A gap in consumer protection law exempts thousands of smaller banks from the federal government’s public complaint records
That’s because a legal loophole gives Comenity — and thousands of other lenders — a pass on having complaints about them aired on the federal website.
Under the Dodd-Frank Act, banks and credit unions with less than $10 billion in assets are not subject to oversight by the U.S. Consumer Financial Protection Bureau. Consequently, the agency sends gripes about them to other regulators, and leaves them off the complaint site.
Financial companies are gnashing their teeth at the CFPB’s 3-year-old complaint database, saying it smears them with unverified rants. But omitting thousands of banks from the data means that consumers aren’t getting the whole picture — and they don’t know it. The fact that most lenders are left out is not mentioned on the website.
“At a minimum, it makes sense to have a disclaimer,” said Ruth Susswein, deputy director of Consumer Action, an advocacy group that has championed the controversial complaints website.
Only 140 of the approximately 6,500 banks in the U.S. have vaults big enough to qualify for CFPB oversight, although they generate 80 percent of all banking business in dollar terms. As for credit unions, only a handful of the approximately 6,159 in operation are large enough to answer to the CFPB.
“From a consumer standpoint I’d like to know what the complaints are against a company, what the allegations are,” said Edgar Dworsky, founder of ConsumerWorld.org and a former assistant attorney general for Massachusetts.
On the other hand, other financial firms that don’t take deposits don’t qualify for the Dodd-Frank exemption from public scrutiny. All sizes of debt collection firms, payday lenders, credit bureaus and others are included in the complaint data.
See related: CFPB complaints data analysis: Who gripes most about credit card
How the CFPB’s complaints window works
The consumer protection bureau began publishing complaints on its website in June 2012, opening a new window into the conduct of financial companies. It started with credit card complaints and added debt collection, bank accounts, payday loans and other financial industries. By October 2015 there were 462,860 gripes published about 3,320 companies. Consumers’ names and identifying information are kept secret.
When you file a complaint, the agency contacts the company and asks for a response. The type of grievance is published on the website, along with the company’s reply and the outcome — such as a refund or other fix. Your description of the problem will appear as well, if you give permission. Often, the consumers who come to the federal complaint window have already tried to resolve the problem with the company directly, without success.
Consumer advocates say the searchable database of dissatisfaction could be a powerful resource for consumers to view the track records of financial firms. “More and more people have access to the Internet via smartphones, so it is more possible for even low-income consumers to have ready access to the Internet where they could look a company up in the database,” said Robert Greenbaum, a New Mexico consumer attorney who participated in a hearing about the complaint database in 2013. “Ultimately, the existence of the database may make companies more responsive to complaints and even affect their practices so that there are less complaints.”
Many missing complaints
However, many complaints are going unpublished, undermining the site’s usefulness to consumers as well as its deterrent value against sharp corporate practices.
Since it started taking complaints in 2011, the CFPB has handled 558,800 gripes through February of 2015, according to the agency. But only 361,400 complaints appear on the complaint website through that date. That leaves about 197,390 unaccounted for, or about a third of the total.
The agency may leave complaints out of the data if they are duplicates, cannot be verified, or if they are forwarded to other agencies for action. Complaints about smaller banks still get regulatory scrutiny from bank regulators, the FDIC and the Office of the Controller of the Currency. For example, the OCC reviews complaints forwarded from the CFPB, the agency said. The OCC contacts the company and tracks the outcome of the gripe. But the complaint and its outcome are not made public.
It’s impossible to tell how many of the missing complaints were omitted because they were aimed at a sub-$10 billion bank. A look at data, however, suggests the number is significant. The 10 smallest banks included in the database — those with slightly more than $10 billion in assets — have about 180 complaints publicly aimed against them through September 2015, the CFPB data shows. For banks smaller than the cutoff point, the number of published complaints drops abruptly to zero.
Under $10 billion is still big
Smaller banks’ exemption from CFPB supervision was written into the Dodd-Frank Act as part of the political deal to win the law’s passage — not because the lenders aren’t significant. For example, St. Paul, Minnesota-based Bremer Bank has 99 locations across three states and holds nearly $8 billion in customers’ deposits, according to the FDIC. But with assets of less than $10 billion, it is just under the threshold for CFPB oversight.
How to file, see complaints about financial institution
- To make a complaint about a company: The Consumer Financial Protection Bureau operates a one-stop complaint window for consumer financial services. You can make a complaint on the website or by phone at 855-411-2372. If the company is regulated by a different agency, the CFPB will forward it to the correct place. While other banking agencies also continue to take complaints, consumers who use the CFPB portal don’t need to look up their bank’s regulator.
- To see complaints about a company: Search CFPB complaint records by company name, state, or other characteristics. Keep in mind that banks not on this list will be excluded.
Comenity has just two locations, one each in Utah and Delaware, but its presence in the credit card business is sizable. Owned by Alliance Data Systems, Comenity backs store cards from dozens of retailers including Abercrombie, Victoria’s Secret and ZGallerie. The cards are actually issued by two banking units, both owned by ADS. Cardholders carried about $7 billion of balances at the end of 2014, putting it in the top 25 card issuers in terms of assets.
Although Comenity is invisible on the complaint database, it is known to regulators. In September 2015, the FDIC ordered Comenity to refund $61.5 million to customers enrolled in its “Account Assure” payment protection program because of misleading marketing.
Comenity spokeswoman Rachel Stultz said that the company receives consumer complaints via regulators and takes them seriously. “All complaints are handled in a timely manner by specialized complaint investigation and response teams within our organization.”
Other small banks, including some important players in the subprime market, have crossed with regulators. Premier Financial, known for costly subprime credit cards, is absent from the complaint data. The South Dakota-based bank sued the CFPB in 2011 over rules against charging upfront fees greater than 25 percent of available credit.
Although the biggest banks have most of the business, “Clearly there are issuers, like subprime issuers, that have a history of problems with consumers,” Susswein said, “that will fly under the radar.”
Less griping is more?
Banks say the government’s complaint database is so flawed that it shouldn’t have opened.
“Instead of fostering informed and responsible consumer choice, the bureau has become a purveyor of at best unverified, and potentially false, information,” the American Bankers Association Senior Counsel Jonathan Thessin wrote in an August comment letter. Bankers question the existence of the database, which is not mandated by the Dodd-Frank Act.
The Independent Community Bankers Association, most of whose members are below the $10 billion cutoff point, said smaller banks operate differently than larger ones. “Community banks are relationship lenders, while larger financial institutions are more transactions based,” the association said in an email statement in reply to questions.
The CFPB does not verify all the accusations contained in a complaint. However, it confirms the consumer’s relationship with the company before publishing the complaint, and collects the information necessary for the company to respond.
“The institutions don’t like it, they say it only tells part of the story,” Dworsky said. “But I know there are two sides to every story. We’re really used to reading reviews on Amazon and so on — you take it with a grain of salt.”