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Vetting the Consumer Financial Protection Bureau

With a mandate to regulate banks in the name of the American public, Elizabeth Warren and the Consumer Financial Protection Bureau have some lofty goals.

As the Consumer Financial Protection Bureau prepares to open its doors for business on July 21 and, under the auspices of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and begin its mission of regulating consumer financial products, it is looking for a unique partner. The new regulatory body's de facto leader, Elizabeth Warren, assistant to the president and special adviser to the Secretary of the Treasury on the Consumer Financial Protection Bureau, has turned to the public for suggestions.

In all, the Consumer Financial Protection Bureau will serve the public by performing outreach and research, collecting and tracking consumer complaints, ensuring equal opportunity, and providing financial education. In that role, and on a level that directly affects banks -- that is, in monitoring

and acting upon consumer complaints and in collecting research on banking activities -- the CFPB's mission comes down to one thing: how it manages data.

But Warren's ideal of a public-private partnership will create some serious data challenges for the regulator. "If [Warren] has millions of people giving her pieces of information, then that's fantastic," says Ron Ruckh, managing director of financial services for Devon, Pa.-based global expert services and consulting group LECG. "I don't know the technology she's using or how the bureau is going to analyze that data. The amount of data that it can be, I can't even assess a value or number to that."

Warren, a Harvard law professor, author and expert on finance and bankruptcy, has been chief adviser to the National Bankruptcy Review Commission and was the first academic member appointed to the Federal Judicial Education Committee. While Warren's office did not respond to requests for comment for this article, she launched the Consumer Financial Protection Bureau's website in January with a simple message:

"The idea was to put a cop on the beat to enforce the laws on credit cards, mortgages, student loans, prepaid cards and other kinds of consumer financial products and services," Warren said in a video introducing the bureau to the public. "We're also here to be a voice in Washington for you."

While she acknowledged in the video that there's work to be done to get the bureau off the ground, Warren emphasized that it won't be successful without ideas generated by the public. "We are now open for suggestions," Warren continued. "In the coming days and weeks we'll gather all of your ideas for the new consumer bureau. We're going to think through your comments and concerns, and then put together some video responses."

Social Butterflies

To that end, the bureau's website,, appears to have been set up with the social web in mind. On every blog post, video and update, there are social elements encouraging visitors to help broadcast the message virally across Facebook and Twitter. But it also aims to get people to send a message back to the CFPB. "For the first time in many years, we have the opportunity to create a brand-new consumer agency from the ground up," Warren explained in the video. "We want to make sure that you are with us all the way while we build it."

As if channeling the zeitgeist that dictates the general public generally shares its thoughts and feelings through social media, the CFPB doesn't actually list a telephone number on its suggestion solicitation page, but rather takes a more decidedly Web 2.0 approach. The CFPB website looks for suggestions via Twitter (using the #cfpb hashtag), through a YouTube video response or through a built-in e-mail contact form.

Monitoring the entire social web for consumer input is a valiant undertaking, LECG's Ruckh suggests. It opens up an unprecedented amount of transparency and potential for widespread customer insight on what is working and what isn't working in consumer banking. But it also creates a massive amount of data to sort through before the bureau even begins asking for banks' input. And not all of that information will be useful.

For example, "If I turn around and tweet from my phone because I got annoyed by my bank, now you're looking at some information that means nothing," Ruckh says. "A bank annoyed me."

While it's unknown which monitoring tools the CFPB is using, the regulator already has shown signs that it's listening, posting (as of press time) eight response videos to various questions -- either explaining what the bureau is working on or its goals within a certain area, or simply where consumers can go to find more information.

But the bureau's job is only just getting started; in fact, it's still being defined. "At the end of the calendar year there were still 11 upcoming Dodd-Frank Act final rules that had not been issued yet, just in the consumer protection area alone," says J.H. Caldwell, a Charlotte, N.C.-based partner in Deloitte's regulatory and capital markets group.

Meanwhile, the Consumer Financial Protection Bureau already has one thing from banks, consultants and the general public alike: everyone's attention. "Everybody's waiting to see how they pull it off," LECG's Ruckh says of the CFPB's enormous mission. "It's going to be an interesting thing. Everything that Ms. Warren has announced on how she wants to do it, I think is some great stuff. I really want to see it executed."

While the CFPB continues to gather public input, and while the final rules under Dodd-Frank are established toward the end of protecting consumers, there still is time for banks to begin proactively addressing the potential changes ahead. As the CFPB addresses the challenge of sorting through the potentially massive amount of data coming in from consumers, there's an opportunity for banks to align with several best practices that, while not yet necessarily tied to written rules, could be the difference between an organization ready to react to new regulation and one that has to.

"You'll see banks that are reacting to this in a series of different ways," Deloitte's Caldwell says. "One of those reactions from banks is that they're willing to sit back and wait. I think that's setting themselves up for a little bit of a fire drill when those rules take place. Some banks are working to understand everything as it's coming out, developing strategy and moving forward. I think those organizations are going to find these activities easier."

It All Comes Back to Data

So where does the preparation begin? "It all comes down to data," LECG's Ruckh asserts, repeating the oft-heard mantra. "Always has, always will."

Regardless of any specific legislative demands, solving the data problem is nothing short of fundamental, experts agree.

"One could also offer that there's an element of irony in some of this, from the technology implementation side," notes Mat Small, a partner in New York-based Capco's technology practice in North America. "The work that people will need to do in order to affect [data] rationalization -- the single version of the truth -- that's not new."

But that doesn't mean preparing for whatever new rules the CFPB may enact lacks urgency. And, as Deloitte's Caldwell says, banks -- at least the smart ones -- are mobilizing teams to address regulation at an enterprise level right now.

"There's clearly a lot of activity that's going on," he relates. "If you think of consumers individually, the banks, whether it's data or technology or even the process or the people -- they still operate in silos." And those silos stand in the way of obtaining a view of the customer akin to what Capco's Small described as a single version of the truth.

And to Caldwell, this is the real problem. The age-old issue of separating products and channels is a greater weakness than ever under the supervision of the Consumer Financial Protection Bureau. The CFPB, by its nature, he suggests, won't weigh one channel against the next, or one consumer's interaction with one product versus that same consumer's interaction with another. No matter how many products a bank offers, under whatever terms or configurations or add-ons, it all comes back to understanding a customer's interaction with those products and relationship with the bank -- across all channels.

"What we're seeing is some organizations come in and say, 'Hey, we have one customer -- if we continue to run these channels individually, we're impacting the cutomer experience,' " Caldwell explains. "You can't gain enterprise efficiencies by not managing all channels together."

According to LECG's Ruckh, the first step in aligning data, streamlining processes and having a single version of the truth to report to government regulators is as simple as reflecting on the old adage, "The customer comes first." "Somewhere it has to come back to client service," he says.

"Once you can centralize it on a client, then the Consumer Financial Protection Bureau is going to get all their information and you know everything about the client. Therefore, you match up," Ruckh adds. "To me, it all swings back together."

Renewed Urgency

All of this has upped the urgency among banks to get data management right. From a bank perspective, data rationalizaton and analytics can help build a clear picture of the customer and how the customer interacts with the bank's various products. Reporting to the CFPB simply adds an incentive to get it right.

"The drivers of the past continue to exist today," Capco's Small says. "[The CFPB] is just an incremental driver that's going to force data rationalization to become more of a front runner in terms of IT spend. It's a significant push, data rationalization -- some can argue that it's been listed as one of the top five or top 10 priorities of large financial institutions for the last 10 years."

The banks that ultimately are most successful will be those with a clear vision from leadership that dictates the reporting requirements of the CFPB are met with an organized strategy and data that points to a single version of the truth. "While the analytics may be rudimentary or basic to the silo or the specific line of business, it's much more difficult for the organization as an enterprise to produce, understand and mobilize itself around that information," Caldwell explains. "Clearly I think the business is going to drive the conversation because they are going to be the ones that organize what it is that needs to be done."

Depending on the size of the organization, that could translate to several different technology approaches, he adds. But at every level the threat of new regulation also could mean an opportunity for IT to sunset legacy systems and modernize the ways a bank does business from a technology perspective. "This actually gives them an opportunity to get it right," Caldwell says.

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