Customers increasingly are demanding that financial institutions rectify errors or violations of consumer laws and regulations. Regulators are keeping a close watch, pushing for monetary relief — otherwise known as remediation — to minimize harm to consumers. A savvy consumer base and the ongoing attention from regulators will only increase the number of complaints and monetary remediations. Financial institutions need to get ready to roll out the most swift and efficient way to make customers whole while abiding by relevant laws and regulations.
COMPLAINT DRIVERS
An uptick in complaints from consumers to the Consumer Financial Protection Bureau (CFPB) has been the norm in recent years. Last year, the CFPB logged approximately 1.7 million complaints, up 29 percent from 2022 and a 66 percent jump since 2021.
Although issues relating to consumer credit reporting generated the lion’s share of complaints to the CFPB in 2023, just 0.1 percent of them resulted in monetary relief. By contrast, in 2023 15 percent of complaints relating tocredit cards —which included problems with purchases, issues with erroneous charges, and errors in credit reports — resulted in monetary relief.
Meanwhile, 14 percent of checking and savings accounts complaints resulted in monetary relief. These cases could include unauthorized debits or fraudulent transactions. Nearly a quarter of consumer complaints relating to prepaid cards resulted in monetary relief. In all three of these categories, complaints that generated monetary relief were up by more than 20 percent year-over-year, while prepaid card complaints that led to monetary relief were up a whopping 130 percent.
Rising numbers of consumer complaints that result in monetary relief mean companies need to be prepared to deliver remediations to affected customers in a timely, efficient way. They might also weigh the benefits of doing their own assessments where compliance has fallen short and proactively offer customers relief.
ENFORCEMENT IMPLICATIONS
The volume of CFPB investigations and public enforcement actions has grown significantly. In 2023, the agency reported 29 enforcement actions, up 45 percent year-over-year. In addition to consumer complaints, triggers for enforcement include inquiries made through the CFPB’s whistleblower hotline; referrals from federal regulators and local, state and federal agencies; market intelligence; and the results of supervisory exams.
Government agencies and regulators may impose civil money penalties – a type of fine – on institutions, the details of which are typically described in consent orders.
In the CFPB’s case, civil money penalties are deposited into the Civil Money Penalty Fund, after which the Fund Administrator determines which classes of victims receive payments from the Fund. The CFPB, through enforcement actions, may also order institutions to pay harmed consumers directly. In 2023, the total consumer relief ordered in CFPB public enforcement actions — which includes payments directly to consumers as ordered by the CFPB, as well as payments from the Civil Penalty Fund administered by the CFPB — was around $3 billion, up 24 percent year over year and a 427 percent increase compared to 2021.
Apart from the CFPB, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are also carrying out enforcement actions. The SEC filed 784 enforcement actions in fiscal year 2023, a three percent increase over fiscal year 2022.
In addition, the SEC’s Whistleblower Program offers monetary incentives to those who report violations of securities laws. In fiscal year 2023, the SEC issued whistleblower awards totaling nearly $600 million, the most ever awarded in one year.
In addition to an increase in the number of consumers and investors reporting violations of laws and regulations, enforcement agencies are beefing up their capabilities. For example, the CFPB recently reported that it is “significantly expanding” its enforcement capacity by hiring more enforcement attorneys, analysts, paralegals, e-litigation support specialists and economists.
In light of this increase in consumer awareness and enforcement capacity, financial institutions would be best not to find themselves involuntarily remediating. Following an enforcement action, remediation comes at a significant cost to companies. This is because companies need to seek legal resources and engage in additional reporting to the regulators, as well as confront other unforeseen requirements.
An intricate web of laws and regulations governing relationships with customers also adds complexity to the situation.
A PROACTIVE APPROACH
Forward-thinking financial institutions will equip themselves with capabilities to review and identify instances where customers were harmed and remediate before the onset of regulatory actions.
Control failures and errors that may impact customers are not escapable for institutions. Those that move quickly and proactively address the harm to customers where voluntary actions are positioned to benefit for a few key reasons. First, customer trust is further enhanced because the problem is addressed prior to a complaint. Second, voluntary remediations save companies time and money because the problem is addressed before a lengthy and time-consuming enforcement action. Third, a proactive strategy that involves voluntary payments prior to consumer complaints or enforcement actions allows a company to improve their standing with regulators.
It’s also important to keep in mind regulators’ voluntary self-disclosure policies regarding potential violations of laws and regulations. The regulator or enforcement authority may take this into consideration when determining enforcement actions and penalties in a way that may benefit the company.
DEVELOPING A PROACTIVE CAPACITY
To minimize the harm to customers of a compliance failure and stave off a potential enforcement action, a company’s technical and business process infrastructure must be ready. A technology toolset that can handle the remediation process from start to finish — including data management, customer communications, disbursement and transaction oversight capabilities — is essential.
Remediation must be a business-as-usual process.
CORE CAPABILITIES
To meet new pressure from customers and regulators through a proactive approach, a company’s remediation technology product suite needs to be a purpose-built, end-to-end solution. It needs to be designed specifically for remediation and include the ability to track events in real time as a way of ensuring visibility into all active cases.
Institutions will also require toolsets that can carry out robust case tracking and maintaining a historical record of past events so that results are transparently available for internal and external auditing purposes. The ability to store documents and data securely is a crucial part of this toolset.
A remediation toolset should also be customizable to suit a variety of situations and client needs. Finally, a company’s remediation product suite should also include the capability to easily generate comprehensive reports at the click of a button, whether through dashboards or other similar formats. Leading-edge products will include all of these features as table stakes.Hence, companies ought to carefully consider the comprehensiveness of an offering when deciding which remediation solution best suits their needs.
DOCUMENTING EACH EVENT
Institutions need to keep a detailed trail of documentation to respond to inquiries from customers, regulators and others after remediation payments have been made. In many companies, relevant information isn’t stored in one place, prompting a stressful, last-minute effort to reply to questions. Without a centralized remediation data warehouse, institutions can struggle to piece together information from disparate, disconnected systems.
The inability to offer prompt and accurate answers to post-remediation questions can undermine customers trust and harm an institution’s reputation. The right tools can help institutions get ahead of these risks. Consolidated digital recordkeeping, a cornerstone of the leading remediation toolkits, ensures information on each action is stored in an organized way. Armed with a comprehensive roster of details on each event, these systems are optimized for quick and easy information retrieval. They should include a final report after each remediation initiative is completed, with data on how many payments and letters were sent; the number of checks cashed, uncashed, or reissued; and a timeline of those actions.
A comprehensive, historical data management capability avoids a time-sensitive scramble to respond to inquiries. Centralized information management also minimizes disruption, since questions can arise years after payouts are made. Additionally, a historical database that includes all past cases in a dashboard or similar format can help institutions respond to internal audits and improve overall regulatory compliance.
PREPARING FOR THE FUTURE
Given the increase in consumer complaints and the enhanced capacity of regulators to pursue investigations and enforcement actions, companies need to get in front of the coming surge.
A proactive stance can cut reputational risks for companies because firms can address issues in advance, saving time, money and other resources. As management of remediations becomes a bigger burden for institutions, investing in tools that allow them to take steps in advance may help reduce the number of enforcement actions — and corresponding costs — while shoring up client trust.
A savvy approach ensures companies can leverage leading-edge tools to address customer needs before any problems or errors are raised through a complaint process. A customer that gets informed of an issue before they discover it’s an issue, is more likely to become a loyal client over the long term. Forward-thinking disclosure frameworks can also help companies build trust with regulators and set the stage for a longer-term, productive and transparent relationship. By making the right investments in technical tools and infrastructure, companies can turn a challenge into an opportunity.
Broadridge Financial Solutions (NYSE: BR), a global Fintech leader with over $6 billion in revenues, provides the critical infrastructure that powers investing, corporate governance and communications to enable better financial lives. We deliver technology-driven solutions that drive business transformation for banks, broker-dealers, asset and wealth managers and public companies. Broadridge's infastructure serves as a global communications hub enabling corporate governance by linking thousands of public companies and mutaul funds to tens of millions of individuals and instatutional investors around the world. Our technology and operations platforms underpin the daily trading of more than $10 trillion of equites, fixed income and other securities globally. A certified A Great Place to Work, Broadridge is part of the S&P 500 Index, employing over 14,000 associates in 21 countries.
For more information about us, visit broadridge.com.
Published October 11, 2024.
