Starting in January 2014, the Consumer Financial Protection Bureau (CFPB) will formally implement a variety of far-reaching rules that carry substantial non-compliance risks for both servicers and originators. It is important to understand the unprecedented scope of CFPB’s authority in terms of the institutions it oversees and the products it covers. The Dodd-Frank Act of 2010 gave the CFPB authority to supervise both depository institutions and non-depository financial institutions that were previously only lightly regulated (e.g. mortgage companies, payday lenders and student lenders). The covered products include, but are not limited to, mortgages, credit cards, student loans, vehicle loans and consumer loans.
As the clock ticks towards the deadline, mortgage finance firms are faced with substantial implementation costs that are drawing on valuable resources and threatening to squeeze profitability. For instance, servicers are making process and systems changes to generate a written statement of foreclosure alternatives as a first response to missed payments. Moreover, “dual tracking,” whereby banks simultaneously initiate foreclosure and engage in loan modification, will be eliminated, and an account will need to be at least 120 days delinquent before foreclosure proceedings can begin.
Other risk factors and areas of CFPB regulatory focus will likely include customer complaints, servicing and collection practices and advertising and disclosure practices. At a products level, CFPB will focus on products with relatively high areas of fee income as well as products and services targeted to less financially sophisticated customers. The review will extend beyond internal operations to cover oversight of third parties performing marketing, collection, or other servicing activities. CFPB may also conduct transaction testing in high-risk areas, including customer interviews.
Now that the implementation push is in full swing, what are some of the early lessons learned from leading financial services firms at the front lines of this massive change effort?
1. Use the regulatory compliance change effort to become more customer centric
The impact of the CFPB will be pervasive throughout organizations, from governance through processing and operations, and will require a structured approach to manage and coordinate. However, treating the requirements of the CFPB simply as a compliance issue will drive up operating cost in the medium term and may reduce revenue opportunities.
Building on the regulatory change effort to become more customer-centric can actually provide a long-term competitive advantage. While the core of the CFPB agenda is driven by the principles of transparency and customer fairness, treating customers fairly and becoming customer centric makes business sense beyond compliance.
2. Utilize customer complaints to reengineer processes and improve the customer experience
The Dodd-Frank Act provides the CFPB with broad authority to take any action to prevent unfair, deceptive, or abusive acts or practices (UDAAP), whether those actions are unintentional or otherwise. Therefore complaint management is a prime target for CFPB examinations. Dodd-Frank also adds a new “abusive” standard which appears to provide regulators with broad authority to intervene where a product or service takes “unreasonable advantage” of the “inability of the consumer” to protect his or her own interests.
So what are CFPB’s expectations and what can you do to not only pass the examination, but also leap frog to competitive advantage in domain of “customer experience?” CFPB’s first task will be to determine if consumer complaints are resolved adequately and timely. They will investigate compliance with RESPA (responses to qualified written requests related requirements) and Regulation Z (Open-End Credit, Billing Errors Procedures). They will evaluate the comprehensiveness of systems, procedures and/or flowcharts for capturing, logging, tracking, handling and reporting complaints and their resolutions.
Customer communications is another key area of focus. Do you have an effective process for telephone communications dealing with inquiries or complaints? Is there a toll-free number? Is it easy to access a live person, with reasonable hold times and low call abandonment rates? CFPB will also assess the effectiveness of written and online options for inquiries, feedback and complaints. Finally, they will evaluate your effectiveness and speed for responding to consumer complaints, including a review of staffing levels in relation to level of volume.
Listed above are the basic expectations and mechanics of the examination process. However, leading practices that allow you to gain a reputation as a “customer centric” institution start with creating a learning organization that has the ability to track complaint trends, identify and correct processes and behaviors that lead to the complaints.
The first step is to build a solid foundation of resources for complaint resolution. Educating employees on complaint handling procedures is key. You must also establish a corporate wide policy, backed up by practical procedures and reports that ensure every attempt is made to satisfy an unhappy customer quickly. Create a feedback loop for complaints and anticipate complaints by continually monitoring employees’ adherence to processes put in place. Having your quality control staff monitor calls from the perspective of a customer advocate will give you visibility into potential complaints before it becomes a systemic problem.
Another best practice is to view customer complaints as an opportunity rather than a burden. By documenting all complaints, leveraging feedback from multiple areas to identify dissatisfaction issues, you transform complaints into process improvements. Information gleaned from complaints can also be turned into new product development ideas.
In a similar vein, “customer vigilantes” who are posting detailed complaints online can often become key sources for understanding your process gaps and vulnerabilities from a customer stand point. Contact these disgruntled customers directly and make every effort to get the heart of legitimate complaints. Prioritize resolution of public and examine the reasons why customers become vigilantes.
Empathize with unhappy customers by familiarizing employees with factors that lead to customer complaints and engage senior management in customer apologies when appropriate. Changing the corporate culture to make known the company's willingness to hear customer feedback and promote the favorable acceptance of complaints has a powerful impact on customer retention and new customer acquisition. Similarly, removing obstacles that prevent customers from complaining and thanking customers for providing their feedback, whether positive or negative, is essential to becoming a “customer centric” organization.
3. Build a strategic customer focus, underpinned by solid customer analytics
The challenge facing organizations is how to grow profitably in a climate of increasing regulation, changing market dynamics and customer mistrust of financial institutions. The CFPB is focused on the customer ensuring fairness and transparency. However, an organizational strategy that focuses on customer centricity (putting the customer in the center of decision making, design and operations) would incorporate the CFPB’s mandate as part of good business practice. Becoming customer centric is as much a culture and organizational challenge as it is a process and technology challenge.
As with all process improvement, measurement is key. Does your organization have analytics that provide customer level understanding, along with the internal capabilities to act on the insight you gain? Do you use customer level data to drive decision making and differentiated yourself form the competition? Best practice organizations develop customer-based metrics (not just satisfaction measures), and embed them in the performance management structures of the organization.
Other strategic steps an organization can take to ensure customer centricity include:
►Undertaking a risk based review of all processes, policies, products and communications that impact customers
►Systematically reviewing vendor relationships where services provided impact customer
►Embedding customer principles and guidelines within your organization’s governance structure
►Building a structured and sustainable approach to managing examination requirements and responding to new legislation or guidance
The bottom line … becoming “customer centric” requires development of both outward facing customer strategies and internal development of core capabilities.
Mark H. Fleming, CMB is managing director for the Regulatory Compliance Practice at Actualize Consulting. Mark was an officer in mortgage servicing and technology with Freddie Mac for 14 years, served as a founding board member of MERS and is currently a member of the Mortgage Bankers Association’s Mortgage Industry Standards Maintenance Organization (MISMO). He may be reached by e-mail at [email protected]