Bankers are trying to stop the Consumer Financial Protection Bureau from allowing consumers to rank how companies handle complaints on a one- to five-star scale and to publish narratives of consumer experiences in an online public database.
The financial services industry is outraged at the proposal, which could go into effect as early as Jan. 29 if approved by the Office of Management and Budget. The OMB has approved all of the CFPB’s past data collection requests, a CFPB spokesman said.
The American Bankers Association and Consumer Bankers Association have asked the OMB’s desk officer for the CFPB to deny the agency’s collection request. They argue that ranking companies based on how they handle consumer complaints would provide “minimal, if any, utility,” because the data would be “prone to misleading impressions.”
“We are disappointed that the bureau seeks to continue and further expand its troubling practice of publishing unreliable information under U.S. Government imprimatur, abusing its status as an agency of the federal government,” wrote Jonathan Thessin, the ABA’s senior counsel for the Center for Regulatory Compliance. The Dec. 28 letter to the OMB also was signed by Kate Larson, the CBA’s vice president and regulatory counsel.
But consumer advocates argue that the five-star rating system allows the free market to police financial companies.
“Market power is one of the most important ways to keep abusive practices in check," said Lauren Saunders, associate director of the National Consumer Law Center. "And frankly, I think banks should welcome ratings as a way to allow the free market to stop abuses so they don't need to have another regulation. If the free market can stop abuses, I would think both consumers and businesses will be better off."
Banks have countered that consumers with complaints would be motivated to give a company a low rating. But Saunders said the CFPB would not allow for fake ratings, which is a problem with private ratings systems generally.
"The only people who can put in ratings are those who have complained and gotten a response from a company," Saunders said.
The CFPB first proposed using a one- to five-point scale in August by adding a short survey to its consumer complaint portal where consumers could rate a company’s response to their complaint. The bureau has said it plans to replace the so-called ‘dispute’ function in its online database with the survey and a narrative box where consumers can comment on how their complaint was handled.
Under the CFPB’s collection proposal, consumers will be asked to use a one- to five-point scale to determine whether they agreed or disagreed with three statements: “The company addressed all of my issues,” “I understood the company’s response to my complaint,” and “The company did what it said it would do with my complaint.”
Currently, the CFPB does not have any ranking system on how companies respond to complaints. The agency is working on the proposed rollout, which is expected in the first quarter, Larson said.
For now, one of the few ways to halt the proposed data collection would be if the OMB determined that the collection request lacked “utility,” to consumers, a standard that includes improving “the functioning, transparency and efficiency of markets for [financial] products and services.”
To be sure, the proposal could be withdrawn altogether if CFPB Director Richard Cordray were replaced, an issue that is the subject of much speculation, or CFPB management somehow put a halt to the effort, Larson said in an interview.
Consumer complaints have been a sore spot for both industry and the agency. The CFPB uses consumer complaints as a partial basis for industry guidance, rulemaking and enforcement actions.
But bankers have accused the CFPB of using a back-door process to collect data on consumer complaints in violation of the Paperwork Reduction Act of 1995. Gathering data from “the narrow field of consumers that file complaints,” would provide subjective responses, the banking groups said.
“Since its creation, the bureau has aggressively sought attention for the database while failing to solve the problems in the accuracy, integrity and usefulness of the information publicly reported to the database,” the groups wrote in the letter.
The groups cited several reasons why the CFPB should not make public the rankings and comments about complaints.
Consumers who file complaints may expect to get some relief or monetary award that they are not entitled to, which would skew the data, the bank trade groups allege. Whether a consumer is satisfied with the resolution of a complaint is “subjectively measured by the complainants’ expectations of the relief to which they believed or hoped that they were due,“ the letter said.
The bank groups also have faulted the CFPB for not conducting a study on the usefulness of the information.
“What is really comes down to is what’s the benefit?” asked Larson of the CBA. “By putting out this subjective one-to-five scale, who is benefitting? Everyone’s experiences are so different and as the CFPB sinks more taxpayer dollars into a complaint database, what is the utility of these one-off complaints?”
Credit unions are also concerned that the CFPB would not verify all facts or allegations made by consumers, particularly those expressed in written narratives, which could harm a firm's reputation.
"The survey is designed to amplify dissatisfaction rather than facilitate communication," wrote Andrew Morris, regulatory affairs counsel at the National Association of Federally-Insured Credit Unions, in a Sept. 29 letter to the CFPB. "The survey would impair the effectiveness of [other customer service channels] by redirecting consumers to a government platform that practically operates as a showcase for subjective criticism."
The Credit Union National Association cautioned against the unintended consequences of more customer feedback that "may not necessarily be better."
"Under the current system, we believe it is possible that some institutions are effectively unable to respond to consumers’ narrative description of complaints due to privacy restrictions," wrote Luke Martone, a senior director of advocacy & counsel at CUNA,in a Dec. 12 letter.