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Compliance Clinic

When customers complain, banks must get the message

Think of customer complaints as an early warning system. Unheeded, they will morph into tomorrow's regulations. And tomorrow cun come right quick
t is so easy to ignore a customer complaint. After all, customers make so many mistakes, isn't their problem really their own fault? Why waste precious bank time fixing something the cu.stomer did wrong? But the truth is, customer complaints come in for many reasons. Some may be based on the customer's mistake or misunderstanding, but even in that case, we should understand why that mistake or misunderstanding happened. Their mistake may be the result of confusing or incomplete information. Other complaints, based on our products, services, or communications, can tell us a great deal. It's a coincidence, but a good reminder, nonetheless, that "complaint" and "compliant" differ by only the arrangement of two letters.
Where complaints meet compliance

quate response from their bank, they turn to the "heavies" to get a result. And when the heaviesregiilators and Congress get involved, things happenlike more regulatory burden. Compliance with new regulations is tedious and expensive. But it is too easy to blame consumers and Congress for generating unnecessary rules. Banks must realize that most regulatory burden is the result of specific practices that have frustrated or angered consumers. A voluntary self-diagnosis to complaints can prevent more regulatory burden by removing the need for legislative action. Voluntary responses can also increase i;ustomer loyalty. The rest of this article looks at how to accomplish both goals. See it coming. The past several years have seen heavy aci:ivity in new and revised regulations. These affect both deposits and loans. There have also been a significant number of guidances issued by the regulatory agencies. This legislative and reguhtory activity has been generated In large part by consumer complaints. Since consumers usually try complaining first to their bank, banks are in a position to do something about it first before Congress and the regulators step in. (See the box, opposite.) Trying to sit it out only results in more regulations. Banks always have an opportunity to see it coming. For example, consumers complained about unexpected fees when
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At the moment, banks and other lenders are under heavy fire from consumers, Congress, and regulators. Consumers have been unhappy with many aspects of bank products and services. When consumers fail to get what they consider to be an adeBy Lucy Griffin, contributing editor, and president. Compliance Resources, Inc., Restan, Va., griffin@bankersonline.com
42 SEPTEMBER 2009/ABA BANKING JOURNAL

the bank paid an overdraft. While some bankers were busy pointing out that they were doing the consumer a favorsparing them embarrassment and costs related to returned checksthe affected consumers complained about the fees for the overdraft service. To many consumers, the cost of the "service" was simply not worth it. And they raised particularly persuasive arguments by pointing out that if they had known that there was a daily fee involved which added up quicklythey could have minimized the costs. For example, had they known the transaction would overdraw the account, they would not have made that ATM withdrawal. When banks didn't respond, consumers turned to the heavies for help. Now we have revisions to Regulation DD.

Importance of handling complaints


During ABA's 2009 Regulatory Compliance Conference, a senior federal regulator spoke of the importance of complaint processes in banks. It came after a discussion about "UDAP" unfair and deceptive acts or practices. Here's an excerpt from our online coverage of the conference:

Consumers also raised many complaints about credit card practices. They objected to facing a late fee, a finance charge, and an increase in their APR as the result of a single mistake. They also questioned the adjustments made to their Idea inbox. Consumer complaints serve The regulator said that community credit limit that were based, not on transas an early warning system for what conbanks would tend not to have centralactions with the credit account in quesized complaint processes, which she cerns your customers. The inbox for contion, but because of the creditor's repricclearly considered to be a weakness sumer complaints should serve as an idea ing and rescoring practices. because it made it difficult to have an box for finding and fixing problems. It is overall sense of what was causing Consumers believe that any evaluation also a valuable idea resource for giving trouble. of their account should be based on their your bank a competitive edge. Sometimes "Find a way to find this out," relationship with the bank in question. a very small thing can give you that edge. Jaedicke urged. They manage that relationship. They are Marketing and product development To read tbe full online coverage, go naturally surprised and angered when the can be inspired by customer comments. to: http://tinyurLcom/RegulatorPanel bank changes their relationship because A consumer's wish list"Why can't all of the consumer's relationship with a my statements be togetber?" can genthird party. erate new ideas tbat belp you compete with other instituConsumers complained urgently about these and other bank tions. Responding to what consumers want is always a posipractices. Unfortunately, banks failed to respond to these con- tive selling point. sumer concerns. Now we have regulations dealing with overConsumer complaints typically cover a wide variety of topics, draft protection programs, new laws and regulations relating to from service quality to practices that could become subject to credit card practices, and more laws and regulations coming. regulation. For example, customer communications, both comWe saw it coming. We didn't take action to prevent more reg- plaints and suggestions, have provided useful information that banks have used to meet the Community Reinvestment Act's ulations. Service Test. Customer comments have given banks information Conflicting messages. Customer eomplaints can also alert on the hours of service that customers needed, so that they could you to conflicts that result from perfectly sound business deci- use banking services without taking time away from their job. sions. In isolation, each decision i.s logical; but in combination, Customer input has also provided information about locathere can be problems. tions for branching or for limited service branches. FDIC recently took enforcement action against American Express Centura Bank based on customer complaints. The bank Staff monitor. Service s more than hours and location.
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The Comptroller's Office maintains a customer complaint unit in Houston that receives more than 100,000 complaints a year, said Ann Jaedicke, deputy comptroller for compliance policy. Jaedicke said she had a feeling that many banks don't involve their compliance officers in the complaint process, which prevents them from spotting ongoing problems that could be remedied. She said that any compliance officer who is not involved in their institution's complaint handling should find a way to insinuate themselves into it.

implemented two practices, both of which were legal but which, in combination, created a problem. The bank issued convenience checks for customer use. At the same time, the bank reduced credit limits. There was no warning to customers that credit limits were reduced or that the lower credit limits would be applied to the convenience checks. The first hint of a problem was consumer complaints that their checks had been returned. When decisions are made in a silo, it is easy to implement two changes, each of which seems sound. The customers who received the convenience checks and used them only to find them returned are not going to blame themselves. They are going to blame you. Quick and constructive responses to complaints can prevent harm to customers, and aiso the cost of an enforcement action, complete with civil money penalties.

Customer complaints can identify where in a credit card bill, it may be the vendor there may be problems with the attitude that made the error. When there is only of staff or the knowledge and skill level of one mistake, the goal should be to correct staff. It can be a pattern of customer com- It. But consumer complaints can reveal a plaints that identifies a need for training pattern of errors. When this happens, it is or increased staffing. It may even reveal a your reputation., not the vendor's, that is need for improved systems that support harmed. It is also up to you to correct the branch staff as they serve customers. problem leading to the errors. Customers will also let you know htw willing bank staff is to help with Setting up a complaint policy problems. As stated, the smart bank learns from Granted, the customer who wants help customer complaints. It uses complaints balancing his or her checkbook every to target and repair problems and to genmonth is not a customer whose complaint erate ideas for its business practices. is useful when they object that staff was To make constructive use of customer too busy to help them. But the customer complaints, the bank should have a poliwho just wanted to ask a loan officer cy and procedure for managing comsome questions should never be turned plaints. away. If that is their complaint., it may be time to talk with the lending staff. If the The poliey should establish responsiI'ustomer waited too long to see a teller, bility for receiving, investigating and the branch may need additional staff. responding to consumer complaints. There are also likely to be complaints Everyone in the bank should know where alleging discrimination. Often, con- customer complaints should go. They sumers believe they have been unfairly should also know that complaints must treated but a thorough investigation be put into process promptly. Some, such shows that all customers are treated in as those involving billing errors, are sub[he same way. That finding is not one of ject to statutory deadlines for investigadiscrimination but it could reveal a tion and response. service problem. The policy should also establish fee monitor. Then there are the mes that all staff are responsible for sages that consumers don't like some- providing the information that is needthing. Fees, for instance, are a common ed for the mvestigation and response. A source of complaints. Fees can serve a good policy is no good unless the job purpose. They cover the cost of a service, actually gets done. such as a stop payment or a returned check. Fees also provide a source of disciThe policy should set time frames for pline for consumers. Late-payment fees receiving, investigating, and respondon loans motivate the consumer to make ing. This is critical to ensuring that payments on time. They also compensate responding to customer complaints has An the lender for loss. appropriate priority in the day's work. However, when a credit card customer is hit three timeslate payment fee, The policy should establish a finance charge, and rate increasefor a mechanism for tracking comLue payment on a credit card plan, the plaints. Tracking reports should include cumulative cost paid by the consumer information on the number of comseems unjustified. They complain. And plaints received in a specific time periwhen they get no adequate response odsuch as monthly or quarterly, as except a higher late payment feethey appropriate. Tracking reports should turn to the heavies for help. also contain information on the length of time for investigating and respondVendor evaluator. Sometimes, the ing to the customer. These reports complaint is really about a service become a tool in ensuring that the comprovider. If a complaint is about an error plaint policy is working.

New compliance bLogs & original content online


Visit www.ababj.com to see new compliance aids from three familiar and trusted faces. "Common Sense Compliance" ABA Banking Journal Contributing Editors Lucy Griffin and Nancy Castiglione bring a realworld perspective to the compliance challenge, for Castiglione bankers who do compliance on Main Street with real-world budgets. "AML, Fraud, And Other Things" Frequent ABA Banking Joumal contributor and Byrne well-known compliance expert John Byrne brings his compliance experience to bear on AML, BSA, and fraud topics, mixing in a little humor, music and sports. Online feature: "Scare Mail: Beware of QWRs" Rod Alba, vice-president, Alba mori:gage finance, & senior regulatory counsel at ABA, has a warningand advicefor mortgage servicers hit by "qualified written requests." His article includes case citations you can use to protect your bank from this RESPA problem.

The poliey should encourage the bank to use complaints as a resource. An additional example to add to those mentioned earlier: Complaints about safe-deposit boxes may indicate a need for more boxes to serve customer demand. Remember, complaints about products and services should trigger consideration ofthebest way to design and deliver services. Be the smartest bank on the block, and listen to your customers. BJ
ABA BANKING JOURNAL/SEPTEMBER 2009 45

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