The Consumer Financial Protection Bureau (CFPB) has received over two million complaints involving consumer protection violations. With this complaint database publicly available for customers to see; does it have any influence on consumers banking decisions?
The challenge
In the final quarter of 2022, deposits totalled $17.26 trillion in the United States – accounting for 70% of banks’ overall funding. These figures reflect the importance of customers trust in financial institutions, with the volume of deposits shaping the availability of a bank’s credit. When large groups of consumers experience a lack of trust in their bank and opt to withdraw all of their money at once (referred to as a depositor run) financial systems may fail – highlighted in the collapse of both Silicon Valley Bank and Credit Suisse Bank in 2023.
Past research in this area has focused on the causes and consequences of depositor runs – finding that depositors rationally incorporate fundamental information about their bank's financial health during a crisis. However, outside of these high-stress periods there is limited understanding of deposit flows. This research aims to uncover whether consumers use non-financial information - such as the experiences of other consumers through word of mouth or news - to guide their banking decisions.
Solution
To shed light in this vital issue, the research team have explored the consumer complaints database made publicly available by the Consumer Financial Protection Bureau (CFPB). The primary objective of the CFPB complaint database is to empower consumers to develop a more comprehensive understanding of unfair or deceptive practices – helping depositors avoid engagement with malicious financial service providers. This research aims to understand whether depositors take this non-financial information into account when allocating savings. In exploring the database, the research team aim to identify: the relationship between deposit growth and levels of complaints; which complaint types have the most influence on deposit growth; and the effect of exposure to public complaints on depositors.
Outcome and impact
The results shed light on the importance of transparency in the banking industry – highlighting the need for financial institutions to address consumer complaints and improve their services to maintain deposit growth and financial stability.
In exploring the CFPB complaint database, the research team has identified multiple trends that indicate consumers incorporate complaints in their savings allocation decisions. The first of these was a strongly negative relationship between deposit growth and levels of complaints – especially those related to checking and saving accounts. Our research suggests that depositors monitor and hold banks accountable for financial misconduct, this is particularly the case for large banks as opposed to smaller banks (which is consistent with small banks' higher satisfaction rates). We found that consumer education plays a crucial role in empowering depositors to exercise discipline over banks. By considering non-financial information and demographic factors, policymakers and regulators can gain insights into consumer behavior and develop strategies to enhance consumer protection and promote a more resilient banking system.
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