What Do Acting CFPB Director Uejio’s Comments on Consumer Complaint Responses and Potential Racial Disparities Mean for Regulated Financial Institutions?

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As we reported, Acting CFPB Director Dave Uejio recently shared a blog post in which he directed the Bureau’s Consumer Response Unit to prepare and publish a report highlighting companies with a poor track record of responding to consumer complaints. He stated that “senior leadership of these companies can expect to hear from me.” Acting Director Uejio also expressed concern about “disparities in some companies’ responses to Black, Brown, and Indigenous communities” found by consumer advocates, but he did not name those consumer advocates or the studies that may have prompted his comments.

First, with regard to Acting Director Uejio’s comments about responsiveness to consumer complaints, the CFPB’s own website currently indicates that 97% of all companies provide timely responses to consumer complaints. Based on that statistic, U.S. companies regulated by the CFPB appear to take consumer issues reported to the Bureau seriously, and if any are slow to respond, it would be a small fraction of only 3% of CFPB-regulated entities.

Second, we are aware of several studies that might have prompted Uejio’s comments about racial disparities in company complaint responses – some of which are older and others that are more recent. For example, back in 2013, the National Community Reinvestment Coalition issued a study alleging that people in minority communities were more likely to submit complaints to the CFPB than those in predominantly white areas, and that banks were more likely to address concerns of consumers from predominantly white neighborhoods than those from minority areas.

Over the past three years, two academic studies have used the CFPB complaint database for empirical research and a 2018 FTC study leveraged the Consumer Sentinel database, which contains millions of consumer complaints filed with the FTC, CFPB and other federal and state government agencies. In each study, the researchers used proxy data based on matching addresses or zip codes to U.S. Census data to determine race, ethnicity and socioeconomic demographics. A brief synopsis of each study follows below:

  • A 2021 study by two Boston College researchers, entitled “The Financial Restitution Gap in Consumer Finance: Insights from Complaints filed with the CFPB”, found that complaints from low-income zip codes or zip codes that have a larger share of African American population are approximately 30% less likely to receive financial restitution than complaints from high-income and low-African American representation by zip codes. They also found that complaints filed during the Trump Administration were 30% less likely overall to result in restitution than during the Obama Administration.
  • In a study entitled “Color and Credit: Race, Regulation, and the Quality of Financial Services” published in 2020, professors Taylor Begley and Amiyatosh Purnanadam looked at the “quantity versus quality” tradeoff in consumer financial services. The authors reviewed instances of fraud, mis-selling and poor customer service (indications of quality) for mortgage products by reviewing CFPB consumer complaints during the period 2012-2016. The authors found substantially more complaints in zip codes with lower than average income and educational attainment and higher percentages of minority populations. The authors concluded that although the quantity of financial products and services has increased, the quality of the offerings greatly decrease for lower-income, minority borrowers.
  • A 2018 FTC study authored by Devesh Raval (“Which Communities Complain to Policymakers?”), which used the Consumer Sentinel database, found disparities in complaints submitted to the FTC, Better Business Bureau and CFPB. The study found that complaints vary across communities, but that higher complaint rates exist in more heavily black, college educated, and urban communities, whereas lower complaint rates were found in more heavily Hispanic and higher household size communities. The demographics of complaints were quite different for the CFPB, however, with much higher rates of complaints from black and college educated areas compared to the FTC or Better Business Bureau. Significantly higher rates of finance-related complaints came from black communities across all three complaint sources (CFPB, FTC and Better Business Bureau).

Certain limitations underlie all three studies, however.  For example, the CFPB does not collect protected class information in accepting consumer complaints, so any studies of consumer complaint data must of necessity rely on proxy data to determine race and ethnicity.  Proxies have been shown to be inherently unreliable with high error rates. In addition, the CFPB’s complaint database contains limited, summary information about complaints that only shows zip code (and sometimes only the first 3 digits to protect privacy), together with an indicator variable of whether the complainant is elderly or a servicemember/veteran.  So as a threshold matter, relying in part on abbreviated zip code information from the CFPB’s consumer complaint database does not represent solid empirical data.

In addition, none of the studies attempts to control for variables that might impact the outcome of a complaint, such as the subject matter or complexity of the complaint, or even whether the complaint was well-founded in the first place. We doubt that such variables can be controlled for in an analysis, but without them, there is no way to avoid comparing apples and oranges within the complaint population. Treating them all as fungible, however, seems to us to be an unfounded starting point for these analyses.

Given the limitations of these studies, if the CFPB thinks there are racial or ethnic disparities in company responses to consumer complaints (timeliness, quality of customer service, restitution, etc.), we believe the Bureau should conduct its own independent study rather than rely on third-party studies. The CFPB has all of the data from the original complaints that it can draw upon to provide better data for such an analysis.

What does all of this mean for regulated financial institutions and financial services companies? Based on the title of Acting Director Uejio’s blog post (“Consumers and their experiences to be at the foundation of CFPB policymaking”) and the content, which indicates the CFPB will “mak[e] sure that consumers who submit complaints to [the Bureau] get the response and the relief they deserve,” it is clear that consumer complaint management has suddenly taken on heightened attention under new CFPB leadership. This will play out not only in the way the CFPB interacts with financial institutions and financial services companies through its complaint portal about individual complaint responses, but also in the way that complaint information is used to inform the Bureau’s policymaking, supervision and enforcement approach. Consumer complaints will be used as a key source for targeted examinations, investigations and enforcement, as well as to drive the CFPB’s rulemaking process and issuance of guidance.

Financial institutions and financial services companies supervised by the CFPB should view Acting Director Uejio’s blog post as a warning to prepare for additional scrutiny of consumer complaints. Now is the time to revisit consumer complaint management programs, policies and procedures and processes to ensure that they meet current CFPB expectations and can withstand close examination. Ensuring a timely, substantive and complete response that fully addresses a consumer’s concern and treating all complainants fairly and consistently are critical objectives. Under the CFPB’s Company Portal Manual, regulated entities are required to respond to a complaint within 15 calendar days and resolve the complaint within 60 calendar days.

For a more in-depth discussion of this issue, as well as a discussion of best practices for an effective consumer complaint management program, please tune into our podcast which will air on March 8, 2021.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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