As the CFPB continues the process of ramping up its supervisory operations and consumer protection programs, emerging is a unique brand of consumer complaint supervision highlighting the special emphasis and approach in how the CFPB is pursuing its consumer financial protection mission. This was recently highlighted in separate initiatives of the new agency's Consumer Response complaint system addressing two of the areas in which the agency is expected to be the most active. The first involves the agency's announcement that it is beginning to process mortgage-related complaints through the Consumer Response system. The second relates to an interim report issued by the CFPB on its first three months of activity collecting data on consumer credit card complaints.
These two areas of emphasis of the Consumer Response system are likely to attract considerable consumer attention and a significant portion of the consumer complaints that come into the system. Both areas have generated significant legislative and regulatory attention in recent years, and the expectations are high that the CFPB may be relatively aggressive if not activist in addressing many of the issues that have been the subject of recent lawmaking activities. Add into the mix a close working relationship between the CFPB and the various State Attorneys General, it is not difficult to foresee enforcement responses in areas in which consumer complaints highlight what the CFPB views as the most egregious anti-consumer behavior.
Certainly, consumer input has been important in framing legislation and regulations tailored to address anti-consumer behavior in the financial sector, and consumer complaints are a factor in the supervisory and examination oversight activities of depository institutions by the federal banking agencies. However, the CFPB's Consumer Response system promises to go further by using consumer complaints as a direct mechanism in analyzing potential anti-consumer behavior, which can then be used to direct supervisory activities, pursue potential enforcement actions, and formulate policy responses. While some will argue that the federal banking agencies have been doing this for many years, there is a distinct difference to how the CFPB is ratcheting up its Consumer Response system to support its supervisory mission.
For one, the CFPB has consumer financial protection as its primary and only mission. In contrast, the federal banking agencies have a number of important missions -- protecting the safety and soundness of the institutions they regulate, minimizing risks to the Federal Deposit Insurance system, overseeing and ensuring the integrity of the payments systems (not to mention monitoring monetary and fiscal policy, in the case of the Federal Reserve), promoting policies to ensure credit availability, as well as ensuring and promoting consumer protection. In many instances, these various missions are not always in sync and, at times, circumstances may favor ensuring safety and soundness and other important considerations over consumer protection, at least from a supervisory (if not a policy) perspective.
More fundamentally, the CFPB is currently in the process of building a Consumer Response system and database that it will be able to model and draw from in pursuing its consumer financial protection mission. With respect to the agency's announcement that it is now starting to process mortgage-related complaints, we should expect a number of things to come from this initiative. First, and most obviously, there is the possibility that particular activities or players in the mortgage space could become subject to significant CFPB scrutiny. In this regard, the CFPB highlights in its Supervision and Examination Manual that it intends to conduct both target (one entity) and horizontal (one product across multiple entities) reviews as part of its examination program. Clearly, consumer complaint information gathered from the agency's Consumer Response system would be available to support both purposes in connection with the agency's oversight and supervision of mortgage products, practices and industry participants. Perhaps more important is the availability of consumer complaint information to support the agency's regulatory policy and rulemaking function, which includes the possibility of upcoming reviews of important mortgage-related regulations in areas such as the Home Mortgage Disclosure Act, Real Estate Settlement Procedures Act, SAFE Mortgage Licensing Act, Truth in Lending Act, as well as the Fair Credit Reporting Act.
The area in which the Consumer Response system already has a track record is with respect to consumer credit card complaint data. Again, there are various uses for this information, not the least of which is providing an opportunity for consumer redress, as well as laying a foundation for a supervisory, regulatory or a potential enforcement response to address consumer issues arising with a particular entity or with respect to a particular credit card product or feature. Interestingly, the interim data collected by the CFPB Consumer Response system includes information on the 5,074 credit card complaints filed with the agency for the three-moth period from July 21, 2011 through October 21, 2011. Highlighting a very proactive feature of the system, the agency notes that about 84% of all complaints were forwarded to credit card issuers, with approximately three-quarters of forwarded complaints being fully or partially resolved.
Perhaps the most telling "preliminary" conclusion of the CFPB interim credit card report was the information drawn on another important area that falls squarely within the CFPB's mission -- and which offers significant opportunities for the agency to work with the industry to improve -- consumer education. As noted in the report, "many complaints show consumers struggling to understand the terms of credit cards and associated products like debt protection services." The other important finding highlighted by the agency, again which should be deemed preliminary given the relatively small number of complaints reflected in the interim report, is the extent of fraudulent charges to consumers' credit cards made by third parties. According to the report, "the complaint system has identified recurring scams and helped to obtain redress for defrauded consumers." Again, this is an area that offers considerable opportunities for the agency to work with the credit card industry to address.
Thus, in addition to being used as being available as a supervisory and enforcement tool, and in formulating regulatory policy, the CFPB's Consumer Response system may identify areas and opportunities for agency-industry cooperation that may serve to further the best interests of the consumer, the industry and the agency in pursuing its consumer protection mission. The challenge, of course, will be for the agency to determine how best to work with various industries to realize the potential benefits of identifying ways to improve consumer financial education, reduce fraud, and pursue other mutually beneficial areas that may be identified by the CFPB's Consumer Response system database. Most critical in all of this is the consumers' role in providing factual and accurate information to the agency, as well as assuming responsibility for educating themselves about the consumer financial services and products they use, and continually monitoring financial account activity and usage to be able to identify issues and potential risks.
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