by Jeff Sovern
Earlier this week, Acting BCFP Director John Michael Mulvaney made statements suggesting that he was going to keep complaints to the Bureau secret. Here's the quote, as reported by Rachel Witkowski in The American Banker:
“I don’t see anything in here that says I have to make all of this public,” he said. “We are going to maintain the consumer database. It is mandated by law,” but “I don’t see anything in here that I have to run a Yelp for financial services sponsored by the federal government.”
The analogy to Yelp is simply wrong. As I understand it, Yelp doesn't verify that the complaints it received were actually submitted by customers of the institution, which opens Yelp up to dishonest complaints. The CFPB does, which makes it much harder to get fake complaints in. Yelp publishes positive reviews. The CFPB publishes only complaints, which makes it possible to do statistical analysis, as discussed below. The Bureau database is useful to consumers in a variety of ways and puts pressure on financial service companies to provide better service.
I’ve heard a number of anecdotes about how the complaint portal helped consumers. My favorite: as we previously reported on the blog, Gene DeSantis, who served 12 years as Counsel to the Assembly Consumer Protection Committee, in which capacity he drafted some of NY’s consumer protection laws, and also taught Consumer Law for 15 years at Syracuse University, had a dispute with a bank last year. He complained repeatedly to the bank, but got nowhere, and I have to think that if Gene couldn’t make headway, less knowledgeable consumers would make even less. But within days of his filing a complaint with the CFPB, he got all the relief he asked for. The amount at issue was too small for him to go to arbitration over. The point is that the public nature of the complaint database is itself a consumer protection mechanism because it incentivizes businesses to respond to consumer complaints.
I suppose you could argue that the database has the same coercive effect on financial institutions whether or not the consumer is right, except that as the database also includes consumer narratives, people can read them and come to a conclusion about whether the consumer has stated a legitimate complaint. An issue there though is that if the consumer misrepresents the facts, readers have no way to know that. One solution to that problem is to examine how many complaints financial institutions get relative to their size. For example, Money Magazine recently published an article based on a Lendedu report on the number of complaints per consumer deposits, a measure that adjusts for the fact that different banks have different numbers of customers. The most-complained about bank by size had more than 7 complaints per billion in deposits while some banks had no public complaints at all. If you assume that banks will elicit unjustified complaints by consumers in proportion to the number of customers they have, that metric compensates for that.
Which brings me to the free market. Free marketers believe that perfectly-informed consumers can protect themselves from misconduct. But how can consumers become perfectly informed in a country with hundreds of millions of people if they don't have access to consumer complaints? If you believe in the free market, you ought to believe in making consumer complaints public in a way which helps inform consumers. The CFPB consumer complaint database does that. Mulvaney seems to want to keep consumers in the dark about complaints. That will help banks that mistreat consumers, but it won't help consumers or the banks that treat consumers properly and so elicit few if any complaints. The complaint database is not a perfect solution to the problem of financial institution misconduct–but a partial solution is much better than none, which seems to be where we are headed for financial institutions not named Wells Fargo.