Over the last year, the Consumer Financial Protection Bureau made significant strides in fulfilling its mission of education, enforcement and study. Leadership has gone to great lengths to ensure Americans view the CFPB as a trusted watchdog for the people. You can “like” them on Facebook and follow them on Twitter, and since July 2011, the CFPB’s Consumer Complaint Database has provided consumers an easy vehicle for lodging complaints against specific financial institutions.
Consumers have not been shy in using the database. The CFPB received more than 176,000 consumer complaints between July 2011 and June 2013 with more than two-thirds of the complaints received centered on mortgage lending (48%) and credit reporting (21%). However, since consumers do not have to attempt to resolve the problem with the financial institution prior to lodging a complaint, the CFPB database is quickly becoming a “National Better Business Bureau” for the financial industry. Though the database is a convenient home for complaints, it is creating an unmanageable and unnecessary amount of work for those designated to address them.
Because the database is an easy path for consumers to take in voicing their concerns, they will continue to use it before addressing the problem directly with the financial institution. To alleviate some of this burden and improve customer satisfaction, financial institutions have a great opportunity to evaluate the complaints consumers are making and develop strategies to address issues earlier in the lending process—before they become complaints.
Digging deeper into the types of complaints being raised points to specific strategies financial institutions can take to head complaints off at the pass, because like it or not, the onus is on the financial institution.
Mortgage Lending Complaints
The analysis of the complaint database shows that 62% of all mortgage complaints center on problems borrowers face when they are unable to make payments and the activity that follows delinquency; such as loan modifications, collections and foreclosures. The CFPB’s database points to confusion around the loan modification process especially as it relates to document submission timeframes, payment trial periods, allocation of payments, treatment of income in eligibility calculations and credit reporting during the evaluation period. This confusion can be avoided with a more proactive effort on the part of the lender to document all key areas of the loan modification process for the borrower prior to the start of the process.
Ideally, this documentation should be available in a variety of mediums. Lenders and servicers should ensure borrowers receive hard copy documentation, but they should also consider alerting borrowers via e-mail and always have policies and requirements easily accessible on their websites. Smart lenders will go a step further and not only provide documentation, but also review the requirements with the borrower and have them acknowledge in writing that they understand the process. By doing so, the lender likely has more protection against any claims of insufficient or misleading information being provided about the process if a question or complaint arises in the future.
Issues regarding making payments are the next most common problem, accounting for 24% of all mortgage-related complaints in the CFPB database. Many of the same strategies outlined to combat loan modification complaints can also address concerns here. Comprehensive, multi-media documentation will provide borrowers with the information they need and provide lenders and servicers the protection they want. Focused communication on the payment process is especially important at the beginning of the servicing cycle when borrower uncertainty is highest.
For example, many borrowers get confused when they learn that they will not be making payments to the institution that made their loan. Others may simply ignore the rather generic notices they get informing them that their mortgage has been sold. An active outbound calling campaign supported by targeted e-mail messages (if possible) in the first two to three months of the loan can temper many borrower complaints. Though this will usually require additional upfront investment, the long-range savings from a reduction in delinquency, inbound calls to servicing centers from confused borrowers and complaint volume will likely offset this investment.
Credit Reporting Complaints
The largest percentage (72%) of credit reporting complaints center on incorrect information appearing on a consumers’ credit report. In December 2012, the Federal Trade Commission completed research indicating a 5 percent error rate on credit reports. This indicates that while mistakes do happen, the incidence is quite low. As such, it is likely that many of the complaints the CFPB is receiving relate to consumers simply not understanding what is on their report. For example, credit report confusion could stem from something as simple as an old May Company Department Store credit card showing up under the new parent name of Macy’s.
Again, a proactive effort on the lender’s part could go far to avoid these types of complaints. Lenders are permitted to share the credit report information with their applicants, which can ensure consumers are fully knowledgeable about information on their credit report at the beginning of the lending process. When a consumer raises a possible discrepancy, lenders can resolve the matter directly with the credit provider to improve the efficiency of the lending process, create a more informed consumer and, most importantly, avoid an unnecessary complaint.
The next highest percentage of credit reporting complaints (9%) result from consumers being unable to obtain a credit report or score. This is very surprising given that the FCRA FACT ACT of 2003 entitles consumers to one free credit report a year that can also include a score for a nominal fee. Again, this is a complaint that can be avoided in many cases by lenders simply making sure customers understand their rights and know how to obtain a copy of their report. This is especially true for applicants who are declined for a loan, as they can obtain a free copy of their credit report within 60 days even if their annual report was already processed. Providing a written and verbal overview of what applicants are entitled to can go a long way in enabling the customer a means of receiving their credit report, understanding the lending decision better and ultimately eliminating the need to complain.
Another 4% of credit report complaints involve claims of improper use of the credit report, uncovering another area where there are usually perfectly legitimate explanations and activities at the root of many of these complaints. A perfect example would be when a credit reporting agency provides a credit report to a secondary underwriter who is working on the consumer’s loan on behalf of the lender.
Here again, more up-front information to the consumer can avoid misunderstandings, potential ill-will and a great deal of time resolving formal complaints in the future. Lenders should proactively explain all aspects of the mortgage workflow and the various parties who might be accessing the consumer’s credit report before that workflow begins. Lenders can also take the added step of informing consumers that they can contact a credit bureau directly if they have any questions or concerns. This not only creates more goodwill with the customer, but it can ultimately save time for both the lender and the consumer by providing a direct connection to the source that is in the best position to address the consumer’s concerns.
Ensuring Customer Satisfaction
The CFPB is clearly logging a wide variety of complaints from consumers that could be avoided. While the types of complaints vary, the one common theme on how to avoid problems from escalating is more comprehensive communication with borrowers as early in the lending or servicing process as possible. Proactive effort here will address consumer concerns before they feel compelled to pursue a CFPB complaint and also provide some level of protection if a complaint is lodged. Institutions that take these proactive steps will see the benefit of added customer goodwill and greater overall customer satisfaction.
