> Posted by Sonja E. Kelly, Fellow, CFI

What do you do if you’re trying to effect significant change in consumer protection in the financial industry but you have limited time and resources? You build a system that harnesses an army of consumers to do it for you!

This is the brilliantly simple strategy employed by the Consumer Financial Protection Bureau (CFPB), the United States government agency charged with protecting the users of financial services. The bureau’s consumer complaints system receives complaints from consumers and, after a process (described below), publishes all of the complaints in a public database. Much of this process is automated, and the beauty of the system lies in the fact that consumers do most of the heavy lifting, initially reporting their problem and then indicating whether it came to a satisfactory resolution at the end of the process.

To break things down a bit, here is a step-by-step picture of what happens to a complaint going through the CFPB system:

  1. The CFPB receives a complaint through its website, by email, phone, or fax.
  2. The CFPB reviews and routes the complaint.
  3. The company against whom the complaint is lodged has the opportunity to respond.
  4. The consumer has the opportunity to review the response.
  5. If the complaint is not resolved, the CFPB reviews and investigates.
  6. The CFPB publishes the complaint, response, and resolution in the database.

The bureau is quickly becoming a go-to source for disgruntled consumers, even though the bureau has hardly spent any resources on awareness-raising and education of the service. It probably helps that their website is unusually user-friendly, and their process of complaint resolution is centered firmly on the consumer. The consumer truly has the last word.

Types of complaints received by the CFPB as of July 2013

As of today, over 210,000 complaints have been logged into CFPB’s database, which is impressive given that they’ve taken complaints for just over two years. Because of the high volume of complaints, CFPB employed a gradual roll-out strategy, starting with credit cards, moving to mortgages, and on to bank accounts, student loans, consumer loans, credit reporting, money transfers, and debt collection. For that reason, the proportions in the graph shown may shift over time.

A few representatives from the CFPB came to our office in DC recently for a brown-bag lunch, and one thing that they mentioned was that they’ve seen some unexpected results from their efforts. While they expected institutions to follow up with individual complaints, there have been a number of more systemic rewards to their efforts. Institutions have begun to notice patterns of feedback, and some have found it more cost effective to systemically address particular issues rather than continue to field customer complaints. Rather than just solving individual disputes, CFPB is playing a role in fixing the system.

Within the database itself, the non-responses are perhaps the most telling. In other words, the instances in which the financial institution decided not to respond to the consumer complaint sends a signal about how much the institution prioritizes the feedback of its customers. I know I will certainly be keeping an eye on the database to identify these institutions.

And this is where the CFPB’s greatest power lies—not in the strength of its HTML code, not in its financial resources, but in the subtle pressure that a public database itself exerts, when populated by hundreds of thousands of consumer complaints. For an institution armed with few years of work and limited resources, the impact is quite impressive.

Figure credit: CFPB

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