data on consumer spending and saving habits.

FTC Shuts Down Five Robocalling Firms

The FTC announced Nov. 1 that it has "pulled the plug on five companies based in Arizona and Florida allegedly responsible for millions of illegal pre-recorded calls from ‘Rachel' and others from ‘Cardholder Services,'" as part of a joint law enforcement effort with state partners in Arizona, Arkansas, and Florida. The charges included violations of the FTC Act and Telemarketing Sales Rule.

CFPB Outlines Supervisory Appeals Process

The CFPB issued a bulletin on Oct. 31 outlining the appeal process regarding supervisory findings. Supervised entities must submit a written appeal to the Associate Director for Supervision, Enforcement, and Fair Lending within 30 days of the examination report. The request must include (among other things): a description of the issues in dispute with supporting information, recommendations for resolution, and a summary of prior efforts to resolve the dispute.

Bureau Issues Rule, Exam Procedures on Debt Collection

The CFPB on Oct. 24 issued a final rule that gives the bureau federal supervisory power over debt collectors and governs debt-collection practices. The CFPB also published its examination procedures for debt-collection firms, which will come under CFPB oversight Jan. 2. The bureau's press release said, "Approximately 30 million Americans have, on average, $1,500 of debt subject to collection." CFPB director Richard Cordray on Oct. 24 also spoke at a CFPB field meeting on debt collection. His remarks are here.

CFPB Accepting Complaints about Consumer Credit Reports

The CFPB on Oct. 22 said it is accepting complaints about consumer credit reports. The bureau's press release asked for complaints about incorrect information on credit reports and improper use of credit reports, among other types of complaints. The bureau followed up with a blog post that tells consumers first to file complaints with the credit-rating firm and to contact the CFPB if the consumer considers the firm's response inadequate.

CFPB Issues Report on Student-Loan Servicing for Troops

The CFPB on Oct 18 published a report on loan servicing for U.S. troops who have student debt. The report "shows that servicemembers are having a hard time accessing the student-loan repayment protections granted to them under federal rules," CFPB assistant director for servicemember affairs Holly Petraeus said in the bureau's press release. A PDF of the 12-page report is here.

CFPB to Ease Credit Access for Stay-at-Home Spouses

On Oct. 17, the CFPB proposed changes to the Credit Card Accountability Responsibility and Disclosure Act to make it easier for stay-at-home spouses and domestic partners to get credit cards. The act requires issuers to turn down applications from consumers who cannot meet an income threshold. Under the proposed revision, issuers can comply by basing their determination on "the facts and circumstances known to the card issuer." The CFPB also issued a press release.

Remittance Rule Assistance

On Oct. 15, the CFPB published a guide to help small businesses comply with a new rule governing international money transfers, or remittances. The remittance rule requires companies to make certain disclosures before and after the transfers and also gives senders cancellation rights. The accompanying blog post solicited the feedback of small businesses, asking for tips on how best to implement the remittance rules. The bureau also hosted a live webinar on the subject.

CFPB Releases Complaints Data; Fed IG Assesses CFPB's Consumer Response Unit

The CFPB on Oct. 10 released an overview of how the unit handles consumer complaints, along with an analysis of complaints received from July 21, 2011 through September 30, 2012. During the time period, the bureau received 79,200 consumer complaints (23,400 credit card complaints, 36,300 mortgage complaints, 12,900 bank account and service complaints, and 2,900 private student loan complaints). More than 82% of complaints were sent to companies for review and response, with the remaining referred to regulatory agencies or deemed to be incomplete/pending. Separately, the Federal Reserve's Inspector General assessed the bureau's Consumer Response unit, and although it generally concluded the bureau had a "reasonable" process for tracking complaints, it made a series of recommendations:

Better internal controls for manual data entry

Remediate data discrepancies in the system and perform regular reviews of data consistency

Issue an agency-wide privacy policy

Establish a quality assurance process

Develop a process that consolidates QA reviews, clearly identifies specific complaints reviewed, and tracks reviews by department

Equifax, Direct Lending to Pay $1.6 Million in FTC Settlement

The FTC announced Oct. 10 that it has reached an agreement with Equifax and its customer, Direct Lending Source, to settle charges that the consumer reporting agency improperly sold lists of consumers late on their mortgage payments, in violation of the FTC Act and the Fair Credit Reporting Act. Under the first settlement, Equifax will pay $393,000 to resolve charges that "inadequate procedures led to the sale of lists of consumer information to firms that should not have received them," including Direct Lending Source. Direct Lending Source will pay a $1.2 million civil penalty for subsequently reselling some lists to third parties. The Equifax settlement is here; Direct Lending Source here.

Task Force Publishes Results of Distressed Homeowner Initiative

The Justice Department Oct. 9 announced the results of its Mortgage Fraud Working Group's yearlong Distressed Homeowner Initiative: 530 criminal defendants charged (including 172 executives) in 285 federal criminal indictments, covering over 73,000 victims who lost more than $1 billion. "These comprehensive efforts represent an historic, government-wide commitment to eradicating mortgage fraud and related offenses," said U.S. Attorney General Eric Holder. "The success of the Distressed Homeowner Initiative, and the developments we announce today, underscore our determination to pursue these and other financial fraud criminals around the country."

FTC Comments on CFPB Mortgage Disclosure

The FTC said Oct. 2 that it submitted a comment to the CFPB in response to the bureau's Notice of Proposed Rulemaking regarding required disclosure forms to consumers applying for and closing on mortgage loans. "The disclosures developed and being considered by the CFPB will likely improve the information that consumers receive under current federal regulations; they are generally simpler and less technical, and should be easier to understand," the FTC said in the comment. Full text of comment is here.

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Promontory's Consumer Protection Group includes:

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Konrad Alt, Managing Director
kalt@promontory.com
+1 415 986 4160

Jeff Brown, Managing Director
jbrown@promontory.com
+1 202 384 1040

Jeanine Catalano, Special Adviser
jcatalano@promontory.com
+1 415 321 6408

Michael Dawson, Managing Director
mdawson@promontory.com
+1 202 384 1080

Susan Eckert, Director
seckert@promontory.com
+1 202 384 1125

Jennifer Faulkner, Director
jfaulkner@promontory.com
+1 202 384 1126

Amy Friend, Managing Director
afriend@promontory.com
+1 202 384 1056

David Gibbons, Managing Director
dgibbons@promontory.com
+1 847 615 1728

Jonathan Gould, Director
jgould@promontory.com
+1 202 384 1018

Austin Hong, Director
ahong@promontory.com
+1 202 384 1030

Chris Lewis, Director
clewis@promontory.com
+1 415 321 6406

Simon McDougall, Managing Director
smcdougall@promontory.com
+44 207 377 2367

Matthew Ondus, Director
mondus@promontory.com
+1 202 370 0395

BJ Sanford, Managing Director
bsanford@promontory.com
+1 202 384 1020

David Stein, Director
dstein@promontory.com
+1 202 384 1183

Catherine West, Managing Director
cwest@promontory.com
+1 202 384 1169

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Promontory Financial Group, L.L.C.
801 17th Street, N.W.
Suite 1100
Washington, DC 20006

Copyright © 2012 Promontory Financial Group. All rights reserved.

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