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.