Don't be afraid of accountability: Make bank complaints public
The Consumer Financial Protection Bureau wants to make written complaints public on its online consumer complaints database. Unsurprisingly, the Mortgage Bankers Association objects. But when online customer reviews have empowered consumers in other sectors, why should the banking industry get special treatment?
In the tourism and hospitality sectors, hotels and restaurants live or die by the strength of their reviews on sites like TripAdvisor and Yelp. Sure, you might have to sift through a few unhelpful entries, but these apps can at least give you an idea of what to expect when you check out a new establishment. The same applies to buying products on Amazon or eBay.
Now the Consumer Financial Protection Bureau in the US is proposing a similar but more official system for financial products. Banks, which are only just beginning to embrace social technology, are protesting. But the CFPB has a chance to change history and it should not back down.
The CFPB was established by the Dodd-Frank Act. It is unique among US financial regulators in that it possesses a unilateral mandate to protect consumers. Unlike the SEC and the CFTC, it doesn’t have to balance dual missions of protecting investors and promoting fair and efficient markets.
In 2012 it started collecting complaints from consumers against financial institutions, which it publishes online, as well as sending to the institution in question and tracking the response.
These complaints are broken down into high level categories, including the complainant’s zip code, the name of the institution, the product category complained about and the sub-product within that category. The CFPB tracks the complaint until it is resolved.
At present, only the ‘issue’ is revealed. ‘Continued attempts to collect debt not owed’, for example, is a common theme. Consumers are given a text box online to submit a narrative of their issue. At the moment this is private, but now the CFPB wants to make that public as well.
“The consumer experience shared in the narrative is the heart and soul of the complaint,” said CFPB director Richard Cordray. “By publicly voicing their complaint, consumers can stand up for themselves and others who have experienced the same problem. There is power in their stories, and that power can be put in service to strengthen the foundation for consumers, responsible providers, and our economy as a whole.”
Last week, the Mortgage Bankers Association wrote a letter to the CFPB in which it “respectfully urges” the regulator to abandon or modify the proposal. It claims that unvetted and “frequently emotional” accounts of customers’ complaints, the majority of which are settled with a simple explanation from the bank, will do “significant harm” without offering much benefit to consumers.
For many consumers these objections simply confirm what the public already thinks of banks — that they care about protecting themselves more than they do about protecting their customers.
The digital age has made it easier than ever for consumers to inform themselves before they part with their hard-earned cash. If you can do that when you’re buying a hoover or a toaster, why shouldn’t you be able to do it when you’re tying yourself into a 30 year mortgage?
It’s no longer credible for banks and bankers’ associations to claim that they know what’s best for the consumer. The banking industry has thrived for century on information asymmetries, and the biggest and most damaging of those exists between bank and consumer. It’s an often impenetrable wall of complexity, and the only way through it is to educate yourself.
If nothing else, making consumer narratives public — alongside a response from the bank, as the CFPB is urging — would be a phenomenal educational tool for people in the market for a loan or a mortgage. Subprime auto borrowers hand over control of their cars in return for a loan, so why shouldn’t banks hand over complaint information?
The MBA has some valid points, but even put together, they are not a convincing argument against the proposal.
Its concerns about customers’ privacy are bunk: if consumers don’t want to be identified, they will opt out of sharing their narrative.
It claims that lenders that receive large numbers of complaints may have to scale back their mortgage lending, damaging competition. This too is pathetic: surely a more constructive response would be to improve the areas of service being complained about?
It says that more complaints will lead to more misinformation. Again, this is predictably cynical: yes, some unsubstantiated or false complaints will inevitably be made, but so long as lenders are given a chance to set these right, in the long run consumers will be better informed.
Lenders that have confidence in their systems and their people should have nothing to fear from this proposal. It could end up helping them as much as it helps consumers and regulators, by identifying problems and giving them a chance to respond.
The CFPB's proposals will provide a more truthful measure of how banks treat their customers than the miasma of advertising and marketing on which consumers currently rely. The MBA says it doesn’t want to give a voice to people with an axe to grind; it should spend its time making sure people don’t have an axe to grind in the first place.