If you’re offering a financial product or service to consumers, such as a deposit account, loan, credit card, or payment service, you need a strong consumer complaint response function. This is true whether you’re an established financial institution or just starting out.

A consumer complaint response function — often aptly described as the proverbial canary in the coal mine — is a foundational piece of your compliance management system (CMS) that controls how you receive, respond to, and otherwise use complaints to enhance your business’s compliance. It enables you to:

• gain insight into friction points with your customers
• respond to your customers’ concerns in a way that builds brand loyalty
• detect potential legal violations lurking in your offerings
• resolve complaints before they are escalated to a regulatory or other governmental authority
• reduce your risk of litigation resulting from mishandled complaints that become lawsuits
• reassure bank partners, licensing authorities, and regulators that you understand how to run your business in a compliant-minded manner

You may be asked directly about your complaint response function or for your complaint policy or complaint log at several different junctures, such as when you’re seeking to partner with a bank or other financial institution, during a financing round, or in the face of a regulatory inquiry.

Regulators frequently leverage complaints to determine where to direct their focus, including in considering whether you need a certain license or as part of a general sweep for violations among like offerings. For example, a regulator may look more deeply into your operations, including your CMS and complaint response function, if the regulator receives complaints from consumers who couldn’t resolve a complaint with you directly, reads complaints about you online or in the news, or identifies you in the complaints of a business partner or service provider. Explaining that you don’t document complaints and their resolution — or that you haven’t received many — will only increase the scrutiny on you. This is why it is so important to have a strong complaint response function in place.

At a minimum, your complaint response function should:

• be documented in a written policy and procedures, describing how you receive, record, categorize, escalate, and resolve consumer complaints and inquiries, including those received from or relating to partners or service providers
• effectively train employees on your consumer complaint response policy and procedures
• ensure each complaint is responded to promptly and completely, following a thorough investigation of the facts
• include a root cause analysis of each complaint, identifying which function of your CMS resulted in the complaint and might benefit from enhancement to prevent similar complaints or consumer harm
• involve providing periodic complaint reports to the board so that it may address consumer compliance issues and associated risks of consumer harm through the business’s handling of consumer complaints and inquiries
• involve management in monitoring complaints to identify risks of potential consumer harm or CMS deficiencies and in ensuring appropriate prospective and retrospective corrective action is taken
• inform other aspects of your CMS, including enhancements to employee training and monitoring or audit schedules

A complaint response function can be a tool used to fortify your company’s compliance management or, if neglected, an Achilles’ heel awaiting its fated arrow. It’s never too early to begin developing or enhancing your complaint response function.

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