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Topics: Richard Cordray

How the CFPB is trying to mimic Yelp

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Finance and Banking,PennAve,Joseph Lawler,Economy,CFPB,Richard Cordray,Technology

The government's consumer finance regulatory agency is seeking to create a new source of aggravation for banks: Consumer testimonials and reviews of financial services.

The proposal introduced this week by the Consumer Financial Protection Bureau would create what would effectively be a federally-run Yelp for financial services, with complaints about financial services posted online in customers' own words for anyone to read.

The CFPB already maintains a public database of consumer complaints, which includes the name of the bank and a general description of the problem.

The new proposal, however, would allow customers to describe their grievances in whatever detail they choose.

It's the latest salvo against the financial industry from the CFPB, which was created in the wake of the mortgage crisis by the Dodd-Frank financial reform law in 2010.

Announcing the proposal in a speech in Texas, CFPB Director Richard Cordray justified the move on the basis that allowing people to publicly air their complaints through the agency would “provide important context that better explains the significance of the consumer's complaint.” He also said it would “enrich the information” available in the database, allowing for better detection of trends.

Cordray went further, however, using near-poetic rhetoric to promote the measure. “As we stop and listen, we can hear their still, small voices setting out the exact nature of their particular concerns,” he said of consumer complaints. Adding detailed reviews to the site, he said, would “make that mosaic even more vibrant and clear.” He went on to quote author and poet Maya Angelou, saying that “there is no greater agony than bearing an untold story inside you.”

It was a move the financial industry expected and feared. The CFPB will wait 30 days for comments before implementing the changes to the site, but industry officials didn't hesitate to criticize the idea.

Consumer Bankers Association President Richard Hunt warned that “publishing narratives of every unverified complaint will give only the illusion of disclosure,” adding that “this action will ultimately add to consumer confusion, harm industry reputations and undermine any hope the CFPB may have to be viewed as a fair and honest broker.”

The CFPB will send complaints to companies for response before they are posted on the site, but Hunt said that wouldn’t be sufficient. “Banks have an obligation to their customers to maintain the confidentiality of their information, making it virtually impossible for a bank to offer a complete response to these narratives,” he said.

Alan Kaplinsky, who monitors the CFPB for the law firm Ballard Spahr and represents some finance firms, said that the CFPB is “trying to apply more pressure on industry. The problem with it is that they will be used as a gripe site, since the narratives will be published even when they lack merit.”

A CFPB report on the the complaint database released to accompany the roll-out of the proposal suggests that although the CFPB has had some success in gaining redress for consumers, the majority of the complaints will be specious.

The CFPB has handled more than 400,000 consumer complaints since 2011, according to the report. Companies have paid out money in response to more than 30,300 complaints, with a median amount of $150.

While roughly 10 percent of complaints elicited monetary compensation from companies and another 10 percent earned some kind of other help, upward of 70 percent were dismissed with nothing more than an explanation. That percentage was even higher, roughly 80 percent, in the case of mortgages.

Of those rejected complaints, only 20 percent were then disputed. The CFPB’s enforcement officers responded to an unspecified number of those cases.

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