The battle lines have been drawn since the Trump election, and now the future of the Consumer Financial Protection Bureau hangs in both the courts and congressional actions.
“The CFPB has proven to be a strong consumer agency that helps level the playing field for working families … big banks and their allies in Congress are so eager to strangle the agency any way they can.” -Senator Elizabeth Warren
“No person in America, particularly an unelected person, should have the power, unilaterally, to decide what credit cards should go in our wallet, whether or not we can have a mortgage, and whether or not, if we like our banker, we can keep her. This agency is just out of control.” -Jeb Hensarling, House Finance Committee Chairman
There’s a laughable irony in the looming chopping of the CFPB’s autocratic power. The scariest agency in the financial industry assumes the role of police, prosecutor, judge, jury and executioner with complete authority to protect its own interests – and consumers, when convenient. After having the structure deemed unconstitutional, it appears to be a matter of time before the CFPB will have its own oversight to consider and be accountable itself. I suppose it is poetic justice that it is its own damn fault.
The fact of the matter is none of this would have come about if the CFPB took a healthy dose of its own prescribed medication to cure its often-diagnosed Unruly Bank Syndrome. Clearly defined terms, reasonable means to dispute, and fair due process have been at the heart of millions of dollars’ worth of bank fines, yet have been sorely lacking internally. The organization that was born out of and scorned bad self-management suffered from the same disease. Maybe poor governance is contagious.
The phenomena of regulation and other hurdles resulting from bad business decisions is a tale that is regularly repeated. The unscrupulous actions of a relative few at Enron made way for Sarbanes-Oxley. Not to mention Arthur Anderson’s involvement ending an era of self-regulation for the accounting industry as the Public Oversight Board gave way to the Financial Accounting Standards Board and further Securities and Exchange Commission scrutiny. Fast forward to the BP oil spill that is now costing the industry hundreds of millions of dollars to comply with new regulations.
While the involvement of Wall Street banks that helped create the most recent financial crisis set the precedence for Dodd-Frank and the CFPB itself, it’s not as if they didn’t have it coming. Decades worth of hidden fees and 10-page credit card applications weren’t exactly consumer friendly.
Debating whether the industry got what it deserved or if all the increased regulation has really benefited consumers is of little use. What is of value is learning the lesson that the CFPB didn’t. Part of good business is not putting a target on your back. Especially because the regulatory pendulum has a habit of swinging too far in the other direction. More importantly, no one is going to spend political capital to move mountains in Washington over a possible problem.
The fraudulent activity of several Wells Fargo employees is a sobering reminder that governance and risk management shouldn’t simply be “check the box” exercises. Believing any group of branch employees wouldn’t succumb to the same pressures of mismanaged incentive programs and misguided goals is naively optimistic. And the potential is there as Cornerstone research showed that “Improving Sales and Marketing Methods” is a top priority in 2017 even for the member-centric credit union industry.
Now is not the time for bankers to gloat about ebbing CFPB power and dream that consumer financial regulation will disappear. It’s time for GonzoBankers to commit to self-managing a growth-oriented organization with an ethical discipline that aligns with consumer interests. Here’s a list of internal “We Will” statements that any well-managed bank should embrace:
Do more than just accept customer complaints. Organizations have made progress at taking complaints from customers, but few are translating them into reputational risks. Identify an advocate for customers who owns the consumer feedback and give that individual a voice to fix poor moments of truth. And by the way, we deserve what’s coming if the easiest method to submit a complaint and get a response is through the CFPB.
War game new incentive plans and consumer fee structures. As an analytical manager at Bank of America, I was given three proposals for new incentive plans and told, “Go break these.” My mission was to find scenarios of how the programs potentially conflicted with bank or consumer interests and develop a strategy to address them. Plans shouldn’t be approved until the vetting process has reviewed the upside as well as the possible pitfalls.
Consult the frontline. Leverage the natural empathy of frontline employees developed from talking to customers all day long. Tellers and call center agents are an internal focus group that are extremely vocal about what their customers won’t like when asked for feedback. Change proposals with customer impacts should be run through Retail executives who are tapped into customers’ hearts and minds via their large network of everyday interactions.
Prevent ethical conflicts during goal-setting. The ambitions of a visionary leader are balanced by the calculator of a realistic nerd. We will always strive to improve and reach for stretch goals, but fact checkers should confirm that our targets aren’t just setting the team up for failure. If there’s one thing we learned from Wells Fargo, it’s that the number of credit card applications can magically exceed the number of people walking through the door when money and jobs are on the line.
Be mindful of the next stupid mistake. The CFPB’s upcoming distractions will tempt some to find creative fee income opportunities. Dynamic deposit pricing model ideas are just asking for trouble. Rates will continue to rise, which will generate a strong desire to aggressively grow more profitable loans as competition increases. Who in the organization has the responsibility (and clout) to push back on a terrible idea perpetuated by ambitious revenue growth and dangerous group think?
The CFPB may not be completely declawed and will still be looking for public examples to justify another $55 million HQ renovation budget. Moreover, the mega banks have effectively closed the customer satisfaction gap due to unrivaled digital experiences. GonzoBankers realize that offering a personal and reliable relationship through the eyes of the customer is the most effective way to stay out of the regulatory spotlight and chip away at market share opportunity.
What a happy coincidence that doing right by customers also happens to be great for business.
-RM