Designing a Formal Complaint Management Program
Complaint management is a critical aspect of an institution’s Compliance Management Program (CMP) and plays a significant role in ensuring customer satisfaction, regulatory compliance, and overall organizational improvement. In the second 2024 issue of Consumer Compliance Outlook, the Federal Reserve provides a focus on consumer complaints, including the benefits of maintaining a formal consumer complaint program and what that program should look like to satisfy regulatory expectations.
How an institution defines a complaint within its policy is a key component of a complaint management program as it determines what communications with customers are captured and addressed. Also, the channel in which those communications are observed is an important component to consider as well. Some complaints may come from face-to-face conversations with a banker or social media. Defining a complaint is the first step in ensuring a uniform and consistent approach is taken across the different departments of the institution. When defining a complaint, it’s essential to use a broad definition to ensure all qualifying communications are identified. A complaint might be defined as “a communication expressing dissatisfaction with the institution’s products or services.” This inclusive definition ensures that complaints are not limited to consumer interactions, as some consumer protection laws, such as the Equal Credit Opportunity Act, also apply to commercial transactions.
Let’s take a look at the key components of a complaint management program as identified by the Consumer Compliance Outlook’s special issue on complaints:
Collecting and Tracking Complaints:
Complaint management policies should include clear instructions for collecting and compiling complaints. For smaller institutions, this process may be simple, but larger institutions with multiple departments often require a centralized tracking program. Given that complaints can arise from various channels, institutions should establish procedures for collecting and forwarding complaints to a central location, such as compliance or the manager of the department subject to the complaint. This might also involve using a complaint tracking sheet for employees. Centralized tracking is crucial not only for analyzing trends but also for monitoring complaint resolution times. It helps ensure timely responses, especially when resolving a complaint that involves multiple departments and allows the institution to identify and address any recurring issues efficiently.
Classifying and Responding to Complaints:
Classifying complaints is crucial in a formal complaint program and can be done by department, product, or regulation. It’s important to determine whether complaints should be classified under their primary category or multiple categories. Even complaints that are immediately resolved should still be documented to ensure all issues are recorded. Assigning a risk classification to complaints is also essential for prioritizing high-risk issues and implementing escalation protocols. For example, serious allegations, such as discrimination, should be flagged for senior management. This classification system helps in managing and analyzing the types and risks of complaints received.
Addressing Complaints and Root Cause Analysis:
For customers affected by an error caused by the financial institution, resolving the complaint is the most crucial aspect of the complaint program. The institution should provide restitution by restoring the customer to the position they would have been in if the error had not occurred. This might involve not only fixing the specific issue but also correcting related problems, such as refunding fees, adjusting interest charges, and updating credit reports.
After resolving the immediate issue, the institution should conduct a root cause analysis to determine if the problem is systemic. Addressing the root cause helps prevent future harm and ensures that other affected customers, including those who haven’t yet complained, are also remedied. This proactive approach is essential, as even a single complaint can reveal a significant compliance concern.
Analyzing Aggregated Complaint Data
Aggregating complaints helps banks monitor risk trends by identifying the underlying causes of increased complaint levels. If complaints rise faster than product or transaction volume, the compliance department should investigate further. Sorting complaints by various filters, such as product type, branch, or date, can provide deeper insights. For example, it can reveal specific products driving complaints, branches needing more training, or issues related to regulatory changes. This analysis helps an institution assess whether its controls are effective and offers opportunities to reduce friction in customer experiences. Additionally, identifying complaint patterns can highlight common customer misunderstandings, prompting the institution to improve communication and processes to minimize future issues.
Reducing Reputational Risk:
In today’s digital age, how an institution handles complaints can significantly impact its public image. Poor complaint management can lead to negative publicity and erode customer trust, while effective resolution can enhance the institution’s reputation as a customer-focused organization. This is particularly important as consumers increasingly rely on online reviews and social media to form opinions about businesses within their community.
Limiting UDAAP Risks:
Section 5(a) of the Federal Trade Commission Act prohibits unfair or deceptive acts or practices, with legal tests focusing on the consumer’s perspective. Multiple consumer complaints can indicate potential UDAAP risks. Federal banking regulators review complaint logs during compliance examinations to identify and address these risks. Not capturing and reviewing these logs may result in missing opportunities to address potential UDAAP issues before they escalate into violations or enforcement actions.
Decreasing the Number of Consumer Complaints with Regulators:
Effectively addressing consumer complaints can reduce the number of complaints filed directly with regulators. Consumers typically first attempt to resolve issues with their financial institutions and only escalate to regulators if the bank does not respond. By resolving complaints promptly, banks can minimize the need for regulatory involvement, conserve resources, and improve customer retention.
Complaint management is not just about resolving customer issues—it’s a strategic function that impacts every aspect of a financial institution’s operations. From regulatory compliance to customer satisfaction, risk management, and continuous improvement, a robust complaint management system is essential for the long-term success and stability of any banking institution.