Transparent Banking Is Better Banking

There is clear evidence that the Consumer Financial Protection Bureau is getting results.

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Last week, my organization released "Big Banks, Big Complaints," a report documenting how the Consumer Financial Protection Bureau is helping bank customers solve disputes through its searchable public online complaint database. The views of U.S. PIRG and its coalition partners at Americans for Financial Reform mirror the CFPB's: transparency helps good companies do better in the market; and bad companies will either need to become good, or lose customers.

Yet, in a story today, "Feds Solve Problems for Unhappy Bank Customers," by Herb Weisbaum of CNBC, American Bankers Association lobbyist Nessa Feddis criticized our study by simply repeating the industry's tired arguments that it had unsuccessfully used to try to kill the database itself when it was still just an idea. "No serious analyst would use this data to draw conclusions. This is data that is unverified, unrepresentative, incomplete and potentially inaccurate," she told Weisbaum.

Actually, transparency works. The CFPB database is getting results. Indeed, just the other day, the industry trade paper American Banker (not affiliated with the ABA) ran a story, "Customers Are Now Banks' Greatest Regulatory Threat." Why? Because, as the story itself points out, if banks don't handle their complaints quickly and well, their customers will complain to the CFPB. If they want to avoid public shaming or even enforcement action, industry lawyer Alan Kaplinsky told the American Banker, they would do well to "have a very good system in place from the get go to resolve a complaint quickly."

[See a collection of political cartoons on the economy.]

We're not surprised, not surprised at all. Our Tax and Budget Project regularly ranks states and municipalities on how transparent their disclosure of budget spending is to taxpayers. We've seen dramatic improvements in the quality of disclosure.

It's a simple lesson that the smart banks will learn. Firms that behave better in the marketplace by handling complaints quickly or eliminating unfair practices will be rewarded with more, and happier, customers. Conversely, firms that persist in dragging out or ignoring complaints about unfair practices may make money in the short run, but ultimately, transparency wins out.

Last week, the CFPB announced a $20 million civil penalty against JP Morgan Chase, which was ordered to refund $309 million to more than 2 million consumers over the deceptive marketing of junky credit card add-on products, some of which were never even delivered to the people who had bought them. This wasn't the CFPB's first move against the add-ons, which range from credit card debt cancellation products ("Who will pay your card if you get sick or laid off … or die?") to the more common credit monitoring and identity theft products. Last year, CFPB went after Discover and Capital One credit cards for deceptive sales of similar products. Our advice:  You don't need any of them, but check your statements to make sure you haven't already inadvertently been signed up to pay for them.

[Read the U.S. News Debate: Should Big Banks Be Broken Up?]

The CFPB's enforcement actions help consumers just as the database does. While some banks will no doubt keep selling junky products, smart ones will to preempt the CFPB with their own enforcement action. No bank will want to be Number One in the CFPB database.

In any case, it is clear that the CFPB is getting results for consumers and making markets work better. As Scott Pluta, who heads the CFPB database project, told Weisbaum of NBC: The database may not be popular with the financial services industry, but it's "making a real difference in people's lives and in the marketplace."

Ed Mierzwinski is consumer program director for the non-profit, non-partisan U.S. PIRG. He chairs the CFPB Task Force for Americans for Financial Reform.

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