Consumer Compliance Outlook > 2024 > Second Issue 2024

Consumer Compliance Outlook: Second Issue 2024

Consumer Complaints 2023: A Review of Federal Reserve Data

By Alinda Murphy, Lead Examiner, Federal Reserve Bank of Kansas City

“Consumer complaints are a critical component of the risk-focused supervisory program. The Federal Reserve uses data on consumer complaint activity in its supervisory processes when monitoring financial institutions, scoping and conducting examinations, and analyzing applications.”

—Board of Governors of the Federal Reserve System^†

The Federal Reserve System (System) collects, analyzes, monitors, and responds to consumer complaints it receives against certain financial institutions under the System’s supervision: state-chartered banks that are members of the System (state member banks) and selected nonbank subsidiaries of bank holding companies. Complaints against institutions outside of the System’s jurisdiction are forwarded to the agency with supervisory authority. Complaint trends are reported to Congress annually, and the reports emphasize the role of complaint data in providing supervisory perspective and direction.¹

Banks can use the System’s complaint data to inform their risk-focused analysis of where it may be beneficial to test their compliance risk management procedures and controls and provide customer financial education, as the data may reveal common systemic issues of which an institution was unaware. In this article, we discuss the themes and trends of the 6,012 consumer complaints the System received, investigated, and closed in 2023 for the institutions under the System’s supervisory authority (Table 1). Additionally, we highlight the bank products receiving the most complaints, high-volume complaint issues, and the actions taken in response to a complaint investigation. We conclude with lessons community banks may glean from the complaint data themes to enhance their overall consumer compliance risk management.

Table 1: Top Consumer Complaints in 2023 for State Member Banks

COMPLAINT PRODUCTS MIX

Of the total complaints investigated and closed in 2023, the products receiving the highest volumes of complaints were deposit accounts (51 percent), prepaid cards (23 percent), and credit cards (20 percent). All other types of bank products and services comprised less than 10 percent of complaint volumes (Figure 1).

Figure 1: Percentage of 2023 Complaints by Product Type

2023 TOP 10 COMPLAINT CATEGORIES

The 2023 list of top 10 complaint categories was the same as in 2022, with one exception. In 2023, funds availability issues became the highest volume category, surpassing fraud/forgery issues (Figure 2).²

Figure 2: Top 10 Complaint Categories in 2023

Following are examples of common types of complaint allegations within each category.

Funds Availability

Over half of the complaints in this category involved bank prepaid cards and mobile banking services. Consumers often alleged that they were not given timely access to tax refunds and other specific types of deposits or could not activate prepaid cards. Some complaints alleged consumers’ funds were held because of bank concerns about potentially fraudulent or suspicious activity by the consumer or a third party. In addition, consumers stated that bank error resolution investigations resulted in their funds being unavailable over long time frames.

Fraud/Forgery

A large percentage of fraud/forgery complaints involved identity theft affecting deposit, credit card, and prepaid card accounts. Consumers reported accounts opened without their authorization (including receiving unsolicited debit and credit cards) and fraudulent activity on existing accounts. In several instances, consumers stated they were victims of scams, data breaches, or counterfeited and altered checks.

Error Resolution

Complaint allegations primarily related to deposits and prepaid cards, and a substantial majority of the complaints involved mobile banking services. Generally, consumers disputed unauthorized account withdrawals that were, in most instances, electronically generated. Consumers often stated the unauthorized withdrawals resulted from fraud and scams, disputed purchases, and person-to-person transfer errors. Consumers also requested resolution of unanticipated bank fees they stated were applied in error.

Restricted/Blocked Accounts

Most complaints in this category involved prepaid cards and deposit accounts, and a high percentage involved mobile banking services. Consumers alleged that access to their accounts was blocked because they reported identity theft or unauthorized transactions. Additionally, several consumers stated they experienced significant hardship when accounts were blocked over extended time frames, especially when the accounts contained wages or government benefit payments.

Credit Reporting

Over 80 percent of the complaints in this category related to credit cards, including:

• allegations that banks failed to report or misreported data to the consumer reporting agencies (CRAs) and
• requests for the CRAs to remove accounts and inquiries that resulted from fraud or identity theft.

Fees/Terms/Rates

This category includes general complaints about all types of deposit and loan fees, rates, and terms. Complaints involved a wide range of bank products and services but were primarily related to credit cards and mobile banking. This category also included complaints alleging that banks failed to honor specific account terms and promotional offers. The complaints involved fees for credit card activation, overdrafts, late and returned items, account maintenance, and automated teller machine (ATM) use.

Account Closures

Complaints in the account closure category largely related to deposit products and credit cards. In several complaints, consumers alleged accounts were not closed when requested, accounts were closed unexpectedly, or closing fees were improperly assessed. Consumers also reported that the remaining funds in closed accounts were not returned in a timely manner and that rewards, bonuses, and other promotions were not honored after accounts were closed.

Other

This category included a variety of issues, several of which were not associated with specific bank products or services. Consumers stated concerns about data sharing and privacy, trust accounts, and bank procedures for handling the assets of bankrupt and deceased customers. General concerns related to bank customer service, such as being unable to reach bank employees, including customer service staff, were also raised.

Applications/Account Openings

Application/account opening complaints generally involved deposits and credit cards. Complaint allegations included banks not approving consumers’ requests to open loan or deposit accounts and that, after accounts were opened, account terms differed from what was disclosed or expected. Moreover, consumers disputed bank account opening policies, procedures, and disclosures. Included in this category were complaints about card activation policies and adverse action notices.

Deposits

Deposit complaints related to many types of deposit concerns, with several involving mobile banking systems. Consumers primarily stated that check and electronic deposits were missing from account balances or were not properly credited or categorized.

Disbursements

Most of these complaints involved tax refund disbursements, including the bank’s inability to locate disbursements, releasing disbursements to the wrong accounts, or restricting consumer information about disbursements and their ability make them.

Additional Complaint Issues

The violations discussed above do not reflect complaints potentially subject to Section 5(a) of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices (UDAP).³ In 2023, the System reviewed about 12 percent of consumer complaints for UDAP compliance. The highest volume of potential UDAP complaints related to funds availability.

The data also indicate a high percentage of the top four complaint categories involved bank accounts offered through third-party relationships. Finally, some consumers experienced difficulty reaching appropriate bank staff to resolve their complaints, prompting them to contact Federal Reserve Consumer Help for assistance.

INVESTIGATION FINDINGS

In most cases, consumers are notified in writing of the result of an investigation. Some investigations determined that federal consumer protection laws and regulations were violated or that bank errors occurred unrelated to regulatory violations. If applicable, the bank was ordered to provide restitution to the consumer for violations. In other cases, it was determined no violation of federal law occurred. Finally, some complaints were referred to the appropriate federal agency to investigate.

From 2019 to 2023, the volume of violations and bank errors increased (Figure 3). Nonetheless, the number of complaints resulting in violations or errors was relatively low. In 2023, about 3 percent of complaint investigations found regulatory violations.

Figure 3: Trends in Complaint Investigations Finding Violations and Bank Errors

Violation Statistics

Over the past five years, the largest number of violations found during complaint investigations involved bank Regulation E error resolution procedures for deposit accounts and prepaid cards. In 2023, 74 percent of violations related to Regulation E, concerning restricted/blocked accounts, fraud/forgery, funds availability, and error resolution.

Bank Error Statistics

In 2023, complaint investigations determining bank errors primarily involved funds availability, error resolution, and restricted/blocked accounts. Examples of funds availability complaints resulting from bank error included customers being unable to access specific types of deposits such as tax refunds and government benefit payments (Figure 4). Some complaints involved customers being unable to access funds on prepaid cards.

Figure 4: Violations by Complaint Product Type

CONCLUSION

The complaint data themes and trends in this article provide useful compliance risk management information for banks, including these four observations:

• Funds availability. This issue had the highest overall complaint volumes and the largest numbers of complaints resulting in regulatory violations and bank errors. Thus, bank management may consider reviewing and monitoring its policies, procedures, and practices related to the conditions under which deposit account and prepaid card funds are not made available to customers in a timely manner or in accordance with bank contracts, disclosures, or applicable law.
• Applying a UDAP lens. The volume of complaint investigations segregated for review for compliance with UDAP indicated the importance of banks analyzing complaints through a UDAP lens.
• Customer service. For Regulation E error resolution complaints, consumers stated unresponsive bank customer service and improper error resolution practices prompted them to contact Federal Reserve Consumer Help for assistance. The volume of investigations finding regulatory violations from these complaints underscores the importance of effective bank customer service and compliant error resolution practices.⁴
• Consistent documentation. Complaint issues often arose from consumers disputing when deposited funds would be available and the rates, terms, and conditions of loan and deposit accounts. These issues showed the need for clarity, accuracy, and consistency in and between advertisements, contracts, and disclosures.

Specific issues and questions should be raised with your primary regulator.

ENDNOTES

† “Consumer Compliance,” Board of Governors of the Federal Reserve System, accessed July 1, 2024, https://www.federalreserve.gov/supervisionreg/consumer-compliance.htm.

¹ See Report to Congress: 109th Annual Report of the Board of Governors of the Federal Reserve System (2022), pp. 100–101.

² In 2022, complaints related to fraud/forgery comprised 21 percent of complaints, while those related to funds availability comprised 15 percent of complaints. See “Introducing Our New Format,” Governor Michelle Bowman, Consumer Compliance Outlook (First Issue 2023).

³ 15 U.S.C. §45(a).

⁴ See “Regulation E — Error Resolution Examiner Insights,” Outlook Live Webinar (December 12, 2019); and “Top Federal Reserve System Violations in 2022: Regulation E Error Resolution Requirements and Regulation X Escrow Account Requirements,” Consumer Compliance Outlook (Fourth Issue 2023).