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Consumer protection, which includes making better decisions around client management issues, identifying patterns indicating potential problems and responding promptly to customer complaints, has been evolving over the past 20 years, shaped by events such as the Enron collapse and the crisis in subprime mortgage lending.
Amid all the rules and regulations, banks and other financial institutions must find a way to navigate consumer protection to avoid possibly onerous fines, as well as to maintain their public image and reputation. To help banks with this task, we have identified four key characteristics of successful consumer protection programs:
Despite the challenges, banks that align themselves with consumer protection trends should create a significant competitive advantage for themselves and their stakeholders.
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Consumer protection has been evolving over the past 20 years, shaped by events such as the Enron collapse, the crisis in subprime mortgage lending and the insolvency of mortgage guarantors Fannie Mae and Freddie Mac.
The Consumer Finance Protection Bureau (CFPB) was established as an integral element of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The CFPB, with a broad mandate encompassing writing rules, supervising companies and enforcing consumer financial protection laws, can be seen as a direct response to lending and marketing practices that contributed to the 2008 financial crisis, including increased access to credit and rapid expansion of consumer and mortgage debt.
The key elements of consumer protection can be summarized as follows:
To get all of these elements in place and operating in a complementary manner, banks need to work through systematic changes in governance, customer communication, operations, policies and procedures, and data, technology and reporting.
Banks and other financial institutions have an obvious incentive to follow consumer protection rules and regulations—the need to avoid possibly onerous fines and penalties, which can disrupt operations, affect quarterly earnings and decrease market capitalization. But consumer protection, by making public complaints more open, can also have a direct impact on consumer choices—such as which bank they choose.
Through our work with banks and other financial institutions—and our research into leading industry practices in the area of consumer protection—we have identified four key characteristics of successful consumer protection programs:
Gaining leadership buy-in. Leadership buy-in needs to occur at all levels of the organization, from the executive leadership, to heads of lines of business, to call center managers and staff.
Being proactive. Organizations should be proactive in identifying issues before they are identified by the regulators. This not only helps solve issues before they affect customers, but mitigates issues before they come to regulators’ attention.
Staying well-informed. Successful organizations compile data that is easily accessible, objective, accurate and timely. They use key risk indicators (KRIs) giving executives the ability to understand what is happening and to take the appropriate actions.
Establishing a coordinated process. Coordination helps reduce costs and increases efficiency while addressing issues in a timely fashion. Issues are dealt with no matter where they are identified—whether by a line of business, by a regulator or by a customer.
In our view, consumer protection is here to stay and will grow in significance over the years to come. The trend towards consumer protection is highly complex and is evolving rapidly, with implications for many different operations at financial institutions.
Despite the challenging nature of the subject, banks can align themselves with consumer protection trends and improve their positioning relative to competitors. Those banks that do so—taking a strategic and proactive, rather than tactical and reactive approach to consumer protection—should create a significant competitive advantage for themselves and their stakeholders.
Fred KimFred is a managing director, Accenture Finance & Risk Services, North America banking industry lead. Based in Chicago, Fred has broad and deep consulting and industry experience in financial services and risk management across North America where he worked with global and large regional banks to transform their risk management and lending capabilities. His extensive experience in credit risk, operational risk and regulatory compliance helps executives and their firms become high-performance businesses.
Gabe JacobsenGabe is a manager, Accenture Finance & Risk Services, based in Chicago. With a strong focus on finance, strategy, risk management and performance management, Gabe brings his specialized functional experience to help financial institutions define, design and implement their target operating model assignments.
Christopher BeckChris is a manager, Accenture Finance & Risk Services, based in Chicago. Specialized in strategy planning, operational risk management and compliance risk management, Chris brings his solid experience and skills in these areas to help financial institutions define and implement their governance and risk management structures.
May 23, 2014
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