Promontory Sightlines

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Promontory Sightlines: Consumer Financial Protection Developments


January 8, 2014

Dear Clients and Friends,

The Consumer Financial Protection Bureau’s reliance on consumer complaints to identify potential problem areas in the provision of consumer financial services has compelled companies to reconsider how they regard and manage complaints. Gone is the view that customer complaints represent a natural breakage rate managed by the business and handled primarily as individual customer service issues. The emphasis now is on assessing complaints to find threats before they cause widespread consumer harm and invite regulatory action.

But regulators have not yet spelled out specific expectations for critical components of complaint-management programs to guide firms as they re-engineer every aspect of their programs — from intake and data capture to governance, reporting, and systems. The most fundamental element of these programs remains the hardest issue to resolve: What exactly is a complaint?

Regulators expect firms to provide timely, accurate, and fair responses to all issues customers raise, including those formally defined as a complaint. They also expect firm executives to use the intelligence gathered from all customer contacts to manage consumer protection and reputational risks, as well as to evaluate the overall customer experience.

Meeting regulatory expectations requires an expansive definition of “complaint” that goes well beyond issues that overtly allege regulatory violations. The challenge of distinguishing complaints from service requests and other inquiries is most difficult when the issue may be related to regulatory prohibitions on unfair, deceptive, or abusive acts or practices. Certain core UDAAP issues — such as an explicit allegation that a fee or other material product term was not disclosed — have historically been treated as complaints.

But in an environment in which regulators cite customer confusion as a primary rationale for actions on everything from advertising and sales practices to rewards programs to arbitration clauses, establishing a high threshold for a matter to qualify as a complaint may provide insufficient protection against very real risks. Indeed, the current challenge in complaint management is to bring enough information into the system so that issues driven by customer confusion and variances from firm policies will also be detected — and remedied — early.

The operational consequences of treating customer confusion as a complaint are the primary reason that firms hesitate to expand their complaint definition. Consumer comprehension of basic financial features is generally limited, regardless of education and income. A relatively large number of customers may express uncertainty or confusion about a particular fee or a lowered credit line, even if terms were appropriately described upon origination or at some other point in the product life cycle. Some consumers contact providers about such routine issues simply to get further information or to see whether the firm will offer an attractive resolution even if not required to do so. The instances in which a customer’s question or problem results from confusion about how a product or service works are so frequent that labeling every inquiry as a complaint threatens to overwhelm complaint-management resources — to the point that the firm’s ability to identify and respond to serious risks can be compromised.

The way forward for broadening the complaint definition without suffering operational consequences depends upon calibrating data capture and investigating complaints according to their compliance, reputational, and customer-experience risks. Complaints that pose higher risk should be investigated and resolved by escalation teams with subject-matter expertise.

High-volume, low-risk customer contacts may effectively be resolved at the first point of contact with less burdensome data-capture requirements and greater reliance on data analytics to detect changes in systemic risks. Repeated instances of consumer confusion or material changes in the volume or pattern in the reporting of these issues are a critical early warning of the kind of problems that can lead to UDAAP violations, even if the issues are typically unverified at the transactional level.

The CFPB’s focus on complaint management is driving firms to redefine what qualifies as a complaint. Adopting a narrow definition that can be applied with precision across tens of thousands of customer contacts may feel like firm ground. But building the capacity to manage the operational challenges that result from a UDAAP-ready complaint definition is the better strategy for ensuring that a firm’s complaint program functions as intended: as a radar system to prevent variances from regulations and firm policies from blossoming into violations.

Yours truly,

Matt Ondus
+1 202 370 0395

P-R Stark
Senior Principal
+1 202 370 0392

Matt Ondus

P-R Stark

Please click here to continue receiving Consumer Financial Protection Developments.


Credit Card Add-Ons the Subject of Another Regulatory Action

The CFPB on Dec. 23 announced it ordered three American Express subsidiaries to refund $59.5 million to more than 335,000 customers to resolve allegations that the companies used deceptive marketing and unfair billing tactics to sell credit card add-on products. Under the orders, which were part of an effort coordinated with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., American Express will correct those practices and pay an additional $16.2 million in civil penalties: $9.6 million to the CFPB, $3.6 million to the FDIC, and $3 million to the OCC. (CFPB consent orders for American Express Centurion Bank, American Express Bank FSB, and American Express Travel Related Services Company Inc.; OCC press release, consent order, and civil money penalty; FDIC press release and order.)

CFPB, DOJ Complaint against National City Bank for Discriminatory Lending Practices

The CFPB announced in a Dec. 23 press release that it filed a joint complaint with the Department of Justice against National City Bank for allegedly charging higher prices on mortgage loans to minorities than it did to similarly creditworthy white borrowers between 2002 and 2008. Under the proposed settlement, National City Bank (through successor PNC Bank) will pay $35 million in restitution to harmed borrowers. The complaint is here; the consent order submitted to the court is here.

CFPB, DOJ Take Action on Indirect Auto Lending

On Dec. 20, the CFPB and the Justice Department ordered Ally Financial to pay $80 million in damages to approximately 235,000 customers and $18 million in penalties to settle allegations that the lender overcharged minority borrowers for auto loans. The CFPB said in a press release that the joint investigation found discriminatory pricing differences resulting from dealer markups, and that Ally did not have an effective compliance program to monitor potential discrimination. The full consent order is here

Ocwen Ordered to Pay More Than $2 Billion Related to Mortgage Servicing

On Dec. 19, the CFPB, 49 states, and the District of Columbia announced the filing of a proposed consent order requiring mortgage servicer Ocwen Financial Corp. to provide $2 billion in principal reduction to underwater homeowners and refund $125 million to 185,000 foreclosed-upon borrowers to resolve allegations of “systemic misconduct at every stage of the mortgage servicing process.” The firm will be required to follow the mortgage servicing standards set by the 2012 multistate national mortgage servicing settlement, and to take other steps including processing pending loss-mitigation requests within 60 days, honoring loan-modification agreements made with previous lenders, and restricting servicing fees and dual tracking.

Legislators Call on FTC to Review Online Marketing Practices of Consumer Reporting Agencies

A coalition of Democratic lawmakers from the House Financial Services Committee wrote a Dec. 18 letter to the Federal Trade Commission calling on the agency to review the online marketing practices of consumer reporting agencies. “We are concerned that the terms and conditions under which credit reports and credit scores are offered and advertised to consumers may put them at risk of mistakenly purchasing expensive products and services such as credit monitoring or identity theft services that they do not fully understand,” they wrote.

CFPB Takes First Action Against an Online Loan Servicer

The CFPB announced Dec. 16 that it had taken its first action against an online loan servicer. It said in a press release that CashCall Inc. had engaged in unfair, deceptive, and abusive practices, “including illegally debiting consumer checking accounts for loans that were void.” According to a CFPB investigation, the company continued to collect on loans that were nullified by licensing requirements or interest-rate caps in at least eight states: Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York, and North Carolina. The bureau said it is seeking refunds for consumers, in addition to civil penalties. The full complaint is here. "Today we are making clear that you cannot avoid federal law simply because your activities take place online, where more and more lending is migrating," said Director Cordray, in a press call on the enforcement action.

Regulators Clarify QM and Non-QM Safety-and-Soundness

The Federal Reserve Board, FDIC, National Credit Union Administration, and OCC on Dec. 13 issued a joint statement to clarify safety-and-soundness and Community Reinvestment Act considerations related to qualified and non-qualified mortgage loans. “From a safety-and-soundness perspective, the agencies emphasize that an institution may originate both Qualified Mortgage and non-Qualified Mortgage loans, based on its business strategy and risk appetite,” said the agencies' press release. “The agencies will not subject a residential mortgage loan to safety-and-soundness criticism solely because of the loan’s status as a Qualified Mortgage or non-Qualified Mortgage loan.”

Regulators Exempt Some Loans from Higher-Priced-Mortgage Requirements

Six financial regulatory agencies put out a Dec. 12 press release announcing the final rule to exempt loans of $25,000 or less and certain streamlined refinancings from the Dodd-Frank Act’s appraisal requirements on higher-priced mortgage loans. The rule also contains a provision delaying appraisal requirements for manufactured homes for a period of 18 months. The full rule is available here.

Regulators Release Social-Media Guidance

Regulators finalized guidance on Dec. 11 outlining how banks and other lenders are expected to comply with consumer laws when they utilize social media. Most of the guidelines focused on privacy and disclosure matters; however, even firms that have chosen not to use social media “should still consider the potential for negative comments or complaints that may arise within the many social media platforms described above, and, when appropriate, evaluate what, if any, action it will take to monitor for such comments and/or respond to them,” the guidance said.

HUD Releases QM Rule

On December 11, the Department of Housing and Urban Development announced the release of its final rule defining “qualified mortgage.” To meet HUD’s definition of QM, mortgage loans must:

  • Require periodic payments without risky features
  • Have terms not to exceed 30 years
  • Limit upfront points and fees to no more than three percent with adjustments to facilitate smaller loans (except for Title I, Title II Manufactured Housing, Section 184, Section 184A loans, and others)
  • Be insured or guaranteed by the Federal Housing Administration or HUD.

HUD’s rule bifurcates QMs into rebuttable-presumption or safe-harbor varieties based on the relation of the loan’s annual percentage rate to the average prime offer rate; rebuttable-presumption qualified mortgages will have an APR greater than APOR + 115 basis points and safe-harbor loans will feature APRs less than or equal to APOR + 115 bps + ongoing mortgage-insurance premiums. The final rule is here.

CareCredit Pays $34.1 Million to Settle Charges of Deceptive Credit Card Tactics

On Dec. 10, the CFPB announced that it ordered GE Capital Retail Bank subsidiary CareCredit to refund up to $34.1 million to potentially more than one million consumers who may have been subject to deceptive credit card enrollment tactics. The bureau said that inadequate explanations of terms caused some consumers to believe that the credit card was interest-free, although it in fact accrued interest if the entire balance was not paid off during a promotional period. In addition to the reimbursement, the bureau ordered CareCredit to enhance customer disclosures and improve training for staff responsible for marketing the card. The full consent order is here.

CFPB Semiannual Rulemaking Agenda

On Dec. 3 the CFPB posted a semiannual update to its rulemaking agenda. Among other things, “the agenda reflects that we are planning to move forward with a proposed rule with respect to prepaid card products,” said a bureau blog post. “It also reflects that we are actively assessing the need for regulations in other markets for consumer financial products and services, particularly debt collection, payday loans and deposit advance products, and bank overdraft programs.”

CFPB Ombudsman Issues Second Annual Report

A Dec. 3 CFPB blog post announced the release of the CFPB Ombudsman's Second Annual Report, which highlighted three “systemic issues” in 2013: how the bureau shares information about activities, events, and services; the caller experience with the CFPB contact center; and financial entities’ experience with the examination process.

OCC Bulletin on Deposit-Advance Products

The OCC put out a bulletin on its supervisory guidance issued in November on deposit-advance products. The guidance outlines appropriate underwriting policies and practices, requires banks to monitor their deposit-advance portfolios, and implements a "cooling-off" period of at least one monthly statement cycle after repayment.

CFPB Adjusts Asset-Size Thresholds for Escrow Requirements, HMDA

The CFPB published the 2014 asset-size threshold at which some creditors are exempt from establishing an escrow account for higher-priced mortgage loans; the threshold increased from $2 billion to $2.028 billion to match the increase in the Consumer Price Index. The bureau similarly adjusted the asset-size exemption from HMDA data collection to $43 million.


Promontory's Consumer Protection Team includes:

Konrad Alt

Konrad Alt
Managing Director
+1 415 986 4160

Michael Dawson

Michael Dawson
Managing Director
+1 202 384 1080

Linda Gallagher

Linda Gallagher
Managing Director and Global Head
of the Consumer Protection Practice
+1 202 370 0411

Stuart King

Stuart King
Managing Director
+44 207 997 3402

Simon McDougall

Simon McDougall
Managing Director
+44 207 377 2367

BJ Sanford

BJ Sanford
Managing Director
+1 202 384 1020

Julie Williams Julie Williams
Managing Director and
Director of Domestic Advisory Practice
+1 202 384 1087
Promontory Sightlines Consumer Financial Protection Developments


P-R Stark


Linda Gallagher

Eugene A. Ludwig


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