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CFPB Complaints, Enforcements, & Navigating New Compliance Challenges · COMPLY: The Marketing Compliance Podcast

• 0:05
  Speaker 1: Hey, comply podcast listeners, and welcome to this week's episode. This is not only our first episode of the New Year, but this is also my first episode, is your new podcast host. Hello, my name is Rhonda McGill, and this year we will be gearing up to bring you some fantastic content, and I am so excited to be a part of it. This Comply podcast episode is part one of a discussion between John Zarella perform Lines , SVP of Sales and CFPB alumni Gary Stein and Melissa Baldi , where they will discuss consumer complaint trends in 2023 and the factors that led to the record volume, how to leverage consumer complaint data for internal compliance processes, recent enforcement action numbers , and the impact they have for the CFPB and how CCOs can navigate new challenges in 2024. Thanks for listening and enjoy.
• 1:20
  Speaker 2: Hi everyone and welcome to Perform Line's webinar. My name is John Zarella. I am the SVP of Sales at Perform Line , and I'm really excited to be here today with you all, be with our guest speakers and talk about all things CFPB . So we'll jump right into it. Um, you know, at Perform Line for anyone who follows our content , uh, you know, we are big on following consumer complaints. Um, one of the most notable trends that we've seen here with our different reports at Perform Line is just the increase in complaint volume. Some of the numbers even surprise me. Uh, consumers submitted about 500,000 complaints in 2021. That number increased to 800,000 last year and is already over 1 million in 2023 of those numbers. The last two years makes up about 43% of all complaints received by the CFPB since it established , um, the bureau in 2011. Curious to hear from you all, what do you make of this trend and the increase of consumer complaints and what does it mean for the consumer finance companies who are trying to track those complaints?
• 2:21
  Speaker 3: So, I I , I'm happy to jump in first. I think first, I mean, you know, all the data geeks , uh, on this , uh, webinar and maybe amongst ourselves and probably wanna normalize some of those numbers and make sure the complaint increases aren't because, you know, there's more companies onboarded to the portal or topics , um, and, and other things like that. I, I think, you know, it , it's hard to disentangle anything over the last few years from the pandemic. Um, and, and what's happened since then. You know, when the period of 2021 , um, you know, we were still coming off stimulus payments and things like that, and , uh, maybe inflation was just starting to make us grouchy, maybe not as grouchy as it has been. Um, and so there's those macro events . I think there's also things that you can observe in the use of consumer financial services, products like , um, credit cards . We see, you know, reportedly , um, uh, revolving line utilization increasing and delinquencies. And I think , um, for consumers, especially subprime borrowers, you know, access to credit and things , um, maybe getting more challenging and, and being able to pay those off. So that could lead to more disputes and frustration with those disputes. Same thing , um, on payments, you know, all the major P two P and, and emerging payment providers are growing at about a clip of around 10% a quarter. So you have a , a greater volume that , uh, even when most of the time things go well, still creates more opportunities for things to go poorly. Um , and on the credit side, especially because the majority of complaints always tends to hover around the credit bureaus, if people's credit isn't what they need to get them access to purchases or just day-to-day living, it's probably gonna generate some volume.
• 4:25
  Speaker 4: So I'm gonna just , uh, riff off of what Gary said with a couple of points. So I'm a lawyer. Gary is not, although he plays very well usually. Uh, and I was in the Office of Enforcement for all eight years. I was at the CF PV and we used complaints really regularly. So what I'll, you know, validate on, like I totally agree with Gary on the consumer experience during covid , uh, and pandemic times, there were stimulus payments, there was a increase in digitization and payments that were online. Uh, some of that, some of the downside effects, you didn't see that much , uh, in the complaints at the time, but now we're coming out of that time with more debt. Uh, wages are flat, the economy is, is in a state where you'll see more of those complaints. And so the, the fact that fraud has gone, gone up in this market, in these markets has been really difficult , uh, on some consumers. And so complaints have gone up. Uh, second point is really this is showing that the CFPB has succeeded to some extent. It's only 12 years old. It started out as a startup federal agency where sometimes I would call another federal agency and they didn't know who we were. Mm-Hmm . Uh , and now the CFPB has succeeded in brand recognition and letting people know more about what their rights are and where you can complain. So, you know, on the, since I'm more qualitative and quantitative, I'm not gonna try to do any of the statistical stuff, but some of this may be just the fact that the system has more participants because there's more knowledge about it. But what I really think it ma should matter to both, to all people in this ecosystem is that there's more out there, there is more data out there in general. So state and federal regulators, plaintiff's attorneys, they're using the consumer complaint database base to sort of mine what they should focus on. And so companies should be doing the same. It's the same data set , you can use it too , and it's a good way to help figure out how to , uh, have a continuous improvement cycle for your products and services.
• 6:38
  Speaker 2: Yeah, I think when we first spoke , um, Melissa, that was one of the things that really stood out that you mentioned just we talk about at Perform Line . We see a lot of our clients using consumer complaints as an early warning system for potential regulatory action. I do think there's, it's one thing to be aware of the complaints. It's another thing to be organized as an organization to understand how do we bucket complaints? How do we respond to these complaints? What are we required to do from a regulatory standpoint versus what do we want to do from a brand and a proactive standpoint? Both of you had the opportunity to work in-house at companies to support companies as external advisors. How are you coaching your clients today on how to use , uh, these complaint information for their own internal processes?
• 7:22
  Speaker 3: You wanna go first?
• 7:24
  Speaker 4: Yeah. So I think trend analysis is important. Trying to figure out what , uh, what types of products and services are hitting the highest. Because if you're gonna have an exam or if there's a product or service that's hitting higher on the consumer complaint database, you might get a CID you might be the, the target of an investigation. And so you need to know what those things are yourself. It's also a good way to trend how is your staff, how are your systems dealing with customer service. Customer service is a continuing to be an increasing focus for all regulators, particularly the CFPB . And how quickly and how well you answer your own customers can really help you mitigate risks , mitigate risks, and actually improve , uh, your uptick and your portfolio, your market share.
• 8:15
  Speaker 3: Yeah, I I , I , I agree. I , you know, if you're not really attuned to this information, you're, you're putting on blinders that forget about regulatory risk and consumer harm, you're just doing a disservice to your business and your revenue potential. Um, it's interesting because the clients we work with, I can think of several instances in which we get into this subject and there's a debate about what's the definition of a complaint, you know, and, and I think, you know , um, from a regulatory obligation standpoint, it's good to have a pretty tight definition. But from an internal management, you know, I think keeping a broad scope is bright. You know, consumers may call in , in a non angry manner and express, you know, very politely confusion about an offering or a service or what they're do or how things are supposed to work. And that's, that those are really important smoke detectors because for everybody that's calling in, there's gotta be dozens if not more that aren't, that are inhibiting that Some of those will be, you know, quiet attrits , and some of those are maybe talking to plaintiff attorneys and all kinds of other things. And so having that focus on that experience and what they're saying I think is important. And , um, you know, so there's the whole, you know, let's have a game plan for resolving these things and reporting them and all those things. But it really, the goal isn't to use this information to show a regulator that we care, it's to, to walk the walk.
• 9:59
  Speaker 2: Yeah. No, we see, and we see that, you know, we, we have clients who use , um, tools like call monitoring. Well , they wanna monitor a hundred percent of their calls and then separate out the ones that have some sort of consumer complaint. But you can always tell they're , they're not doing that because of a regulatory requirement. A lot of times they're doing that 'cause that's in their business, DNA Yeah . Where they really want to hear the voice of the consumer and then be able to respond to that. And so, you know, while we agree that the complaint database is this great early warning system, another notable trend from the CFPB is that the number of public enforcement actions has actually decreased in recent years. Now, consumer relief increased significantly. The CFPB is talking about plans to hire more enforcement attorneys to sup and and support staff. But what do you expect, do you think the number of enforcements is gonna go up and, and what do you attribute , uh, maybe the decrease over the last few years of enforcements to ? And, and Melissa, maybe you can start with that one.
• 10:54
  Speaker 4: Sure. Uh, so, you know, part of this is just natural progression, perhaps because I was in the Office of Enforcement my whole time. Mm-Hmm. , uh, the C-F-P-B-A is growing and its jurisdiction continues to grow, and so you need more staff. But this director has made it very clear that his focus is on, on big tech. Big, big, big. So, you know, the , the focus is on larger market moving type matters instead of focusing on trying to get a wider swath necessarily of smaller matters. And that's born out in the cases that you see. Um, the other thing I would say is the , the CFPB as a maturing agency is getting more pushback. So not only because the Supreme Court is still figuring out constitutionality, but also because the demands are getting higher and companies are becoming more willing to fight back. There's more litigation, so you need more lawyers. Litigation is a different kind of animal than just settling matters. So that is a natural progression, which people should have, you know, could have predicted , uh, in the beginning, because in the beginning , uh, there was a lot of consent orders and now there's a lot more litigation. Um, so, but finally, I, you know, I, my big thing that I've seen since I left is the idea that enforcement goes beyond the Office of Enforcement. This administration has really tried to maximize each tool that Dodd-Frank gave it to the point where, you know, we're gonna talk a little bit of maybe the larger participant role that just recently came out, but from the very beginning, the CFPB has said supervision is gonna expand over non-banks. We can call out a non-bank, any market, any size that we think has some consumer negative impacts and go through a process , uh, there's more rules being put out to gather more jurisdiction, both for supervision and enforcement. The supervision learning highlights are actually much more detailed. There are FAQs that go out, advisory opinions at a much higher clip. Uh, and then there's always the bully pulpit, which has been revived pretty , uh, powerfully by this director, which is just making statements, lots of speeches, lots of blogs where Director Chopper is very clear on what his goals are and what he thinks should be happening. And so I think enforcement writ large is something to think about more than just sort of the traditional how many cases are out there. It's, it's easier to just focus on those.
• 13:38
  Speaker 2: Yeah. I think you , you mentioned something that's really important. If you are a chief compliance officer at a bank and you're looking at the enforcement actions be down , being down, that doesn't mean that it's time to sort of take your foot off the pedal and, and you know, that's not gonna come. What you're saying is that the enforcement power as a whole is actually increased, and we're seeing that through some of the supervis , uh, vision and, and different rules that are being , um, announced and, and, you know, things that are outside of, of the CF PB purview traditionally that now are, are making their way into the fold. Is that, is that accurate, Melissa?
• 14:11
  Speaker 4: Yes, and I , you know , uh, Gary's old team has a lot more powers and a lot more staff as well. I mean, the , um, happy to to pitch to him on that because there's a lot more going on in , in that side of the house. When we worked together, it was , uh, a little less active and perhaps in , in the way it's now.
• 14:31
  Speaker 3: Yeah. Yeah, that's true. I think there's been staffing up in a number of areas, and part of it, it's also is interesting in the staffing up is that , um, again, as Melissa said, the agency's only 12 years old, so you've had, you know , uh, some people, like I was originally supposed to be a term employee and converted and stayed a few years longer than I ever thought I would. Um, and then you have folks in there. I think there's always an interest, especially in a fast evolving market, to bring in new folks , um, with new understandings. Um, you know, I would just add that I think we've now, you know, got two data points with two administration changes, and in both cases there was a , um, uh, kind of a dip early on , um, as they kind of maybe reassessed what was in the pipeline under the prior administration and then kinda refocused resources accordingly to maybe what they saw as their policy agenda. Um, so I think that dip and then expansion out may be in some part related to that. Um, what , what's, what's interesting is that I think every director at, at the bureau, regardless of what side of the aisle they come from, has recognized the value in the measurability of enforcement actions. And you talked about the dollars, John , I mean, you know, a rulemaking quantifying its impact. I mean , they have a lot of economists that can do that, but it's, it's a little less direct versus an enforcement action. You know, we can count off the billions of dollars that have been returned to consumers and, and I think many directors have made sure that shows up at the bottom of every press release and everything they put out. It is a way to measure their legacy. And I think all the directors, whether they go in with the attitude that we're gonna lean on enforcement, you know, they , they recognize that over time as it's a great measuring stick. Yeah . And then the last thing I'd just say is that, you know, Melissa's job was a lot easier than mine. You know, they would look, they would look at very specific facts and circumstances. It's only with one company, it'd be a little easier than writing a broad rule that had to apply to the entire market. But , uh, it , it all, all jokes aside, I think there, there has to be this , um, big picture, you know, perspective held within the bureau because the other thing that can happen is where there are policymaking agendas and you come across a player in the marketplace that may be whose actions need to be curtailed. You know, there, there, there is consideration given to how would this case , uh, implicate or change for, you know, the , the rule that we're going out to the broader market and how would that happen? And I, I think it's kind of interesting as the bureau starts to put out more rules. Now one might think that in the immediate aftermath of a rule implementation, we might see more enforcement actions as companies aren't yet compliant with those new obligations, but over time the rules should, you know, convert the wild west over to a more orderly and consumer friendly market. And , um, we should see, you know, at least in those areas, enforcement actions decline. I don't know that we have enough data though to, to prove that out.
• 17:59
  Speaker 2: Yeah. You , you bring up an interesting point though, Gary. So we're , we're in this situation now, and I'm gonna ask both of you to take kind of the, the seat of a chief compliance officer where we've seen, or it seems we're seeing a more strategic CFPB one that is looking more at rulemaking policy creation, their thinking, big picture. Now if you're a chief compliance officer, you're coming off a year where high interest rate environment, a lot of companies are having down years, there may have been some layoffs to the compliance team, there may have been some budget cuts to technology. How are you preparing your organization for these rules and policy changes knowing that you may have less staff going into next year, you may have more people wearing multiple hats if you were a chief compliance officer today, how, how are you tackling that
• 18:41
  Speaker 3: ? You know , it's funny, I guess if you're a chief compliance officer, that means you work for an organization that's already made a commitment to compliance. And that's good . Yeah , because there's a number that are flying out there, I think, with blinders that haven't quite made that investment. And, you know, we see all over the place where , um, the expectations are become becoming more clear, you know, in things like the bass space and others for what oversight, you know, what, what constitutes sufficient oversight in those things. And so , um, there , there's a lot coming out, not to mention regulatory change management that happens when a new rule rolls out and now you have new obligations that you have to address. I mean, you know, it , it, there , it's, it's funny, I've talked with, with companies like in the consumer lending space , um, like size companies that have massive differences in the number of compliance personnel. Um, you know, obviously some of them may be more attuned to their obligations than the others, and some of them , um, may have just gone through the pain of an examination or, you know, a CID and that's let 'em go there. But it , it all drives, there's, there's really, this is an excellent market for using automation to enhance the ability of organizations to manage all this stuff. It almost proves that, you know, if you have to just staff up completely and , and do everything manually, it , it would probably break the back of any business that's trying to operate in here. So it it in , in the sense that it's from a tough love standpoint, it probably compels a lot of organizations to look for tools and intelligence , um, that helps them, you know, in their surveillance that helps them in the resolution in the reporting of all of these things.
• 20:41
  Speaker 2: Alyssa , what do you think?
• 20:43
  Speaker 4: Uh, yeah, so, you know, as far as actionable items, I think Gary has all the right , uh, advice, initial advice on how to approach it, but really on the nuts and bolts, having done this, the last downturn of the economy when new laws were coming in and we're in flight and still in in movement, it's always better to plan ahead. So take the opportunity, you're leanly staffed, take the, make a list of all the different things coming down the pike . There's many resources, there are law firms, there are, you know , uh, RegTech, there's consultants. Figure out what are the things that might impact your business and waterfall 'em risk based approach to how you think you need to tackle and what resources you can put on each thing. There are obviously some deal breakers in some of the rules that are coming out, some, some real , uh, friction for certain parts of certain businesses, but they may be different for each business. So trying to plan for that beforehand does many things. It helps you plan for continuation continuity in a new reg environment. Uh , it helps you build new products in a way that you won't break them day five because something's changed. And it also allows you to have the idea of what ways you can actually build with your customers around some of the things that might be challenges in the going forward. And so I think, you know, there are some actionable things. It's, it's a , there's a stress paralysis piece about compliance that happens, particularly in financial services. And what always worked for me is really trying to make sure that you are taking the steps to have usable bites and there are a lot of resources available to help you with each step, but at some point, whether you use tech or consultants or lawyers, you're going to have to make decisions about what is gonna be most important to you and your company so your team can survive the next generation.
• 22:51
  Speaker 3: Yeah, I , I, I agree with that. We use the term strategic compliance, which is really being proactive and thinking about that. And I think, you know, you've been on both sides and can talk to the out-of-pocket costs of having to respond to something after the fact. But there's also, you know, if you're not doing that right , think about it like Johnny , you raised a great point. Companies are lose , are , are cutting staff, right? So you've got all these product rollouts that you want to build in, now all of a sudden if your eye's not on the ball of what's coming down and you have to stop what you're doing to start implementing, you know, regulatory , uh, you know , make regulatory changes that that hurts your revenues. And so you really do have to be forward looking . And I think, you know, some of the rules that are , um, in the proposal stage right now, like, you know, the section 10 33 , um, you know , uh, open banking rule is a great example. I mean, there's, there's just a number, whether you're a bank, an aggregator, you know, a data using FinTech, there's a number of adjustments. It doesn't change necessarily the overall business model, but you know, the recording of consumer authorizations if you are a data provider and the confirming of those authorizations, you know, or the, you know, using , uh, an industry standard methodology to, to , to check security certifications and things like that. Excuse me, sorry, I just got in the wrong light here. Um , all of those things are new and, and constitute new business practices.
• 24:26
  Speaker 2: So yeah, it's interesting. We, we hear from a , a lot of our customers, we always joke around, you know, there's, there's kind of three times that companies come to , uh, uh, clients come to a company like perform line for automation. Number one is they're being proactive and they're thinking about compliance and some cases even more before they, they really need to. Number two is they've hit that point where they just can't keep scaling with the amount of people they have and they need to go to some automation. And the third one is when it's too late, when they've already received a consent order. And what we wanna try to avoid is that last one, and I think you both highlighted the way to do it, it's more strategic planning upfront when it comes to these different areas, being prepared for them as opposed to being caught off guard.
• 25:16
  Speaker 1: Thanks for listening to this episode of Comply podcast. I hope you found this discussion as informative as I did. If you like this, just know that we're just getting started. So be sure to join us for our next podcast. I can't tell you how excited I am to be your new host. I am also happy to connect outside of the podcast. Feel free to connect with me on LinkedIn. If you are interested in reading the full 2023 complaint risk signal report, I will drop a link to access your copy in today's show notes. And to see a more in-depth look into the marketing, compliance and enforcement actions that happened at the end of 2023. I will link our newest quarterly review for you. As always, for the latest content on all things marketing compliance, you can head to content dot perform line.com and for the most up-to-date pieces of industry news events and content, be sure to follow perform line on LinkedIn. Thanks again for listening and we'll see you next time.