Lorri E. Staal, GCG
Since its inception, the Consumer Financial Protection Bureau(CFPB) has processed more than one million consumer complaints stemming from alleged errors, processing mistakes, technical glitches, and other issues related to credit cards, ATMs, marketing programs, debt collection practices or loan services.Today’s technology makes it easier than ever for consumers to identify, report, and join existing complaints, placing banking and financial institutions in a reactive – and often costly – position.
Of the thousands of complaints filed each week, many will require some form of programmatic consumer remediation, instituted either voluntarily or by regulatory mandate and frequently requiring payments be made to consumers who have been affected by an identified error. Consumer payments, however, account for only a fraction of the cost of remediation, which can strain a financial institution’s resources and compromise its reputation.
The following is a look into how financial executives can execute remediation programs effectively to minimize cost, avoid burdensome penalties and corrective actions, and enhance favorability among consumers and regulators.
Voluntary vs. Mandatory Remediation Programs
Financial institutions are generally governed by the same set of industry regulations, from the Dodd-Frank Act to the Fair Credit Reporting Act. Breaches of those legal and regulatory standards, regardless of intent, will garner attention from regulators and enforcement agencies, which require urgency in both restoring consumer loss and repairing the internal systems that prompted complaints.
Mandated remediation programs, while less common than voluntary programs, often limit the role financial institutions take in the design and execution of remediation and may even restrict their involvement in changing internal systems and processes following remediation. The nature of mandatory programs enables regulators and lawmakers to impose additional fines, audits, and reporting processes, making it critical to get ahead of remediation whenever possible.
Voluntary programs employ a self-policing and self-reporting approach and can help financial institutions avoid significant penalties and external audits. Oftentimes, the act of self-reporting errors is taken into consideration when configuring penalties. In fact, corrective action required by regulators may be less onerous or avoided entirely when institutions voluntarily identify and report customer complaints.
The CFPB and other regulators will consider a number of key factors when determining remediation and oversight requirements, including the type and severity of the violations, the effectiveness of the proposed remediation in resolving violations, and both the history and the efficacy of prior remediation programs.
For that reason alone, developing a plan to respond quickly and decisively in the event of a consumer complaint or regulatory violation is crucial. Financial institutions can decrease reaction time and make remediation programs scalable and repeatable by building the following service capabilities into their infrastructure, establishing a relationship with a third-party remediation provider, and conducting vendor onboarding and security clearance processing in advance.
Data Compilation + Transfer
The first, and arguably most important, process in customer remediation is the compilation and transfer of customer data from the financial institution to its third-party remediation administrator, which involves considerations such as quality assurance and security.
From a quality perspective, it’s imperative that customer and data records are complete, accurate, and formatted appropriately. Partial information and incorrect formatting can result in added costs and delayed timelines, which may attract attention from enforcement agencies.
Simple mistakes can be costly. For example, when data is missing from a file, the theinevitable back-and-forth between and among departments in the institutions and their vendors to complete data sets can add significant fees to remediation. Incorrect or incomplete addresses often result in a higher rate of undelivered payments, which may raise red flags for auditors. And when internal audits and data files fail to include all affected customers, additional waves of “catch-up” payments must be processed, which both increases expenses and compromises consumer and regulatory confidence.
Once internal mechanisms are in place to ensure accurate data analysis and formatting, institutions must consider their processes for transferring data to third party support agencies. It is advisable to determine and agree upon security protocols with remediation partners in advance, such as when and under which protections data will be shared.
Further, financial institutions should require that their administrators develop and host secure, online portals to facilitate the safe transfer and sharing of sensitive consumer data between and among remediation vendors. These portals are not only critical to preventing fraud throughout remediation, but they also afford institutions access to real-time program updates and reports.
Once remediation data has been compiled and analyzed, institutions begin the important work of reaching consumers with the intention of making them whole again. This is achieved, in part, through a comprehensive consumer notification process.
The noticing phase is particularly sensitive as it may represent a consumer’s first and only interaction with the financial institution following an error or complaint. In many instances, remediation program information can be communicated to customers via customized check stubs. In other cases, however, such as when compensation is distributed electronically or a more detailed explanation or language translation is required, a standalone notice is advisable.
Responsibility for identifying the amount and type of information to be included in a consumer notice falls squarely on the institution. Working with multiple fields of data requires several layers of review to ensure information is transferred correctly from the original template to the final files.
While drafting, translating and sending the notice can be done in-house, this work is often outsourced to the third-party administrator. Regardless of which entity does the drafting, beyond ensuring the validity of notification content, financial institutions should consider partnering with their internal communications and legal teams to review the design of content and messaging for customer notifications. Notices that demonstrate genuine concern and empathy and which outline how the institution is moving forward have been shown to positively impact brand sentiment and restore consumer loyalty and confidence.
Compensation + Funds Distribution
Compensation and financial disbursements can take multiple forms, so it’s imperative that institutions support diverse distribution methods and timelines, which vary by remediation type and geographical location of customers.
The distribution of remediation funds to existing customers may occur via account credits, digital disbursements,or paper checks. In cases where consumers’ accounts have been closed, institutions may either send paper checks to the last known address or issue electronic payments to the customers’ account of choice. This reinforces the need for quality control in data collection and transfer; a simple email to former customers for approval to transfer funds to their account of choice may be the most cost-effective manner of distribution, especially if the remediation audience is geographically diverse.
Once payments have been issued, they must be monitored and tracked in consistent intervals (30-, 60-, and 90-days) and reissued as appropriate when requested in writing by the customer. For checks that remain uncashed at their half-life, reminder emails or letters can be sent to encourage consumers to cash the checks. Additionally, efforts should be made to inform consumers of their right to claim payments via their states’ unclaimed property funds. Together, these strategies will go a long way to demonstrating the institution’s intention to make all customers whole again.
Finally, the pre-existing online portals used for the transfer and analysis of customer data can be leveraged during the distribution phase, providing institutions with real-time access to payment data, such as details on payments sent, received, cashed or pending,or returned as undeliverable. These data sets may be exported in Excel or other formats for easy retrieval and submission to various agencies overseeing remediation programs, keeping the institution in good standing.
Data Security, Privacy, and Anti-Fraud Systems
While the mishandling of consumer data or breaches in data or privacy within financial institutions can prompt consumer complaints, data and privacy concerns do not end there. In large and complex remediations, where consumer data may be handled by multiple internal and external agencies, institutions are solely responsible for safeguarding consumer privacy and circumventing the potential for fraud.
When considering administrators or vendors with which to partner, it is important that selection criteria include robust anti-fraud procedures and key compliance indicators, such as SOC 2 certifications and SOX compliance. Additionally, third-party providers that have been previously retained by leading financial institutions and government enforcement agencies are likely to have been extensively vetted for security measures and best practices, which may also ease regulatory oversight throughout remediation.
Institutions should routinely communicate best practices with their customers, detailing how to communicate securely with their institutions, outlining what type of information will and will not be requested from them and how.Anti-fraud systems,such as secure portals and FTP sites, minimize the transmittal of one-off data spreadsheets, helping to reduce the likelihood of fraud throughout the data analysis and transfer phases.Externally, setting up digital disbursements whenever possible eliminates the need to handle sensitive bank account information, and the use of traceable bar codes on check stubs will facilitate the coordination of returned payments and ensure payments are made only to the affected parties.
Processing issues, mistakes, and other consumer-related errors are a reality within the financial industry, and today’s regulatory landscape mandates that financial institutions react decisively and in good faith to restore consumer loss and to repair internal infrastructure and processes that prompted consumer complaints.
Whether remediation programs are voluntary or mandated, they can be costly and distract financial institutions from their core business objectives. When consumer favorability, brand reputation, and regulatory standing are at stake, a proactive and well-planned approach to customer remediation is key to reducing cost, minimizing oversight and penalties, and getting back to business.
Lorri E. Staal is an assistant vice president of operations at GCG, a leading global provider of legal administration and business solutions.In her role, Staal oversees complex class action settlement and regulatory administrations, particularly those requiring extensive and detailed analyses of complicated data. She has spearheaded more than 300 bank remediation programs and overseen the distribution of more than 1 million checks totaling $64 million to consumers.
Oil extends losses as Texas prepares to ramp up output
By Ahmad Ghaddar
LONDON (Reuters) – Oil prices fell from recent highs for a second day on Friday as Texas energy firms began to prepare for restarting oil and gas fields shuttered by freezing weather.
Brent crude futures were down $1.16, or 1.8%, to $62.77 per barrel, by 1150 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell $1.42, or 2.4%, to $59.10 a barrel.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude oil production and 21 billion cubic feet of natural gas, according to analysts.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
However, firms in the region on Friday were expected to prepare for production restarts as electric power and water services slowly resume, sources said.
“The market was ripe for a correction and signs of the power and overall energy situation starting to normalise in Texas provided the necessary trigger,” said Vandana Hari, energy analyst at Vanda Insights.
Oil fell despite a surprise fall in U.S. crude stockpiles in the week to Feb. 12, before the freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about both nations returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons.
While the thawing relations could raise the prospect of reversing sanctions imposed by the previous U.S. administration, analysts did not expect Iranian oil sanctions to be lifted anytime soon.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” StoneX analyst Kevin Solomon said.
(Additional reporting by Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; editing by Jason Neely)
Analysis: Carmakers wake up to new pecking order as chip crunch intensifies
By Douglas Busvine and Christoph Steitz
BERLIN (Reuters) – The semiconductor crunch that has battered the auto sector leaves carmakers with a stark choice: pay up, stock up or risk getting stuck on the sidelines as chipmakers focus on more lucrative business elsewhere.
Car manufacturers including Volkswagen, Ford and General Motors have cut output as the chip market was swept clean by makers of consumer electronics such as smartphones – the chip industry’s preferred customers because they buy more advanced, higher-margin chips.
The semiconductor shortage – over $800 worth of silicon is packed into a modern electric vehicle – has exposed the disconnect between an auto industry spoilt by decades of just-in-time deliveries and an electronics industry supply chain it can no longer bend to its will.
“The car sector has been used to the fact that the whole supply chain is centred around cars,” said McKinsey partner Ondrej Burkacky. “What has been overlooked is that semiconductor makers actually do have an alternative.”
Automakers are responding to the shortage by lobbying governments to subsidize the construction of more chip-making capacity.
In Germany, Volkswagen has pointed the finger at suppliers, saying it gave them timely warning last April – when much global car production was idled due to the coronavirus pandemic – that it expected demand to recover strongly in the second half of the year.
That complaint by the world’s No.2 volume carmaker cuts little ice with chipmakers, who say the auto industry is both quick to cancel orders in a slump and to demand investment in new production in a recovery.
“Last year we had to furlough staff and bear the cost of carrying idle capacity,” said a source at one European semiconductor maker, who spoke on condition of anonymity.
“If the carmakers are asking us to invest in new capacity, can they please tell us who will pay for that idle capacity in the next downturn?”
The auto industry spends around $40 billion a year on chips – about a tenth of the global market. By comparison, Apple spends more on chips just to make its iPhones, Mirabaud tech analyst Neil Campling reckons.
Moreover, the chips used in cars tend to be basic products such as micro controllers made under contract at older foundries – hardly the leading-edge production technology in which chipmakers would be willing to invest.
“The suppliers are saying: ‘If we continue to produce this stuff there is nowhere else for it to go. Sony isn’t going to use it for a Playstation 5 or Apple for its next iPhone’,” said Asif Anwar at Strategy Analytics.
Chipmakers were surprised by the panicked reaction of the German car industry, which persuaded Economy Minister Peter Altmaier to write a letter in January to his counterpart in Taiwan to ask its semiconductor makers to supply more chips.
No extra supplies were forthcoming, with one German industry source joking that the Americans stood a better chance of getting more chips from Taiwan because they could at least park an aircraft carrier off the coast – referring to the ability of the United States to project power in Asia.
Closer to home, a source at another European chipmaker expressed disbelief at the poor understanding at one carmaker of how it operates.
“We got a call from one auto maker that was desperate for supply. They said: Why don’t you run a night shift to increase production?” this person said.
“What they didn’t understand is that we have been running a night shift since the beginning.”
NO QUICK FIX
While Infineon, the leading supplier of chips to the global auto industry, and Robert Bosch, the top ‘Tier 1’ parts supplier, both plan to commission new chip plants this year, there is little chance of supply shortages easing soon.
Specialist chipmakers like Infineon outsource some production of automotive chips to contract manufacturers led by Taiwan Semiconductor Manufacturing Co Ltd (TSMC), but the Asian foundries are currently prioritising high-end electronics makers as they come up against capacity constraints.
Over the longer term, the relationship between chip makers and the car industry will become closer as electric vehicles are more widely adopted and features such as assisted and autonomous driving develop, requiring more advanced chips.
But, in the short term, there is no quick fix for the lack of chip supply: IHS Markit estimates that the time it takes to deliver a microcontroller has doubled to 26 weeks and shortages will only bottom out in March.
That puts the production of 1 million light vehicles at risk in the first quarter, says IHS Markit. European chip industry executives and analysts agree that supply will not catch up with demand until later in the year.
Chip shortages are having a “snowball effect” as auto makers idle some capacity to prioritize building profitable models, said Anwar at Strategy Analytics, who forecasts a drop in car production in Europe and North America of 5%-10% in 2021.
The head of Franco-Italian chipmaker STMicroelectronics, Jean-Marc Chery, forecasts capacity constraints will affect carmakers until mid-year.
“Up to the end of the second quarter, the industry will have to manage at the lean inventory level,” Chery told a recent Goldman Sachs conference.
(Douglas Busvine from Berlin and Christoph Steitz from Frankfurt; Additional reporting by Mathieu Rosemain and Gilles Gillaume in Paris; Editing by Susan Fenton)
Aussie and sterling hit multi-year highs on recovery bets
By Tommy Wilkes
LONDON (Reuters) – The Australian dollar rose to near a three-year high and the British pound scaled $1.40 for the first time since 2018 on optimism about economic rebounds in the two countries and after the U.S. dollar was knocked by disappointing jobs data.
The U.S. currency had been rising in recent days as a jump in Treasury yields on the back of the so-called reflation trade drew investors. But an unexpected increase in U.S. weekly jobless claims soured the economic outlook and sent the dollar lower overnight.
On Friday it traded down 0.3% against a basket of currencies, with the dollar index at 90.309.
The Aussie rose 0.8% to $0.784, its highest since March 2018. The currency, which is closely linked to commodity prices and the outlook for global growth, has been helped by a recent rally in commodity prices.
The New Zealand dollar also gained, and was not far off a more than two-year high, while the Canadian dollar rose too.
Sterling rose to $1.4009 on Friday, an almost three-year high amid Britain’s aggressive vaccination programme.
Given the size of Britain’s vital services sector, analysts say the faster it can reopen the economy, the better for the currency. Sterling was also helped by better-than-expected purchasing managers index flash survey data for February.
The U.S. dollar has been weighed down by a string of soft labour data, even as other indicators have shown resilience, and as President Joe Biden’s pandemic relief efforts take shape, including a proposed $1.9 trillion spending package.
Despite the recent rise in U.S. yields, many analysts think they won’t climb too much higher, limiting the benefit for the dollar.
“Our view remains that the Fed will hold the line and remain very cautious about tapering asset purchases. We think it will keep communicating that tightening is very far off, which should dampen pro-dollar sentiment,” said UBS Global Wealth Management strategist Gaétan Peroux and analyst Tilmann Kolb.
ING analysts said “the rise in rates will be self-regulating, meaning the dollar need not correct too much higher”.
They see the greenback index trading down to the 90.10 to 91.05 range.
The euro rose 0.4% to $1.2134. The single currency showed little reaction to purchasing manager index data, which showed a slowdown in business activity in February. However, factories had their busiest month in three years, buoying sentiment.
The dollar bought 105.39 yen, down 0.3% and a continued retreat from the five-month high of 106.225 reached Wednesday.
(Editing by Hugh Lawson and Pravin Char)
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