Lou Holtz, the renowned football coach, is reported to have
quipped “Never tell your problems to anyone...20% don't care and the other 80%
are glad you have them.” Leaving aside the pleasure of Schadenfreude when
competitors get their comeuppance, lingering in the shadows is our own fear
that we just might be the next recipient of some imputation of blame! Indeed,
lest we fall into the downward drift of reputation risk, the general modus operandi has been to resolve
controversial issues affecting consumer complaints as quickly as possible. So, we
are usually able to avoid hanging out our dirty laundry to dry in the acidic
air of public opinion. Until now!
Before I jump into the deep pool of consumer complaint
machinations of the Consumer Financial Protection Bureau (“Bureau”), I would
like to offer a definition of a word. That word is “allegation.” Here’s my
definition of an “allegation”, liberated from its legalistic moorings: ‘An
accusation that someone has done something illegal or wrong, which may be true
or may be false, typically made without proof, or sufficient proof, and
eventually may or may not lead to somebody being found innocent or guilty of
doing something illegal or wrong.’ Please keep my definition in mind as we
explore together the Bureau’s new Proposed Policy Statement regarding consumer
complaints, issued on July 16, 2014.[i]
For some time we have known about the Bureau’s “Consumer
Complaint Database” (“Database”). The Bureau’s new proposal would expand the
“public-facing database” to include “unstructured consumer complaint narrative
data” (“Narratives”). The Bureau promises that only those Narratives for which an
opt-in consumer consent has been obtained and a “robust personal information
scrubbing standard and methodology” applied would be subject to disclosure. The
expansion, therefore, supplements and extends the Bureau’s existing Policy
Statements that established the Database.[ii]
The Database actually had the Narratives feature associated
with it from the start. The Bureau planned to include Narratives from as far
back as the original announcement of the Database on December 8, 2011, when it
notified the public about its plans to disclose certain data about the credit
card complaints that consumers submitted to the Bureau.[iii]
Its final policy statement was issued on June 22, 2012.[iv]
At the time that this policy became official, it also announced its plans to
disclose data from consumer complaints about financial products and services other than credit cards.[v]
Finally, the Bureau rendered its final policy statement for these other
financial products and services on March 25, 2013.[vi]
In effect, the July 16, 2014 supplements the Bureau’s existing Policy
Statements.
Here is the timeline:
·
Credit Card Complaints:
o
December 8, 2011: “December 2011 Proposed Policy
Statement”
o
June 22,
2012: “June 2012 Policy Statement”
·
Financial products and services other than
credit cards:
o
June 22,
2012: “June 2012 Proposed Policy Statement”
o
March 25, 2013: “March 2013 Policy Statement”
·
Supplement to credit card and financial products
and services other than credit cards:
It should be noted that the June 2012 Proposed Policy
Statement did not propose the inclusion of public Narratives in the Database.
The volume of comments in response to including the such Narratives was
“significant”: there were consumer, civil rights, and open government groups,
supporting disclosure “on the grounds that disclosing narratives would provide
consumers with more useful information on which to base financial decisions and
would allow reviewers to assess the validity of the complaints; and privacy
groups wanted an opt-in, because of concerns about the risk of publishing
“non-identifiable” data; but trade and financial industry groups “nearly
uniformly” opposed the disclosure of consumer complaint narratives.[viii]
Responding to these comments, the Bureau noted in the March
2013 Policy Statement that it would not post public Narratives to the Consumer
Complaint Database – at least not until it could assess whether there were “practical
ways” to disclose narrative data submitted by consumers without undermining
consumer privacy.[ix]
The stage was now set to determine how and when to expand the policy to include
these Narratives.
AREAS OF INTEREST
The Bureau believes that there are three areas of interest that
need to be considered in order to implement its plan to include the Narratives:
(1) the direct and indirect benefits to consumers, (2) the benefit to the
Bureau, and (3) the advancement of open government principles. Permit me to
provide a synopsis of each of these vectors.
Direct Benefits to
Consumers: Consumers may share their experience with other consumers.
Complainants would be able to provide information they deem
useful to others who may be considering doing business with a particular
financial institution. Or, the Narrative would be a means of letting others know
about a company, offering and experiencing similar situations, thereby letting
them “know that they are not alone.”[x]
The Bureau contends that the public is not served if it only discloses the
non-narrative portions of the complaint. It seems to me that the Bureau is
crossing into the realm of the Confidence Fairy[xi]
when it opines that “some consumers may choose to submit a complaint only if
they will have the opportunity to share their story and other consumers may
overcome their reticence to submit a complaint by reading the experiences of
others.”[xii]
The Bureau believes that this direct benefit may expand the number of
complaints submitted to the Bureau, thereby improving the value of the
Database.
Indirect Benefits to
Consumers: The marketplace will be more responsive to consumers, because
the effect of the Narratives will be to influence consumer purchasing
decisions. The Bureau claims that research shows that “consumer word of mouth
(which includes consumer reviews and complaints) is a reliable signal of
product quality that consumers consult and act upon when making purchasing
decisions.”[xiii]
While the Bureau does not provide such research, it is a rudimentary premise of
economic theory that, through their purchases, consumers signal competitive
information to market participants. However, the device of a Database with
Narratives is not itself the market. As the eminent semanticist, Alfred
Korzybski, said, "the map is not the territory."[xiv]
Or, as mathematician Eric Temple Bell said, "the map is not the thing
mapped."[xv]
The signal is not coming from within the market itself but mysteriously from a
contrived database. This is what I would call the “Angie’s List Fallacy,” the
notion that a list of pros and cons about vendors can substantially move the overall
pricing and enhance customer service across a huge market. The theory seems
wonderful; the practice does not deliver. Yet, the Bureau believe that the Narratives
will be “responsive to the effect word of mouth can have on sales, adjust
prices to match product quality and improve customer service in order to remain
competitive.”[xvi]
The Confidence Fairy reappears, when the Bureau asserts the indirect benefits
of the “powerful first person voice of the consumer talking about their (sic)
experience,” and the “ability for local stakeholders to highlight consumer
experiences in their community,” and empowerment provided “by encouraging
similarly situated consumers to speak up and be heard.”[xvii]
Given the direct and indirect benefits to the consumer, the
Bureau seems to have arrived at the following algorithm: the aforementioned
increase in benefits and utility leads to an increase in consumer contacts,
which leads to a positive effect on Bureau operations, which leads to a “critical
mass” of complaint data being achieved and exceeded, which leads to the
representativeness of Bureau complaint data increasing. The July 2014 Proposed
Policy Statement provides no information in support of effectiveness of this
process nor does it offer how the “critical mass” will be sliced and diced,
except to claim that the “complaint data” will be used by the Bureau’s Offices
of Supervision, Enforcement, and Fair Lending, Consumer Education and Engagement,
and Research, Markets, and Rulemaking.
Benefits to the
Bureau: The Bureau sees itself as a vehicle to open and transparent
government. As such, it takes the position that the expansion of the Database
is needed in order to “further establishing itself as a leader in the realm of
open government and open data.”[xviii]
In support of this mission, it mentions the “Open Government Directive,” issued
on December 8, 2009 by the Office of Management and Budget (“OMB”), which
requires agencies to “take prompt steps to expand access to information by
making it available online.”[xix]
The Bureau indulges in a bit of spin when it asserts that “agencies have
historically withheld data from the public due to privacy and cost controls, (but)
with new technology comes new opportunities for openness without significant
increases to privacy risk and costs.”[xx]
I think it is fair to observe that agencies have withheld data from the public
for numerous reasons, though the least of which seem to have been due to
“privacy and cost controls.”
Advancement of Open
Government Principles: In developing its thesis, the Bureau provides a list
of agencies that are seeking to be more open and transparent, such as the Department
of Health and Human Services, the Federal Trade Commission, and projects like
HealthData.gov and Regulations.gov. These efforts are rooted in the OMB’s call
for a “presumption of openness” standard.[xxi]
The OMB’s position is that this “presumption of openness” can
be applied in utilitarian and economic terms.[xxii]
The premise is that information should be considered “a valuable national
resource and a strategic asset to the Federal Government, its partners, and the
public,” and that “[m]aking information resources accessible, discoverable, and
usable by the public can help fuel entrepreneurship, innovation, and scientific
discovery – all of which improve Americans’ lives and contribute significantly
to job creation.” While acknowledging that openness is “always subject to legal
obligations such as those to protect privacy and confidentiality,” the
government believes “public value” is created by treating information as a
public asset, when made available to its public owners.[xxiii]
MINIMIZING (BUT NOT ELIMINATING) RISKS
The Bureau admits that publishing Narratives is not without
risks. A principal risk of publishing Narratives is the potential harm
associated with the possible re-identification of actual consumers within the
Consumer Complaint Database. The term “re-identification” means removing
personal information from a dataset, thereby obscuring individual identities. Re-identification
generally occurs when separate datasets are combined to reestablish some number
of individual identities. Individuals with personal knowledge of events
described in a Narrative may also be able to identify consumers using
de-identified narratives.
Research has shown that the sufficiency of de-identification suggests that the
risks generally outweigh the benefits of sharing data.[xxiv]
But, glossing over the risks, the Bureau opines that “many researchers espouse
the sufficiency of de-identification and highlight the extremely low risk of
actual re-identification and potential harm – suggesting a cost-benefit
analysis where the benefits outweigh this risk.”[xxv]
Supporters of de-identification methodologies argue that
modern scrubbing standards reduce risk, with the exemplar being the Health
Insurance Portability and Accountability Act (known as “HIPAA”), in its Privacy
Rule, which forms the basis of the Bureau’s own scrubbing standard for Narratives.
This view holds that it is possible to decrease re-identification risk to
acceptable levels and the number of known, successful attempts to re-identify
publicly available datasets are de
minimus.
We are now at the juncture where the Bureau must take on the
allegations engendered by and embedded in the Narratives. It is this second
risk that poses significant concerns to any financial institution unlucky
enough to be impaled on the spike of misleading information. The Bureau
realizes that the Narratives “may contain factually incorrect information as a
result of, for example, a complainant’s misunderstanding or misrecollection (sic)
of what happened.”[xxvi]
Here is the Bureau’s view of such risk:
“If consumers were to rely without
question on all narrative data, it is possible that subsequent purchasing
decisions may be based on misinformation. To the extent this risk may be
realized, both consumers and the financial institutions that lose business due
to misinformation would be disserved. Indeed, even absent any effect on
consumer decision-making, there is a risk that financial institutions could
incur intangible reputational damage as a result of the dissemination of
complaint narratives.”[xxvii]
And here is the Bureau’s own reflection on the risks:
“To a large extent, this risk is
inherent in any release of complaint data.”[xxviii]
In effect, in deciding to release the structured complaint
data, the Bureau believes that it has addressed this risk concerns and
concluded that, while there is always a risk that market participants will draw
erroneous conclusions from available data, the Bureau maintains that the “marketplace
of ideas”[xxix]
would be able to determine what the data shows and, mutatis mutandis, the Bureau believes that is true, as well, with
respect to the complaint Narratives.
Procedurally, the Bureau claims to be able to mitigate this
risk by providing for the public release of the financial institution’s
response, side-by-side and scrubbed of any personal information, to the
consumer’s complaint. According to the Bureau, this process is supposed to
ensure that, to the extent there are factual disputes, both sides of the
dispute can be made public. Modern technology used to scrub public disclosure
of unresolved disputes and allegations – what could possibly go wrong?
FEASIBILITY
Is the Bureau’s “open government” plan to release Narratives
even feasible? Actually, the Bureau does not really know for sure! In deciding
to release certain structured data, the Bureau stated that it would not
disclose Narratives unless it is operationally feasible to do so without
compromising consumer privacy.
In November 2013, its Consumer Response unit began piloting
a comprehensive program to scrub all personal information from copied Narratives,
using a scrubbing standard based on “government best practices.” This pilot is
ongoing and the scrubbing standard is continually improved as lessons are
learned and implemented.
The scrubbing process calls for the following standards:
(1) Consent for publication is
obtained from the consumer;
(2) Narratives are scrubbed of
consumer personal information consistent with a robust standard and
methodology:
(a) that substantially meets
government best practices for re-identification risk; (b) as written, results
in a low risk of re-identification;
(c) as applied, maintains a low
rate of operational error; and
(3) an independent, third party
privacy expert conducts a review and operational test of the standard and
methodology in support of the above conditions.[xxx]
SCRUBBING STANDARDS
A synopsis of the scrubbing standards follows, based on the
foregoing procedures.
Consumer Narratives
Consumers share their individual stories with other
consumers and the marketplace by consumer complaint narratives published in in
the Database. Consent is first obtained from the consumer.
Consumer Consent to
Disclose Narratives – Opt-In
The Bureau to disclosure Narratives (1) for which informed
consumer consent has been obtained, and (2) that have been scrubbed of personal
information. Consumers who submit a complaint will be given the opportunity to
check a consent box giving the Bureau permission to publish the Narrative. The
opt-in consent will state: (1) whether or not consent is given will have no
impact on how the Bureau handles the complaint, (2) if given, the consumer may
thereafter notify the Bureau to withdraw consent at any time and the Narrative
will be removed from the Database, and (3) the Bureau will take “reasonable
steps” to remove personal information from the complaint to minimize (but not eliminate) the risk of
re-identification.
Company Response
Where the consumer provides consent to publish the Narrative,
the related company will be given the opportunity to submit a narrative
response for inclusion in the Database. The company will be instructed not to
provide direct identifying information in its public-facing response, and the
Bureau will take reasonable steps to remove personal information from the
response to minimize (but not eliminate)
the risk of re-identification. The Company Portal will include a data field
into which companies have the option to provide narrative text that would
appear next to a consumer’s narrative in the Database.
Personal Information
Scrubbing Standard and Methodology
The publication of Narratives involves risks, so admits the
Bureau, including the potential harm associated with the re-identification of
actual consumers within the Consumer Complaint Database. So, in order to
minimize the risk of re-identification, the Bureau will apply to all
publically-disclosed Narratives, a “robust personal information scrubbing
standard and methodology.”[xxxi]
The Bureau believes it can exercise discretion, modifying data when privacy
risks clearly and substantially outweigh the benefits of disclosure. Based on
the foregoing “scrubbing standard” the Bureau believes the risks can be
minimized (but not eliminated), with
the result that publicly releasing “redacted narratives,” subject to consumer
consent, will best protect all consumers without harming the protected privacy
interests of any individual consumer. As to protecting the company whose
reputation has been damaged by a factually inaccurate or misleading allegation,
the Bureau provides no conclusory observation.
COMMENTS AND PROPOSAL
In the June 2012 Policy Statement and the March 2013 Policy Statement,
the Bureau addressed comments received in response to the December 2011
Proposed Policy Statement and the June 2012 Proposed Policy Statement,
respectively. The Bureau believes that it has sufficiently addressed comments
concerning the Consumer Complaint Database generally, as well as comments
regarding the current data fields, in the June 2012 Policy Statement and the
March 2013 Policy Statement. These comments ranged from the very general, such
as the Bureau’s authority to disclose consumer complaint data of any kind and
the impact the database would have on consumers and covered persons, to the
more specific, such as the impact of specific proposed data fields (i.e.,
company disposition) and the inclusion of other data fields (i.e., Narratives).
In both Policy Statements, the Bureau asserted that it was
following its “open government” mandate, and, because of that, there would be forthcoming
the inclusion of additional data fields. Consistent with the commitment, and in
response to comments that urged the disclosure of Narratives, the Bureau has
decided to propose the inclusion of Narratives in the Database.
Broadly, the Bureau now seeks comments that are related to
the proposed extension of the policies to include the Narratives. It is worth
noting that the July 2014 Proposed Policy Statement constitutes an agency
statement of general policy and is exempt from notice and public comment.[xxxii]
Notwithstanding this procedure, the Bureau is inviting public comments on the July 2014 Proposed Policy Statement. But because no notice of proposed rulemaking is required, the provisions of the Regulatory Flexibility Act do not apply.[xxxiii]
Notwithstanding this procedure, the Bureau is inviting public comments on the July 2014 Proposed Policy Statement. But because no notice of proposed rulemaking is required, the provisions of the Regulatory Flexibility Act do not apply.[xxxiii]
Jonathan Foxx
President & Managing Director
Lenders Compliance Group
[i]
Disclosure of Consumer Complaint
Narrative Data, Notice of Proposed Policy Statement with Request for Public
Comment, Bureau of Consumer Financial Protection, July 16, 2014. I will cite
extensively from the Proposed Policy Statement, mirroring references therein as
best as possible in the context of this article.
[ii]
Idem. Summary
[vii]
The Bureau’s terminology is “Proposed Policy Statement”
[viii]
Op. cit. 1, p 3
[ix]
Op. cit. 1, p 4
[x]
Ibid
[xi]
The “Confidence Fairy” has been around a long time, casting fairy magic with
its supernatural powers; most recently popularized by Paul Krugman, the economist
and Noble Laureate.
[xii]
Ibid
[xiii]
Op. cit. 1, p 5
[xiv]
Alfred Korzybski coined the expression in "A Non-Aristotelian System and
its Necessity for Rigour in Mathematics and Physics", a paper presented
before the American Mathematical Society at the New Orleans, Louisiana, meeting
of the American Association for the Advancement of Science, December 28, 1931. The
paper may be read in Science and Sanity,
1933, p. 747–61
[xv]
Numerology: The Magic of Numbers, Bell,
Eric Temple, Williams and Wilkins, Baltimore, 1933
[xvi]
Op. cit. 1, p 5
[xvii]
Ibid
[xviii]
Op. cit. 1, p 6
[xix]
Open Government Directive, Office of
Management & Budget, December 8, 2009 , Peter Orszag, Director
[xx]
Op. cit. 1, p 6
[xxi]
Op. cit. 19
[xxii]
Open Data Policy - Managing Information
as an Asset, OMB Memorandum M-13-13, May 9, 2013
[xxiii]
Op. cit. 1, p 7
[xxiv]
Broken Promises of Privacy: Responding to
the Surprising Failure Of Anonymization, Ohm, Paul, 57 UCLA L. Rev. 1701
(2010)
[xxv]
Op. cit. 1, p 7
[xxvi]
Op. cit. 1, p 8
[xxvii]
Ibid
[xxviii]
Ibid
[xxix]
Ibid
[xxx]
Op. cit. 1, p 9
[xxxi]
Op. cit. 1, p 11
[xxxii]
5 U.S.C. 553(b)
[xxxiii]
5 U.S.C. Chapter 6
