Consumers Are Much More Powerful than Their Government Protectors

The Consumer Financial Protection Bureau's decision to allow consumers to post narrative descriptions of their experiences with financial institutions is not surprising, however, publishing unverified consumer narratives is not helpful to consumers. When consumers are permitted to speak with their feet in the marketplace, their voices have much greater impact than the stories they tell the CFPB.

Last week, in a blog post titled, "Your complaint is more than data-it's your story," the Consumer Financial Protection Bureau enticed consumers to "share your whole story, everyone will see it." The post came as the Bureau pledged to move forward with plans to publish the narratives of consumer complaints about their financial institutions. The Bureau's existing public complaint database includes only standardized data fields-not the consumer's narrative description of the problem. Its decision to publish unverified consumer narratives is not surprising, but publishing these stories is not helpful to consumers.

The Bureau takes a number of precautionary steps in connection with the database. First, it verifies that a customer relationship exists, which should eliminate attempts by competitors to sully each other's reputations. Second, it plans to remove personal information from the narratives that consumers submit. Third, the Bureau will not publish 5-digit zip codes for areas with less than 20,000 inhabitants. Fourth, in a departure from its sweeping credit card account data collection program, it allows customers to opt-in; those who would prefer not to share their complaint with the world can keep it private. Finally, if consumers scroll down far enough on the complaint database landing page, they will see a disclaimer that the Bureau has not verified the information.

Even with these precautions, the Bureau's public storytelling warehouse poses problems for consumers. Many comment letters - including one by the Mercatus Center - point these issues out. Placing complaints on a self-proclaimed "official website of the United States government" invites consumers to assume that the CFPB has culled out the meritless complaints. The Bureau does not throw out baseless complaints, but may reject company responses it deems baseless. In a change from the proposed policy, the Bureau will allow financial companies to choose from among a set of generic responses. The Bureau, however, in its "discretion to assess whether there are good-faith bases" for their selected responses, may decide not to include them in the public database. Companies, picking from stock responses, will be greatly limited in their ability to address issues raised in detailed narratives.

In response to concerns about the lopsided complaint-only database, the Bureau is asking for comment on plans to publish positive feedback. The CFPB, for example, might release rankings to highlight companies that are particularly responsive to consumer complaints. Taking such a step seems only to heighten concerns that the database will become a way to force financial companies to resolve meritless complaints. Particularly, because the Bureau suggests that the top-ten list will be accompanied by a bottom-ten list, reputational worries will cause companies to do whatever it takes to make it onto the star complaint resolver list, or at least stay out of the bottom ten. Some customers will receive a windfall. Other customers are likely to bear at least some of the costs of companies' scrambling to stay on the good list.

The Bureau suggested another potential way to balance the complaints: a compliment database. The database could be supplemented by an archive of consumers recounting their positive experiences with financial services firms. The imbalance in the existing database is troubling, but creating a separate database for compliments and populating the website with consumers' good stories about financial firms is not the answer. As with the complaint database, consumers will assume that the Bureau has taken steps to verify these consumers' experiences and the featured companies will seem to have the Bureau's special approval. There is a place for consumer feedback databases, but that place is not "an official website of the United States government."

In a speech last week, Bureau Director Richard Cordray explained that "consumers, of course, can speak directly to us, but they also speak more generally by their behavior in the marketplace." He is right; when consumers are permitted to speak with their feet in the marketplace, their voices have much greater impact than the stories they tell the CFPB.