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Latest Challenge To CFPB: A Debate Over Its Database

23 Jul 2017 11:00 am
By Yuka Hayashi 

WASHINGTON -- A government complaint database popular with consumers has become the latest battleground for efforts to curb the Consumer Financial Protection Bureau's authority.

The public database run by the bureau draws thousands of complaints about companies each week. But businesses say it spreads unverified negative information about them. Now the Trump administration wants to make the information private, saying the information isn't sufficiently verified by the government. Critics say the move would weaken a tool for consumers and businesses to resolve disagreements.

Since its launch in 2011, the complaint-filing system has grown rapidly, becoming a leading online deposit of consumer complaints on financial products and services. Consumers so far have submitted 1.2 million complaints -- of which more than 800,000 are publicly searchable -- on issues such as mortgages, credit reporting and debt collection. That total is far more than the 30,000 cases handled by the Consumer Product Safety Commission's complaint portal, which also opened in 2011.

The CFPB says 97% of consumers receive a response within 15 days of filing a complaint. Consumers sometimes report on social media and elsewhere that the process can quickly resolve outstanding disagreements with financial firms.

Financial companies have long criticized the database as a bureaucratic function that harms their reputations. Responding to calls from industry groups, the Treasury Department in June recommended restricting access to the data to federal and state regulators.

"One of the most frequent criticisms of the database is that, because it does not verify complaints or provide sufficient context regarding the related market and industry practices, it subjects companies to unwarranted reputational risk," the Treasury Department said in its June report on financial regulation.

Consumer advocates and some financial-services experts oppose the idea, saying that the portal's public nature is what gives it teeth. "It's the Yelp of financial services. Why would you want to eliminate that?" said Aaron Klein, policy director of the Center on Regulation and Markets at Brookings Institution.

Banks disagree. "Public disclosure of unverified consumer complaints does nothing to help people make informed and responsible financial decisions," said Virginia O'Neill, senior vice president at the Center for Regulatory Compliance at the American Bankers Association. "The bureau has failed to address the significant problems in the accuracy, integrity and usefulness of the information reported in the database."

The dispute highlights areas of friction as the Trump administration and other Republicans consider rolling back rules put in place after the financial crisis. Those pushing for loosened rules say removing onerous and costly requirements would encourage more lending and economic growth. Opponents say such changes would bring back reckless behavior that caused the financial crisis.

Consumers can use the database to evaluate financial products and identify companies that are prone to receiving complaints. Users also can opt to post anonymous descriptions of their experiences. The CFPB is looking at allowing consumers to provide feedback about the company's response, a plan fiercely opposed by industry. The CFPB confirms the consumer has had business relations with the company, but it doesn't verify the complaint itself.

The database accepts small and large complaints, and some consumers report that turning to the CFPB spurs a lingering problem to resolution.

John Lukach, a 25-year-old St. Paul, Minn., social worker, said he was having difficulty making payments in 2015 on $120,000 in undergraduate and graduate degree loans, which consumed more than 80% of his monthly income after rent. He said he contacted customer service at student-loan servicer Navient Corp. to reduce a $730 a month private student loan payments "probably four to five times."

He was offered a temporary reduction for one of two loans but that later resulted in a higher monthly bill. "I was at my wit's end," he said. "It was out of control." After filing a complaint with the CFPB, he said Navient called two days later and offered several repayment options. "It was totally because of the CFPB database. It puts their feet to the fire."

Navient CEO Jack Remondi said in a recent blog post that consumer feedback at the CFPB's portal was an "important tool in helping us improve the way we work with borrowers," adding the company has responded to all complaints lodged there since it was launched in 2011. Mr. Remondi pointed out that a large number of complaints were related to disagreements over loan terms set when the loan was made.

A Navient spokeswoman said customer privacy rules don't allow the company to comment on a customer without permission.

Consultants, including accounting firms Ernst & Young Global Ltd. and Deloitte LLP, have started to provide services by using the database. The consultants offer companies advice on complaint records and that of their competitors, and advise on how to avoid potential enforcement actions from regulators based on complaint data.

The CFPB says the database helps it determine stances in bank supervision and enforcement matters.

According to PerformLine Inc., which analyzes regulatory data, companies that have received more than 10,000 complaints through the CFPB face a 64% chance of being fined by the regulator, compared with 7% for those with fewer than 2,000 complaints. Wells Fargo & Co., for instance, had received 45,710 complaints ahead of a $185 million government fine in 2016 for engaging in illegal sales practices.

A Wells Fargo spokeswoman declined to comment.

Write to Yuka Hayashi at yuka.hayashi@wsj.com

(END) Dow Jones Newswires

July 23, 2017 07:00 ET (11:00 GMT)

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