CFPB Mortgage Complaint Process May Have Big Impact

WASHINGTON — A move by the Consumer Financial Protection Bureau to begin fielding complaints related to mortgages is likely to prove significant as it moves ahead with new mortgage-related rules, observers said Wednesday.

Until now, the agency has only been receiving complaints related to credit cards in order to give itself time to set up its systems. But agency officials have publicly said they plan to use information gleaned from the complaint process to guide their rulemaking.

"It dovetails very closely with some dialogue that was in the examination manual about how they will be using the consumer complaint process for examination and supervision purposes, so it really begins the buildout of the database," said Kevin Petrasic, a partner with Paul, Hastings, Janofsky & Walker, and a former official at the Office of Thrift Supervision.

The CFPB announced its foray into mortgage related complaints on Wednesday, saying in a report on the first three months of collecting credit card data that it plans to begin taking inquiries related to mortgages and other home loans "on or about Dec. 1." Officials estimated the number of mortgage-related complaints to be on par with those received last year by federal regulators, which equaled roughly 48,000.

Jo Ann Barefoot, a co-chair at Treliant Risk Advisors, said the bureau is likely to receive more complaints related to mortgages than any other product by far.

"Mortgages are a complicated product, so there's a lot more basis for complaints than you might have in, say, the credit card area," she said. "And mortgages are so much in the political, media, cultural spotlight that I would think they'll generate a lot of complaints."

She also expects the CFPB to receive more complaints alleging discrimination, which it may use to target unfair or deceptive practices. This could catch some banks off-guard, as many don't have good complaint systems of their owns and do little complaint analysis, she said.

"The fact that the complaint can arise over things that are not the subject of a technical rule causes difficulty for banks because they are mostly set up to check for the technical rules," Barefoot said. "Starting a UDAP questioning process with a complaint turns the traditional compliance setup on its head."

The CFPB release said the agency expects to be ready to handle complaints for all financial products and services by the end of 2012. It said the information gathered on the complaint process for credit cards will help improve the system as it prepares to expand into new categories of financial products.

"When consumers contact us, we get a snapshot of how the consumer finance markets are working," Raj Date, the bureau's interim leader, said in the release. "And we are learning that there is a lot of consumer confusion about credit card terms. We will continue to work with consumers, credit card companies, government agencies, and others to improve consumer education and ensure CFPB's regulation, supervision, and enforcement efforts are effective."

The CFPB's consumer response office began processing complaints related to credit cards on July 21, but other regulators have continued to process other types of consumer complaints as the agency's systems get off the ground. It plans to start processing complaints related to other bank products offered to consumers - including savings and checking accounts, and safety deposit boxes - in March.

The bureau has been intentionally low-key about the new complaint system, which includes a toll-free hotline and a web-based complaint form, in an effort to avoid a flood of complaints that could overwhelm the system early on. It has recruited help from other regulators to keep processing other consumer complaints until its systems and consumer response staff - which will eventually total about 150 people - are ready to take them on.

The bureau has received more than 5,000 credit card complaints so far, about 3,100 of which companies said they resolved. Consumers disputed the adequacy of the response in about 400 of those cases, or less than 13% of the time, according to the report.

The report also noted that most of the complaints related to consumer confusion over credit card terms and associated products, as well as fraudulent credit card charges made by third parties, and factual disputes between the consumer and issuer.

In conjunction with the report, CFPB is also requesting comment on its proposed policy for disclosing credit card complaint data. The policy would make available a searchable public database, and the bureau is seeking input on ways to effectively filter out confidential personal information from the complaints.

In a statement released Wednesday afternoon, the American Bankers Association pointed out that the credit card complaints processed by the bureau represent less than one tenth of one percent of the 383 million credit card accounts in the United States.

"This is a strong record, and one the industry will work to build upon," said Kenneth Clayton, the ABA's chief counsel. "We look forward to working with the bureau to implement effective consumer response systems to ensure they gather and report meaningful data that will help resolve complaints and identify trends."

Less than half the calls the bureau has handled resulted in the filing of a credit card complaint, the report said. Most resulted in taking general feedback, directing consumers to credit card informational resources, or answering general questions about credit card processes.

CFPB officials said they plan to release future reports on credit card complaint data, including semi-annual Congressional reports, the first of which is due in January. As the system matures, the reports are expected to include more detailed data.

Between July 21 and Oct. 21, the bureau had processed 5,074 credit card complaints, not including complaints related to banks with less than $10 billion in assets, which were forwarded to the appropriate prudential regulator. Eighty-four percent of those complaints were sent to credit card issuers for review, while the remaining were either incomplete or still pending as of Nov. 15.

About 13% of complaints were related to billing disputes, 11% were related to interest rates, and another 11% were related to identity theft, fraud and embezzlement.