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Can consumer complaints be a good thing?

Beefs can be early warning signal something’s not working—if you listen

Can consumer complaints be a good thing?
One of the first icons that visitors to the Consumer Financial Protection Bureau’s home page see is a reddish box labeled “Submit a credit card complaint.” And that is just the first complaint reporting function the Bureau plans, in a phased rollout of such functionality, according to the new agency’s report, Building the CFPB: A Progress Report.

As the agency notes in the report:

“The Dodd-Frank Act directs the CFPB to facilitate the collection and monitoring of and response to consumer complaints regarding certain financial products and services. These complaints and consumers’ inquiries will help the CFPB identify areas of concern and help CFPB in its supervision and other responsibilities.”

How the Bureau, still undergoing congressional scrutiny as Richard Cordray, nominee for the Director position, goes through the confirmation process, will handle complaints remains to be seen. But bank regulators have already stepped up their own attention to consumer complaints, both those filed with the agencies and those made to banks directly. And new channels for complaints, ranging from tweets on Twitter and demonstrative videos on YouTube to angry blogs and more, underscore that consumer dissatisfaction with their financial services providers have entered a new age.

Don’t wait for Washington to come to you, advises Paul Osborne, partner at Crowe Horwath LLP.

Osborne, speaking at this year’s ABA Regulatory Compliance Conference, told bankers that they should be using consumer complaints as an early warning system, to protect their customers and the institutions from continuing difficulty. He urged bankers to be sure that “your risk assessment process should not be stagnant,” and called for a fresh attitude towards complaints.

“Consumer complaints could be indicative of a larger issue. Are you being proactive about managing and monitoring your complaint process? What are your customers telling you, good or bad? Don’t wait for your regulators,” said Osborne. “The days of the [traditional] examination process, where you took your examination results, you fixed the issues, and you moved on, those days are gone. Don’t wait for the Consumer Financial Protection Bureau to notify you that they’ve received 7,600 complaints about your overdraft checking program. Control your destiny.”

     
  Pass the Aspirin on complaints

A basic issue about customer beefs is how to handle them on the front line. Read recent “Pass the Aspirin” posting on how various banks addressed the question: “How do you help out an unhappy customer?”
 
     
Complaints represent an opportunity to spot weaknesses, places where the bank needs to improve processes, procedures, or, where those are correct, communication with consumers so they understand what is going on, according to Osborne. He pointed out that regulators’ exam procedures now stress not only that examiners review an institution’s complaints management process, but weigh how well the bank is dealing with what its systems track. He quoted this from Federal Reserve exam procedures:

“Determine whether the bank reviews consumer complaints to identify potential compliance problems and negative trends that have the potential to be unfair or deceptive. Determine whether the bank reviews concentrations of complaints about the same product or about bank conduct in order to identify potential areas of concern.”

Getting this right becomes more critical than ever, because consumers have become more urgent in pursuing their complaints, according to Osborne’s fellow speaker, Thomas Healy, director of compliance, deposits and eCommerce at Ally Bank, Charlotte, N.C.

It is not unusual for consumers, when first sending a letter of complaint, for instance, to ramp things up immediately, according to Healy. They’ll not only write to the bank, but carbon copy all banking regulators. He said—noting that the matter was only humorous as a conference anecdote, not in the actual event—that one complaining party he knew of not only copied the regulators, but the nation’s First Couple.

“It does get a little strange when you get a complaint directed to you from a regulator,” Healy said, “and to hear that it was sent to them after it was first sent to Michelle and President Obama.”
 
 
Complaint management, inside and out
A strong complaint management system will give a bank an overview of six critical factors, said Osborne:

1. Overall volume of complaints.

2. Number of open complaints at a given time, versus resolved complaints.

3. Number of complaints open for a given length of time.

4. Number of complaints where the issue involved has resulted in regulatory violations.

5. Concentrations of complaints tied to a specified area of the bank.

6. The number of complaints arising from a specific source among the bank’s operations.

In some areas of banking compliance and regulation, a “dispute” and a “complaint” are not synonymous, Osborne pointed out. One such area is in electronic transactions. Again, clarity followed by action will help the bank contain potential trouble. “Don’t confuse disputes with complaints,” said Osborne, “but don’t let a dispute escalate into a complaint.”

Osborne and Healy spoke about good ways to track and manage complaints and suggested ways to turn complaint trends into remedial action before the bank faces regulatory action or penalties or reputational damage. This scrutiny must be applied to any of the bank’s customer contact points. Both pointed out that as banks outsource certain products, services, or functions to third-party providers, they must be sure that their suppliers receive, track, and act upon complaints as robustly as the bank does.

“Are they being good stewards of your services?” asked Osborne. “Or are you getting a black eye?”

Osborne suggested that banks discuss complaint resolution with outside servicers before beginning a relationship--right during the due diligence phase of the relationship. Contract provisions for this should be reviewed, as well. Three key questions are:

• Who will receive complaints?

• Who will respond to them?

• And what will be reported--how often and to whom?
 
 
Complaints and the examination process
Healy has overseen complaint processes as a banker and has also worked with banks earlier as a vendor whose job included handling complaint processes. He warned that while complaints have always been a serious matter, they have grown more critical to a bank’s compliance record because banking regulators are playing harder ball these days.

Once regulators might have brought complaints sent to the agencies directly to the bank’s attention, seen to it that a resolution was made, and then moved on. Now, complaints get wound into bigger matters, Healy said.

Where regulators see multiple complaints that all fall into the same area, they may regard this as a pattern or practice of behavior by the bank.

“Increasingly,” said Healy, “examiners are looking at complaints before, during, and between examinations to target specific areas during the examination cycle.” In addition, such indications can now wind up in exam reports for exams already completed.
 
 
As part of this deeper look, Healy said, agencies are assessing:

• Number of customers impacted and the length of time they were affected.

• Whether customers were finally impacted.

• Whether customers’ complaints arose from technology issues—an especially worrisome matter because anything arising from a system issue could impact large numbers of customers.

• Similarly, whether complaints were driven by process or procedures issues.

• Whether complaints were caused by customer confusion.
 
 
Healy warned that complaints can wind up as exam issues requiring attention, and that examiners may follow up independently of formal visits to determine how the bank is following up on complaints.

And he said that patterns that indicate systemic issues may now result in regulatory referrals to the Department of Justice. He and Osborne warned that this is an issue to watch as “UDAP” expands into “UDAAP” under the Dodd-Frank Act. (UDAP stood for “Unfair or Deceptive Acts and Practices,” while UDAAP underscores the expansion of the standard to “Unfair Deceptive and Abusive Acts and Practices.”)

While stepped-up scrutiny will result in more regulatory inquiries, Healy stressed that banks shouldn’t own up to something they didn’t do.

“Don’t always assume that you’ve done something wrong,” he told the bankers. “Don’t assume blame if you haven’t done something.”

On the other hand, he also pointed out that where a bank really has issues, self-identification would weigh in the bank’s favor when regulators examine their complaint record and its impact on overall compliance issues.
 
 
Trends to be alert for
Healy noted that traditionally bank tended to treat complaints as isolated cases, “one offs” to be handled as exception items. Osborne said that a strong system will flag complaint patterns in two ways, quantitatively and qualitatively. He presented examples of each.

Among quantitative indicators:

•  A spike in verbal complaints through the bank’s call center.

•  Increasing online inquiries about certain products.

•  Sudden changes in product usage patterns.

•  Sudden changes in online or call center traffic.

•  Surges in blog and social media postings or traffic referring to an activity of the bank.
 
 
Among qualitative indicators:

•  Overlapping system changes or enhancements that fix issues in one “silo” of the bank and create an issue in another one.

•  Ecommerce content or functionality changes that have “downstream” impacts.

• Issues that arise because Marketing launched a campaign without Compliance involvement.
 
 
Who should get reports?
The goals of a complaint handling system range from tracking them so they are dealt with to providing an appropriate overview to various levels of bank leadership.

Healy said one of the regulators’ key interests, when reviewing complaint handling systems, is whether senior management and the board are given “meaningful data” on customer complaints. Healy said boards, particularly, often receive reports that are solely numbers: X number of complaints were received in the quarter, X were resolved, X were pending, etc. The board members don’t receive any descriptive information that would signal trends in complaints that might warrant more attention. Without such information they can’t act on situations where knowing the root causes would help.

Closer to the customer level, there is the compliance function. Osborne recommended that compliance managers receive monthly reports that include the following elements:

• Summaries of significant items

• Status of complaints

• Aging of pending complaints awaiting resolution

• Lines of business and bank regions impacted by complaints

• Regulations impacted by complaints

• Trends in complaints

• Opportunities for improvement spotted in the course of monitoring trends

Osborne suggested building in a review process for any complaint that could be deemed the result of a potential UDAAP issue, to make sure they are handled properly.
 
 
Building a complaint system
One basic of setting up a modern complaint handling system comes down to defining what a “complaint” is, so all parts of a bank treat matters consistently. Healy explained that historically a complaint was defined as a “written statement of dissatisfaction with a service or product.” Verbal or incomplete written complaints were typically classified as “inquiries,” he said.

With social media and other means of expressing complaints--and even regulatory agencies at both the state and federal level enabling internet filing of complaints--some banks may want to revisit their definition, said Healy.

In part the point of this is ensuring that employees treat customer dealings consistently. He said that training could help front-line staff in capturing complaints, versus everyday issues, by giving them triggering terms to watch for, such as: “Who is your regulator?” “I plan on calling my lawyer” or “I’m calling channel 7.” A request to speak to a higher level of management can also be used as a triggering event. Alternatively, standardized questions can be provided to staff so they can peg how serious a customer’s issue has become, that is, something they can handle right there or something that must be marked, reported, and tracked.

However a bank defines a complaint, regulators will look for some common ingredients in their programs, in addition to looking at the quality of reporting, covered earlier. These are structural issues they’ll be considering, while also generally expecting banks to be more proactive in handling the actual complaints. Healy listed these points:

• Does the bank have tracking mechanism?

• Does the bank have a documented complaint monitoring program in place?

• Does the program get at causes of complaints and tracking of remediation of those causes?
 
 
Centralize or disperse?
Healy and Osborne both noted that a bank must determine if it will centralize its formal complaint processes or leave the matter to be handled in the bank’s business units. Osborne favors centralization, from the standpoint of controls, and Healy acknowledged that centralization makes consistency easier to achieve.

On the other hand, Healy felt that there is a benefit to leaving complaints in the appropriate business unit. Customers can be provided subject matter expertise that only each unit can provide in working out solutions. A central unit’s employees can’t know everything about every function of the bank. Decentralization saves the inevitable back and forth of centralization.

No matter what the approach, Healy stressed that banks can’t treat complaint programs as a static matter. He recommended regarding them as business units themselves, to ensure that they are managed appropriately and kept up with the times.

Talk Back: What is your bank doing to improve its complaint management processes and procedures?
Steve Cocheo

Steve Cocheo’s career in business journalism has taken him to all 50 states and nearly every corner of banking in institutions of all sizes. He is executive editor of Bankers Exchange and digital content manager of www.bankingexchange.com. Previously he spent 36 years on the staff of ABA Banking Journal and 22 years concurrently as editor of ABA Bank Directors Briefing. He is the only journalist to have sat in on three federal banking exams, was a finalist for the Jesse H. Neal national business journalism awards, and a winner of multiple awards from the American Society of Business Publication Editors.

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