Reducing Risk with Consumer Complaint Management

The only thing worse than a consumer complaint is one that’s ignored and never addressed.

It happens all too often. Employees get a phone call, an email, or have a conversation with someone who has had a bad experience with your financial institution. A social media or marketing manager runs across a grievance on Yelp or Facebook. The employee fails to recognize the negative feedback as a complaint, as defined by regulatory agencies, and ignores it.

When this happens, you’re not just letting down that consumer — you’re exposing your FI to increased risk. A missed complaint is more than a failure to reach out to a disgruntled customer and make it right. It’s a serious problem — one that effective complaint management can help address. That's because complaint management protects your institution in five critical ways.

Related: Why Complaint Management is Your Best Customer Retention Tool

1. Regulators expect you to have a complaint management system.

Consumer complaint resolution is a required element of a consumer compliance management system (CMS). Examiners expect FIs to have a process for identifying, managing, and analyzing complaints.

A good complaint management system should:

• Define what a complaint is
• Determine who is responsible for identifying, addressing, and escalating complaints, and hold them accountable
• Track complaints and responses
• Identify complaint trends or patterns
• Report complaint data and trends to the board and management

This system enables an FI to identify compliance and consumer protection issues and proactively manage the risks of violations and consumer harm, as well as the risks of regulatory and legal action.

Related: Managing Complaints: The Role of the Three Lines of Defense

Complaints impact your exams

Don’t make the mistake of assuming that if you don’t track complaints, the regulatory agencies won’t find out about it. Aggrieved consumers have no shortage of agencies where they can report their complaint to the government — and many agencies act on that data.

Consider the Consumer Financial Protection Bureau. When the CFPB receives a complaint about an FI, it forwards that complaint to the FI so it can respond. It shares complaint data with state and federal agencies and summarizes complaint trends in an annual report to Congress. It analyzes complaint data to enhance its supervisory work, enforce federal financial laws, and write rules and regulations. The CFPB also publishes complaints in its publicly searchable Consumer Complaint Database. Even if your FI is not supervised by the CFPB, the Bureau will make sure your regulator knows about it.

Examiners will use complaint data when scoping your exam.

Related: 3 Things Compliance Officers Should Do to Prepare for an Exam

2. Better data for risk management

The more data you have, the better insights your FI has into risk. Consumer complaints are one such area. From fair lending and credit concerns to inaccurate disclosures and misleading advertising, complaints can reveal areas of increased compliance, reputation, credit, and strategic risk that need to be mitigated.

One complaint may be a fluke. But a series of complaints about a product, business unit, employee, or program is a signal of a deeper issue that needs attention.

The problem is that many FIs fail to recognize and log complaints. Employees aren’t trained to recognize a complaint, so they don’t always know one when they see one. No one ever finds out about it or learns from it. Employees also don’t know what to do when they encounter one. Sure, they might apologize and try to resolve the issue for the customer, but they don’t remember to log or report the complaint. Either there is no centralized mechanism, they don’t know how to use it, or they fear reprisals, so they keep the complaint to themselves.

As a result, the FI doesn’t have the data to identify problem areas and adjust its risk management controls.

Related: What Is Compliance Risk Management?

3. Promotes self-corrective action

You can’t fix a problem if you don’t know it exists. Complaint management requires a proactive approach to consumer complaints. When your FI properly manages complaints, it allows your FI to correct them before examiners ask you about them. This, in turn, may help reduce legal liability and the likelihood of heightened penalties.

Don’t let your examiners be the bearer of bad news. Reduce the risk by implementing procedures to uncover and address problems before examiners arrive.

Related: How to Conduct a Root Cause Analysis

4. Helps prevent severe customer harm and penalties

When it comes to violations, the more occurrences there are, the greater the consequences. Collecting and analyzing consumer complaints enables your FI to identify a problematic trend before it reaches a critical mass. That’s when enforcement actions occur and fines get steep.

If you don’t believe me, note what happened with Wells Fargo, USAA Federal Savings Bank, and Citizens Bank. Each of these institutions paid millions of dollars in fines ($1 billion for Wells Fargo) for system-wide failure to follow up on consumer complaints about errors they made.

5. Improves third-party vendor oversight

Plenty of FIs have been penalized when third-party vendors working on their behalf have violated consumer laws. From unfair, deceptive, or abusive practices when selling products to illegal debt collection techniques, regulators don’t differentiate between the activities of an FI and those of its vendors.

These problems can be discovered earlier with good consumer complaint management. Tracking and analyzing vendor complaints can make your FI aware of vendors that are not meeting their compliance obligations, thereby exposing the FI to compliance and reputation risks. This allows you to raise the issue with your vendor and demand prompt corrective action. It also shows examiners you’re aware of the problem and taking steps to solve it. It’s smart vendor management.

Complaints are the canary in the coal mine. Don’t ignore this valuable tool. Take my priceless advice and ensure your FI has a sound complaint management system.

Complaint management is essential for compliance. Discover what to look for in a CMS with our free guide.