OCC Speaks Out on Consumer Complaints
There has been a lot of controversy and heated debate over the recent OCC preemption rule. The state regulators didn't like having their powers limited and consumer advocates didn't like losing a possible forum. In spite of all the fuss about it, the position the OCC embodied in its regulations is not new or different.
Now the OCC has taken another step in this arena. The OCC issued Advisory Letter 2004-2 in which it directs banks to act promptly on consumer complaints forwarded to national banks by state authorities. There are several important concerns embedded in this Advisory Letter: jurisdiction, consumer protection, and predatory concerns. While the jurisdiction issue is unique to national banks and federally chartered thrifts, the consumer protection and predatory lending concerns are universal.
Jurisdiction
The OCC isn't fooling around in its stand on preemption. This Advisory Letter refers to one issued more than a year ago, AL 2002-9. That AL lays out the preemption issues and guidelines. In fact, it appears to be the groundwork for the recent rulemaking. In short, there has not been any change on this issue.
National banks are subject to visitation only by the OCC, and not by the states. Authority of states over national banks is limited to laws relating to issues such as contracts, acquisition and transfer of property, taxation, zoning, and criminal and tort law. In short, the states have control over issues such as property ownership, regulation of real property, and civil and criminal behavior. They do not have authority over the banking powers and practices of nationally or federally chartered financial institutions.
The OCC has exclusive visitorial powers. This includes the basic examination powers. It also includes the powers to inspect a bank's
books and records - a common feature of examinations, but one that also may arise in investigation of complaints. Finally, the visitorial powers include supervision of activities permitted by federal banking law and enforcing compliance with applicable federal or state laws relating to those activities.
What this means is that states may not come in to national banks or federally chartered thrifts to investigate complaints. This, however, does not mean that a national bank may ignore a complaint forwarded to the bank by the state - not by a long shot!
In Advisory Letter 2004-2, The OCC has added a clarification to the jurisdiction question. While states lack the authority to investigate complaints against national banks, the OCC expects banks to investigate and respond to complaints about the bank that are forwarded to the bank by the state. In short, national banks may not use the jurisdiction game to avoid investigating or responding to consumer complaints that happen to come through the state rather than the OCC.
In addition, the OCC expects the national bank to provide the state authority with the results or resolution of its investigation into the complaint. Neither referral of a consumer complaint nor providing the state with information about the resolution of the complaint constitutes a visitation.
The investigation of the complaint, however, is within the supervisory authority of the OCC, not the state. The OCC directs banks to deal with the complaining consumer directly rather than through the state.
Timing is also important. OCC expects prompt investigation. Banks receiving complaints from the state should not wait until the OCC enters the picture. They should respond immediately. In short, don't try to dodge the issues raised by the complainant by playing the jurisdiction game. The OCC wants banks to get straight to the concerns raised in the complaint.
As a bottom line, the Advisory Letter explains that the OCC expects its banks "to seek to resolve consumer complaints fairly and expeditiously, regardless of the source of the complaint."
Consumer Protection
The primary issue behind this Advisory Letter is consumer protection. The way in which a bank responds to a consumer complaint has a great deal to do with the effectiveness of consumer protection - or the lack of it.
Emphasis on complaint responses is not new. On prior occasions, the OCC has stressed the importance of investigation of consumer complaints. The Federal Reserve Board has made similar pronouncements and built standards for investigation into specific regulations, such as Regulation E and Regulation Z.
The agencies have stressed that the quality of the investigation is key to compliance. Whether you look to the OCC Advisory Letter or the FRB's regulations for guidance, you get the same answer. Investigating a consumer complaint involves much more than a quick glance and a conclusion that everything seems to be ok.
A proper investigation is really an investigation. This means pulling up all of the information about the transaction - even if the information is housed outside the institution. It means looking closely at when and how payments or charges were posted. It may mean looking at correspondence between the consumer and the institution and third parties.
A proper investigation does not throw the burden back at the consumer. The institution has the tools and resources to investigate. It usually has or has access to information that the consumer does not. The institution therefore has the obligation to be an active investigator.
Conducting an investigation also means that the institution may find that it was wrong, that a mistake was made. Effective procedures must be in place for correcting these problems when the investigation finds them. The institution should also look beyond the specific situation to determine if the same problem may be occurring for other customers who have not taken time to identify the problem and complain.
Predatory Practices
Investigation of complaints and fair, equitable responses to problems consumers raise is critical in preventing and avoiding predatory practices. The ability of a consumer to obtain redress makes the difference between being a victim or an equal participant.
Failure to investigate consumer complaints, or failure to respond effectively to consumers may be raised as an unfair practice or even a predatory practice. Clearly, pushing a product that is not in the customer's best interests and then refusing to respond to complaints is an element of predatory lending.
In the context of predatory lending and unfair or deceptive trade practices, consumer complaints are a key. The consumers who complain actually perform a service because they tell you how your products, disclosures, and services are understood. They serve as your first line of discovery if your message is misleading.
Customer complaints cause compliance when the industry fails to respond to the customer and to consumers as a group. If you want to keep regulatory burden down, the best way is to respond effectively to customer complaints and to learn from the complaints. Customer frustration is your early warning signal. Listen to it.
ACTION STEPS
- Review consumer complaints that you have received in the last several months. Evaluate the quality of investigation and response.
- Talk with some front line staff about what customers may say directly to them that could turn into complaints. Give special attention to service issues.
- Establish a practice of reviewing consumer complaints to identify service issues or compliance problems. Take those issues and problems to staff involved to work out solutions.
- Use consumer complaints to identify compliance, system or service weaknesses. For each investigation, draw a conclusion about the broader implications of the problem.
- Document any investigation of consumer complaints. When you close the investigation, you should have documentation to tell the complete story and support your conclusion.
- Measure the time between receiving a complaint and resolving it. If your responses are too slow, look for ways to tighten up the investigation process.
- Make people accountable for time and quality of investigations.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 9, No. 2, 3/04
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