Just how much does the Consumer Financial Protection Bureau’s (CFPB) controversial consumer complaint database factor into its enforcement activities?
According to Ann Thompson, senior analyst for the CFPB, the complaint database is a major tool used in helping the bureau decide where and when to allocate its examiners.
“We look not just at the number [of complaints], but also do analysis on the content of the complaints because, as you know, consumers often complain about a variety of things,” Thompson said during a panel session presented during the Mortgage Bankers Association’s (MBA) National Mortgage Servicing Conference & Expo 2017, held recently in Dallas. “We consider certain complaints that might point to the existence of law violations – and we weight those more substantially when considering how to prioritize our examination resources.
“We also look for anything that might point us to certain Fair Lending risks – either from the products a company uses or from consumer complaints or anything else,” she added.
Ironically, about a week before Thompson made her comments, news was leaked that Rep. Jeb Hensarling was redrafting the Consumer CHOICE Act, a Republican-backed bill that would repeal and replace the Dodd-Frank Act, as well as restrict the CFPB’s powers, and that the new version calls for doing away with the consumer complaint database entirely.
“Rep. Hensarling is seeking to eliminate much of the CFPB’s regulatory powers and transform it into a law enforcement agency,” Bloomberg News reported on Feb. 9. “[A leaked] memo proposes the controversial regulator only be able to pass rules that have been mandated by Congress. The plan would further restrict the agency by eliminating its authority to supervise financial firms and doing away with a public database documenting consumer complaints.”
The complaint database has been a source of controversy ever since complaints were made public in 2013. The CFPB first made the complaint data publicly available in 2012, but in 2015, it started publishing the “narratives,” which are the actual complaints edited for privacy.
The searchable online database serves as a repository for complaints about all types of financial products; however, complaints about mortgages and, in particular, mortgage collections make up a significant portion of the complaints that are archived.
Although the complaints are “scrubbed” to help protect the identities of the consumers – and although the CFPB verifies that each complainant has an established business relationship with the entity he or she is complaining about – there have, nonetheless, been major criticisms of the database, mainly that the complaints themselves are not verified before they are made public. So, although the CFPB might confirm that “John Doe” does, in fact, have a business relationship with “Mortgage Servicer X,” it does not go so far as to check and validate that John Doe’s complaint, as presented, is factual and accurate.
Making this concerning for the industry is the fact that the bureau is using these “unsubstantiated” complaints to see where it should focus its examination and enforcement activities.
Last year, Rep. Matt Salmon, R-Ariz., introduced the CFPB Data Accountability Act, a bill that would require that consumer complaint information be presented on the CFPB’s website in an aggregated format to make it more “searchable” by users. The bill, which never made it out of committee, would also require the bureau to verify the information in each complaint to ensure that it is valid. It would also require the CFPB to provide statistics on how many consumer complaints it receives with “respect to the particular consumer financial product or service compared to the total number of consumers making use of such consumer financial product or service.”
Many of the changes outlined in Salmon’s proposal were previously brought up in a letter that the MBA sent to the CFPB in 2015. In that letter, the MBA urged the CFPB to make multiple improvements to the complaint database, including making it more clear to consumers when they land on the complaints home page that the complaint narratives are not reviewed and that most do not require action. In addition, the MBA asked the CFPB to establish procedures for removing complaints that have not required action, as well as complaints that are old or unresolved.
“In MBA’s view, because more than 80 percent of complaints do not require action beyond an explanation, posting these unsubstantiated complaint narratives will only mislead the consumers the CFPB is charged with protecting,” the MBA wrote. “We therefore urge that complaints be verified before narratives are posted. At the very least, the CFPB should establish procedures to take down complaints not requiring action.”
The CFPB agreed with the MBA’s request to separate servicing and origination complaints, which had previously been comingled on the website. The bureau also complied with the MBA’s request that it disclose its formula for “normalizing” the complaint data.
Despite the fact that many mortgage lenders and servicers now use the information in the complaint database to improve their operations, most agree that it does more harm than good, especially when it comes to the potential for reputation damage.
Still, it should be emphasized that the complaint database isn’t the only thing the CFPB uses when determining how to allocate its limited examination resources. During her presentation, Thompson explained that the bureau uses “a risk-based prioritization process” to determine where it should send its examiners.
“This risk-based process allows us to compare different product lines across banks and non-banks,” she explained. “So, we’re not looking at a large bank that does lots of different types of things against a non-bank that only does mortgage servicing. We disaggregate the product line at any given institution. So, we try to achieve apples-to-apples compares across the product line.”
The bureau also evaluates “each product line” a lender or servicer deals in in order to determine the “potential for consumer harm related to the particular product and market.”
“So, we look at the size of the product market – how many billions or trillions of dollars and how many customers a company serves – and we will also look at the market share of a company within a particular market to understand what the potential for consumer harm might be, should that institution be engaging in risky practices,” Thompson told the crowd of mortgage servicing professionals. “Then, we also look at the risk to the consumer – the inherent risk at the market level, but also at the institution level; are there things that differentiate a company from its peers in the market that might lead to increased consumer risk?”
All of these “size considerations” are then augmented with what the bureau calls “field and market intelligence,” which, Thompson said, “is information from a number of sources.”
She added that the bureau looks “at both quantitative and qualitative factors”; for example, it also considers “the strength of a company’s compliance management system; the existence of other regulatory actions; or the existence of other regulators” that might also be conducting exams.
“Considering how the CFPB fits into the overall oversight of any given company, we’ll also look at whether we have examined the entity previously and what those findings might have been from prior exams,” Thompson added. “We look at metrics from publicly available data, whether that is attorney’s filings, news reports and other things, as well as the number and severity of consumer complaints that we receive.
“So, taken together, we are looking at the market-level risk and the institution-level risk, and we use that as part of our risk-based prioritization framework, and this allows us to focus our limited resources on areas where we think we can find the potentially greatest risks for consumers,” Thompson said.
The panel also included Kathy Keller, managing director of regulatory compliance for consultancy Newbold Advisors, who provided a general overview of how her firm handles “mock examination” for its clients, as well as how servicers can be better prepared for a real exam. Also on the panel were Krista Cooley, partner with law firm Mayer Brown, who gave a presentation on how servicers can better prepare for exams on Federal Housing Administration-backed loans; and Mitchel H. Kider, chairman and managing partner for Weiner Brodsky Kider PC, who gave a general overview of “what is required of [servicers] by regulators, by investors and by law” when it comes to examinations.