Matt Ondus of Promontory Financial Group also contributed to this post.

The Consumer Financial Protection Bureau’s reliance on consumer complaints to identify potential problem areas in the provision of consumer financial services has compelled companies to reconsider how they regard and manage complaints. Gone is the view that customer complaints represent a natural breakage rate managed by the business and handled primarily as individual customer service issues. The emphasis now is on assessing complaints to find threats before they cause widespread consumer harm and invite regulatory action.

But regulators have not yet spelled out specific expectations for critical components of complaint-management programs to guide firms as they re-engineer every aspect of their programs — from intake and data capture to governance, reporting, and systems. The most fundamental element of these programs remains the hardest issue to resolve: What exactly is a complaint?

Regulators expect firms to provide timely, accurate, and fair responses to all issues customers raise, including those formally defined as a complaint. They also expect firm executives to use the intelligence gathered from all customer contacts to manage consumer protection and reputational risks, as well as to evaluate the overall customer experience.

Meeting regulatory expectations requires an expansive definition of “complaint” that goes well beyond issues that overtly allege regulatory violations. The challenge of distinguishing complaints from service requests and other inquiries is most difficult when the issue may be related to regulatory prohibitions on unfair, deceptive, or abusive acts or practices. Certain core unfair, deceptive, or abusive acts or practices (UDAAP) issues — such as an explicit allegation that a fee or other material product term was not disclosed — have historically been treated as complaints.

But in an environment in which regulators cite customer confusion as a primary rationale for actions on everything from advertising and sales practices to rewards programs to arbitration clauses, establishing a high threshold for a matter to qualify as a complaint may provide insufficient protection against very real risks. Indeed, the current challenge in complaint management is to bring enough information into the system so that issues driven by customer confusion and variances from firm policies will also be detected — and remedied — early.

The operational consequences of treating customer confusion as a complaint are the primary reason that firms hesitate to expand their complaint definition. Consumer comprehension of basic financial features is generally limited, regardless of education and income. A relatively large number of customers may express uncertainty or confusion about a particular fee or a lowered credit line, even if terms were appropriately described upon origination or at some other point in the product life cycle. Some consumers contact providers about such routine issues simply to get further information or to see whether the firm will offer an attractive resolution even if not required to do so. The instances in which a customer’s question or problem results from confusion about how a product or service works are so frequent that labeling every inquiry as a complaint threatens to overwhelm complaint-management resources — to the point that the firm’s ability to identify and respond to serious risks can be compromised.

The way forward for broadening the complaint definition without suffering operational consequences depends upon calibrating data capture and investigating complaints according to their compliance, reputational, and customer-experience risks. Complaints that pose higher risk should be investigated and resolved by escalation teams with subject-matter expertise.

High-volume, low-risk customer contacts may effectively be resolved at the first point of contact with less burdensome data-capture requirements and greater reliance on data analytics to detect changes in systemic risks. Repeated instances of consumer confusion or material changes in the volume or pattern in the reporting of these issues are a critical early warning of the kind of problems that can lead to UDAAP violations, even if the issues are typically unverified at the transactional level.

The CFPB’s focus on complaint management is driving firms to redefine what qualifies as a complaint. Adopting a narrow definition that can be applied with precision across tens of thousands of customer contacts may feel like firm ground. But building the capacity to manage the operational challenges that result from a UDAAP-ready complaint definition is the better strategy for ensuring that a firm’s complaint program functions as intended: as a radar system to prevent variances from regulations and firm policies from blossoming into violations.

Matt Ondus and P-R Stark are members of Promontory Financial Group’s Consumer Protection Practice and provide clients with strategic, regulatory, and compliance advice. On January 23rd, P-R will be speaking on “Demystifying UDAAP” at insideARM’s Large Market Participant Summit in Washington, D.C.. This article originally appeared in Promontory’s Consumer Financial Protection Developments newsletter, for which you can sign-up here.


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