The New “Yelp.com” for the Consumer Finance Industry

shutterstock_112692412Introduction

Since the creation of the Consumer Financial Protection Bureau (“CFPB”) in 2010, the CFPB has been accepting consumer complaints regarding financial services companies, and has been publishing data regarding these complaints in a publicly-available Consumer Complaint Database (“CCD”). As of March 1, 2015, the CFPB had processed approximately 550,000 such complaints. The CCD does not publish positive feedback about financial services companies – it only publishes complaints. The CCD also does not compare the volume of complaints about a given company with the total volume of consumer transactions originated by the company.

Until recently, the information contained in the CCD was limited to data about complaints, and did not include detailed allegations by the consumer. Specifically, the CCD contained “basic, anonymous, individual-level information about the complaints received, including the date of submission, the consumer’s zip code, the relevant company, the product type, the issue the consumer is complaining about, and how the company handled the complaint.”

However, the CFPB recently added a new feature to the CCD: namely, consumers now have the option to publish a “narrative” regarding the complaint. The narrative, written by the consumer, elaborates on the consumer’s allegations against the company. The consumer’s complaint is published anonymously, while the accused company is identified by name. As of June 25, 2015, the CFPB already had published “over 7,700” complaint narratives.

Before submitting a complaint narrative, the consumer must check a box stating: “The information given is true to the best of my knowledge and belief.” The consumer is not asked to acknowledge that the information is being submitted under penalty of perjury. The form does not advise the consumer of any penalties for submitting false or misleading information.

The CFPB does not take any steps to investigate or confirm the consumer’s allegations before adding the “narrative” to the CCD. The CFPB has explicitly stated that it “is not committing to verify the details contained in each complaint narrative,” and “does not adjudicate the merits of each individual complaint . . .” The accused company theoretically has the right to publish a response to a complaint, but clearly is handcuffed because of concerns about possible liability for the unauthorized disclosure of a consumer’s private financial information.

However persuasive the company’s response may be, the complaint generally will remain in the CCD. The CFPB will refrain from publishing a complaint only if the company (1) “suspects the complaint was submitted in furtherance of a fraud,” or (2) “indicates to the Bureau that it does not have a commercial relationship with the consumer.”

The CFPB has announced that it intends to use the CCD as an enforcement tool. As stated on the CCD Website: “Every complaint provides insight into problems that people are experiencing, helping us identify inappropriate practices and allowing us to stop them before they become major issues.” This phrasing appears to presume that these complaints are well-founded, notwithstanding that the CFPB is not necessarily investigating such complaints.

The Problem

Yelp.com publishes reviews of restaurants. Tripadvisor.com publishes reviews of hotels. The CCD is essentially a similar Website for aggregating “reviews” of financial companies. Of course, Yelp.com and Tripadvisor.com allow positive and negative feedback, whereas the CCD only publishes complaints. And the CCD is a “.gov” Website operated by a bureau of the United States Government. But in the end, the CCD is just a review aggregation Website.

The problem lies in the possibility that the CCD will be used against financial companies in connection with enforcement actions or lawsuits. The CCD is a database of hearsay statements. The use of hearsay statements as evidence is prohibited under the Federal Rules of Evidence. Under the Federal Rules, a hearsay statement is defined as an out-of-court statement offered for the truth of its contents. The hearsay rule recognizes the fundamental unfairness of admitting testimony when the declarant has not been cross-examined by the accused.

The CCD is essentially a compilation of over half a million hearsay statements. Each complaint in the CCD is an out-of court statement, and virtually any attempt to use CCD against a company would implicitly assume that such complaints are truthful. The Federal Rules do not contain any exception for “compilations” of hearsay statements. With good reason – if the use of one hearsay statement by a plaintiff would unfairly prejudice the defendant, the use of thousands of hearsay statements would compound that prejudice exponentially.

The hearsay rule contains a “residual exception” that permits a hearsay statement to be admitted into evidence if it is sufficiently reliable. But it is difficult to imagine how the CCD could satisfy that standard. Indeed, common sense suggests that the CCD is likely even less reliable than sites such as Yelp or TripAdvisor in terms of complaint accuracy. After all, it is easy to imagine a consumer filing a false complaint about a financial company to create leverage in relation to a dispute regarding an outstanding mortgage, student loan, or credit card debt.

Nonetheless, the CFPB has indicated that it will use the CCD for enforcement purposes. And private plaintiffs likely will follow suit by citing CCD data in cases against financial companies. Such attempts to use this data will become a new battleground in consumer financial services litigation, particularly in cases involving “predatory lending” claims.

There is currently no legal precedent that specifically addresses the admissibility of the CCD from the perspective of the hearsay rule. In one published decision, the Ninth Circuit Court of Appeals held that data from a consumer complaint database operated by the Federal Trade Commission (“FTC”) could be admitted into evidence in a lawsuit against a company, based on the “residual exception” to the hearsay rule. See FTC v. Figgie Int’l, Inc., 994 F.2d 595 (9th Cir. 1993). However, Figgie was a unique case because the FTC used the information contained in the database for the limited purpose of establishing the market price of a product sold by the defendant based on reports by consumers regarding the prices they had paid. While the defendant knew the price of its own product, the defendant did not seriously dispute the FTC’s allegation, and the Court determined that under these circumstances the FTC’s use of the database was reasonably reliable. Plaintiffs likely will seek to use the CCD against financial companies in a far more aggressive fashion.

Conclusion

Only time will tell whether courts will conclude that the CCD constitutes inadmissible hearsay. In each given case, the issue may turn in part on what specific cross-section of CCD data is at issue, and the specific way in which the plaintiff is seeking to use the data. In the meantime, however, financial services companies should vigilantly track and timely respond to consumer complaints filed with the CFPB. If a complaint appears to have been submitted in furtherance of a fraud, or if the consumer does not have a commercial relationship with the company, the company should promptly request that the CFPB refrain from posting the complaint to the CCD.

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Eric Epstein

Eric Epstein

Eric has over 10 years of litigation experience. He has first-chaired trials in federal and state courts. Eric also serves as an adjunct instructor at Columbia University School of Law, where he teaches legal writing and oral advocacy.

Brent Ylvisaker

Brent Ylvisaker

As an associate in Dorsey’s Finance & Restructuring Group, the types of areas in which he works include: banking regulations (e.g., affiliate transaction rules), consumer financial protection laws, Bank Secrecy Act and anti-money laundering regulations, financial data privacy and protection, state financial laws (including lending license requirements and usury laws) and e-commerce (e.g., E-SIGN and virtual currency).

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