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]
