When Consumers Complain, Who is Held Accountable?

When Consumers Complain, Who is Held Accountable?
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Last week, we examined the history of Consumer Financial Protection Bureau (CFPB) and considered how Representative Jeb Hensarling (R-TX)’s Financial CHOICE Act could affect the public access to the bureau’s database of consumer complaints.

The changes proposed in the CHOICE Act don’t stop at the database. The act, in concurrence with a report by Treasury Secretary Steven Mnuchin, proposed restructuring the leadership, funding, and internal workings of the CFPB. The move comes not long after the U.S. Court of Appeals for the D.C. Circuit, in PHH Corporation v. CFPB, ruled that the present leadership structure of the CFPB was unconstitutional (the case has been appealed and is under review before the ruling goes into effect).

For a bit of background, Hensarling, the chair of the House Financial Services Committee has continuously voiced concerns about the accountability structure of the CFPB and its regulatory work, including complaints that the CFPB’s regulatory work related to Dodd-Frank requirements have made mortgages harder to access or afford. He has been particularly vocal in his condemnation of the CFPB’s current director, Richard Cordray: in the CFPB’s semi-annual hearing before the Financial Services Committee in April, Hensarling called on President Trump to fire Cordray immediately.

Hensarling and his colleagues have also criticized how Cordray and the bureau handled the Wells Fargo accounts scandal, in which bank employees fraudulently opened accounts on behalf of unaware customers.

The Financial Services Committee’s Republican Staff Report claims that the CFPB was slow to investigate Wells Fargo and did not comply with the Committee’s subpoena for its Wells Fargo investigation in a timely way, nor produce the CFPB’s internal records as requested. The factual basis for these claims is being disputed by the committee’s Democrats. Cordray has also written a letter in response to these claims.

Consumer complaints during a scandal

Indeed, the Wells Fargo scandal first came to national attention in 2013, not through an investigation initiated by the Cordray’s team, but rather, an investigative piece by the LA Times. While the contention regarding the timeliness of the CFPB’s compliance with the Committee’s desires is difficult to assess without internal documents, we explored data from CFPB's public database for any indication that the bureau was slow to act on what it was hearing from consumers.  

So, what did the the world of complaints look like in 2013?

For the three largest retail banks in 2013, the number of complaints related to the opening and closing of accounts services was fairly variable month to month. Bank of America, at this time, had the largest market share (10.9%), followed by Wells Fargo (9.9%) and JPMorgan Chase (9.8%). JPMorgan Chase, though having a similar market share to the others, tended to have fewer complaints in this time period. (The graph below displays raw monthly counts for each of the companies).

Comparable Banks 1314

What’s perhaps even more notable is that this subtype of complaints was not even the most prevalent in the database. The most common source of complaints was related to loan modification, collection or foreclosure — and here, Bank of America was truly the largest player (despite being the second largest holder of mortgages).

Boa V Wells Loans

The press noticed. The LA Times examined the complaints data in March of 2013, and saw that Bank of America had a disproportionate number of mortgage complaints. They noted, however, that 98% of those complaints were marked as resolved. At that time, the disproportionality was attributed to Bank of America’s acquisition of Countrywide Home Loans, a lender deeply embroiled in the subprime mortgage crisis. Bank of America claimed that they held a greater proportion of loans affected by the financial crisis as a result of the acquisition.

While that may have been part of the reason, ProPublica later reported that Bank of America employees frequently denied mortgage modifications for fraudulent reasons, and that their employees were awarded bonuses for foreclosures.

The work of the CFPB

It is not immediately clear why the CFPB did not undertake an enforcement action related to this matter. A few months after the ProPublica report came out, a class action lawsuit against Bank of America was struck down in a U.S. District Court. It is also worth noting that there were several other regulatory bodies involved in multiple mortgage-related matters with Bank of America around this time. For example, the Federal Reserve (which funds the CFPB), the Office of the Comptroller of the Currency, and the Independent Foreclosure Review had investigated other loan modification issues and settled with Bank of America and 9 other banks for an amount of $8.5 billion in January 2013. The timing of the settlement coincides with a large surge of complaints to the CFPB (as seen in the graph above).

A similar pattern occurred in the Wells Fargo case. Though the data was fairly noisy in 2013, the CFPB saw a large surge of complaints when the lawsuit was finally settled.

Account Issues Comparable Banks

The CFPB does not offer comments regarding what they believe to be the causes behind such surges, but the timing seems very coincidental. 

The complaints data, at least in these two prominent cases, does not anticipate consumer problems, but rather, seems to capture consumer reactions to the results of regulatory actions. The public database has yet to serve as the sole impetus for large scale lawsuits such as the Bank of America and Wells Fargo cases.

The bureau also houses a Supervision, Enforcement and Fair Lending office and a Research, Market and Regulations office. The investigatory and supervisory actions the bureau does undertake are informed as much by the work of these offices as the individual consumer complaints. But not all actions by the CFPB result in public enforcement actions. The supervisory office also issues recommendations and warning letters. Structured data about these interactions are not available, though they are covered in CFPB reports. Companies, at that stage, are shielded from the public shame that such a public dataset might bring.

The future of the CFPB

If Hensarling is concerned that Cordray has been slow to react to Wells Fargo concerns, his bill offers an unexpected solution: eliminate CFPB’s ability to inform the Director of what to pursue next. The CHOICE Act seeks to eliminate both the supervisory and the market-monitoring functions of the CFPB.

The bill’s executive summary, in the same breath that it seeks to eliminate market research, also calls for a requirement that bureau obtains permission before collecting personally identifiable information from consumers.

Banks, to their credit, have also long been concerned with the privacy risks that the complaints database exposes their customers to — and perhaps, a bit about the public shaming it brings.

Given how the data has (and has not) been used by the CFPB, the press, and the public, maybe one of the things that an open database of complaints does best is create a powerful incentive for companies to respond to individual consumers in a meaningful and timely way, even without legal action by regulatory bodies.

After all, we will be able to check that they do so — at least for now.