July 5 is the deadline to submit comments on proposed California Department of Financial Protection and Innovation (DFPI) complaint handling and reporting regulations that would impose significant obligations on certain service providers consumer finance in California. Affected vendors should seriously consider commenting on the proposal because of the onerous burdens it would impose on mandatory responses to every “complaint” and “inquiry”; required reports to the DFPI on complaint statistics and trends, which the DFPI would make public; and demanded changes to contracts with third-party service providers whose conduct could be at issue in a consumer complaint.
DFPI released proposal to implement California Consumer Financial Protection Act (CCFPL) Section 90008, which requires DFPI, by rule, to require certain “Covered Persons” to provide timely responses consumer complaints and inquiries.
Who would be affected by the proposal?
As we noted prior to the adoption of the CCFPL, the term “covered person” is broadly defined to include any person who offers or provides a consumer financial product or service to California residents. But then the CCFPL exempts from coverage a large number of people who fit the definition but are already subject to some level of supervision by California or another agency. The proposed complaint handling regulations add two categories of exempt persons: (i) any consumer reporting agency as defined by the Fair Credit Reporting Act and (ii) any student loan officer as defined by Section 1788.100 (s) of the California Civil Code. But even after these exemptions, the proposed regulations on handling complaints would still apply, among others:
- Merchants, retailers, and others routinely extend consumer credit under the federal Truth in Lending Act, such as through retail installment sales contracts that meet certain conditions
- Collection agents
- Payday lenders operating under the California Deferred Deposit Transaction Act
- Persons and entities providing debt settlement and credit repair services
The heavy demands proposed
The proposal would require responses to both “complaints” and “inquiries”:
- A “complaint” generally refers to any expression of dissatisfaction by a consumer with a financial product or service.
- An “enquiry” would mean a question or request for information, interpretation or clarification submitted by a consumer regarding a specific issue or problem with a financial product or service.
1. Complaint Requirements
The regulations would require affected consumer financial service providers to issue a written “final decision on all matters” for each complaint within 15 calendar days of receiving it. This written response should include the following details: an explanation of the decision, the specific reasons for the decision, a summary of the steps taken to respond to the complaint, and any corrective action that will be taken in relation to the complaint.
The recipient of a complaint may extend the response time for up to an additional 45 calendar days if it provides the complainant with a written update regarding the status of the complaint within three calendar days of the end of the initial response period. 15 days.
The regulation would also require affected providers to, among other things:
- Maintain a phone number through which complainants can file oral complaints either (i) to a live representative during normal business hours or (ii) to voicemail, which should be returned by a live representative within 24 hours.
- Disclose in all written communications to consumers of financial products or services, except text messages, the procedures for filing complaints in at least 12 point text.
- Post prominently at or near the top of the main page of their websites a link to a complaint form and instructions on how consumers can submit oral and written complaints.
Public reporting to the DFPI: Affected providers would also be required to submit very detailed statistics on the handling of complaints to the DFPI every quarter, along with a description of any “pattern of complaints” and a “summary of any corrective actions taken” . These submissions to the DFPI would be made public.
Third-party service providers: Relevant providers should also contractually require third-party service providers to conduct independent investigations, in addition to the providers’ own investigations, into complaints about the third party’s conduct.
2. “Requests for Information” Requirements
Requirements for handling “inquiries” would be similar to requirements for handling complaints, with a few exceptions, including that recipients: (i) would need to review each request to determine whether it should be treated as a complaint; (ii) would not be entitled to an extension of the 15 calendar day period to respond to a request; (iii) should submit to the DFPI an annual (rather than quarterly) report on the investigations, which would apparently not be made public; and (iv) would not need to require third party service providers to conduct independent investigations of inquiries.
why is it important
Mandatory complaint and inquiry processes and reporting requirements may require a substantial investment of compliance resources, especially as reports become public. Further, the requirement that relevant vendors require third party service providers to conduct independent investigations of consumer complaints involving the third party may add significant transaction costs to negotiating such third party relationships. Similarly, existing contracts with third-party service providers should be amended to comply with this requirement.
Affected vendors may also find it difficult to fully and adequately respond to complaints and inquiries within the relatively short response time allowed by the proposal. The proposal would also appear to require responses even to frivolous or irrelevant disputes, disputes filed by credit repair agencies, and duplicative disputes.
In light of these concerns, affected consumer financial service providers should strongly consider submitting comments to the DFPI by the July 5 comment deadline. If you would like assistance in preparing comments, please contact one of the authors or the Manatt professional you work with.