The Hidden Messages in the CFPB's Complaint Database

WASHINGTON — An in-depth look by the Consumer Financial Protection Bureau into its consumer complaint database has yielded some surprising insights, including a relative lack of grievances against payday lenders and that most consumers appear satisfied by companies' response.

The agency issued a study of complaints last week that found mortgages, debt collection and credit cards accounted for 68% of the 395,000 complaints the CFPB received prior to June 30.

But it was the relative low number of complaints against payday lenders — one of the most controversial areas in finance — that caught some off guard. They made up just 1% of overall complaints.

"The 1% figure for payday is very low. … I think the CFPB is probably surprised, or at least disappointed," said Alan Kaplinsky, who heads the consumer financial services group at Ballard Spahr. "I think the CFPB would like to see a much higher percentage to support their upcoming payday loan rulemaking."

To be sure, the CFPB only recently begun accepting complaints on payday lending in November 2013, whereas it has taken complaints on mortgages and credit cards since 2011.

But most observers said they expected the number of complaints to be higher, given policymakers continued focus on the issue. Critics argue that payday lending charges excessive fees on consumers and can capture them in so-called debt traps, in which a customer must repeatedly take out loans without being able to pay them off.

The CFPB is due this year to unveil new regulations for the payday lending industry. The agency has partly relied on consumer complaints about a product in crafting new regulations on it, but with just 3,400 complaints on payday lending in the database so far, observers question how the agency can draw many insights.

Yet CFPB officials said they can tap other resources in crafting a new rule. The agency has held field hearings on payday lending and has the ability to examine the largest payday lenders.

 "Consumer complaints are just one way we learn about the issues consumers face in the financial marketplace," said Moira Vahey, a CFPB spokeswoman. "Our work in the payday market is also informed by our research, supervision, and enforcement activities."

A chunk of the complaints about debt collection — which received the second largest amount of grievances (20%) overall — also relate to payday lending. The CFPB has received 79,400 complaints on debt collection since it started accepting them a year ago, 12% of which concern payday loans.

Some observers said they never expected payday loans to generate high volumes of complaints because the contracts tend to be more basic in terms and upfront fees.

"Payday loans generally are pretty well understood by the consumers on the front-end so historically, have not seemed to generate the level of complaints that consumers have with other financial products," said Donald Lampe, a partner in the financial services group at Morrison & Foerster.

"With payday loans you go in, you get $100 and two weeks later, you pay $115," Lampe added. "The people who complain the loudest about payday loans are regulators, politicians and advocates that are dead set against them."

But the level of payday lending complaints was not the only interesting aspect of the CFPB's analysis. The study also found that while almost all banks and other financial companies (97%) responded to consumer complaints within the CFPB's allotted timeframe, only 11% offered monetary relief to close the complaint.

The vast majority of complaints, roughly 79%, were simply closed with an explanation or some form of non-monetary relief. Perhaps even more surprisingly, 69% of consumers opted not to dispute the company's decision.

Some said those statistics reflected well on the industry, showing banks are responsive and that many complaints can be resolved without monetary relief.

"The resolution rate is extraordinarily high. The bureau touts the pure number of complaints as reflecting poorly on the industry, but what gets forgotten from this is how quickly the complaints are resolved by the financial service providers," said Lampe. "The impact is not simply to put money in the pockets of consumers. The impact is to provide an additional channel of communication between customers and financial providers."

Still, 20% of consumers argued against the companies' response, at the very least suggesting there is room for improvement.

But it is difficult to be sure what party is right given the lack of specificity about complaints available to outsiders. Currently, the CFPB lists only general information about a complaint, including what company it is against, what product it concerns and whether it was resolved.

The CFPB proposed earlier this month to provide more information, publishing anonymous consumer "narratives" detailing their grievances. The agency is also seeking comment on whether to allow firms to post public responses to the narratives.

CFPB officials said this will improve the usefulness of its complaint database, giving others a chance to know more information about a grievance and how it was handled. They also say that publicizing the narratives would add "important context" to the type of complaint since the current system is broken down by large categories.

"Hearing directly from the consumer about exactly what happened would say much more," CFPB Director Richard Cordray said when the proposal was announced. "The narrative supplies vital information about why the consumer believes they were harmed, and how the problem has affected the consumer's life."

Consumer groups, too, support adding more detail.

"The proposal empowers consumers and gives them a road map to companies that deserve their business," said Ruth Susswein, deputy director of national priorities at Consumer Action, in a statement following the release of the CFPB's plan. "The proposed policy would head off problems for other consumers by warning others about companies with a pattern of not resolving customer complaints. This will go a long way in helping consumers protect themselves."

But industry representative are against the plan, saying it's unnecessary and dangerous. Many fear that it could become a forum for unverified attacks against an institution (the CFPB verifies a customer relationship before publishing a complaint).

"If you allow venting against financial services providers to be publicly displayed, you have to question whether that will really help consumers," said Lampe. "The statistics do not seem to show that somehow the system is faulty or more steps need to be taken."

Andrew Sandler, chairman and executive partner at BuckleySandler, said that the complaint data released so far suggests that customers merely seeking an explanation of terms and charges.

"It appears from the report that the majority of the inquiries the bureau labels as 'complaints' are merely questions resolved to the consumer's satisfaction," said Sandler. "This report further demonstrates that the bureau's reliance on unverified consumer complaints to target entities for investigation is seriously flawed. It also should abandon its announced intent to engage in the wholesale publication of unverified consumer complaints."