CFPB Data Analytics Update

The Consumer Financial Protection Bureau (CFPB) initially made its complaint database public in order to improve transparency in financial products for consumers.  Companies can also benefit from the database by analyzing consumer complaints and taking appropriate action before the CFPB does.  Recently, the CFPB has given companies a warning of where it is pointing its regulatory gaze.

A focus on student loans

Earlier this month, Richard Cordray, head of the CFPB, announced that the agency is beginning to focus on student loans.  “It’s a big priority for us,” Cordray said, adding that borrowers “come to our complaint line and they come by the thousands.”

That’s no exaggeration.  As of August 12, 2013, the public CFPB complaint database contained 4,427 student loan complaints about private lenders.  According to a mid-year report on student loans recently released by the CFPB, outstanding student loan debt is approaching $1.2 trillion.  At $165 billion, private student loan debt accounts for 14% of that total.  The report goes on to cite the “disproportionate use (of private student loans) by high-debt borrowers. For borrowers graduating around the time of the financial crisis with over $40,000 in student debt, 81% used private loans.”

Cordray openly expressed interest in this subset of the population: “Frankly, those are the people we should care about as much as anyone in our society… They are young people with some amount of promise and talent and they just lack the means.”

Given the evident importance of private student loans to the CFPB, it’s important that financial institutions understand the complaint data the agency uses when making regulatory and investigative decisions.

Let the data speak

To determine which lenders should potentially be concerned, let’s take a look at which types of student loan complaints are currently resulting in monetary relief to the customer.  Out of all 4,427 student loan complaints, 258 or 6%, resulted in monetary relief.  As you’ll see in the chart below, the most prevalent issue resulting in monetary relief was “Repaying your loan.”  This is the most frequent issue for student loans overall.

Now, let’s take a look at which financial services companies had the most complaints about loan repayment that resulted in monetary relief.  As you’ll see in the graph below, Sallie Mae generated the most activity, accounting for 46% of all student loan complaints (the blue bar).  More importantly, it represents a disproportionate percentage of complaints about loan repayment that resulted in monetary relief (the red bar).  76% of these complaints are about Sallie Mae.  This should be a red flag to the company, as it mostly likely will be to regulators at the CFPB.

Further examination reveals that Discover® is also facing the same issue, albeit on a much smaller scale.

Be proactive not reactive to avoid regulatory risk

Our analysis indicates that Sallie Mae has an opportunity to improve their loan repayment process to avoid regulatory risk.  As the company has access to specific complaints, they should try to determine the root cause of these complaints and fix the problems.

And they should do it soon.  The CFPB is deciding which companies to investigate using this data, and the agency has clearly announced that it’s looking into student loans.  It’s only a matter of time before the CFPB starts looking into Sallie Mae’s student loan repayment process.  The question now is whether the company will have heeded the warning in the data and taken demonstrable action to improve the customer experience.

Other financial institutions can use the CFPB database and other publicly available data such as social media to identify similar risks and take action before they pay millions of dollars in fines or lose millions of dollars from customer attrition.