Comment Deadline Approaching for CA’s Burdensome Proposal on Handling and Reporting Complaints

Financial Services Law

July 5 is the deadline for submitting comments on the California Department of Financial Protection and Innovation’s (DFPI) proposed regulations on complaint handling and reporting, which would impose significant obligations on certain providers of consumer financial services in California. Affected providers should strongly consider commenting on the proposal due to the substantial burdens that it would impose with respect to mandatory responses to every “complaint” and “inquiry”; required reports to the DFPI on complaint statistics and trends, which the DFPI would make public; and required amendments to contracts with third-party service providers whose conduct could be at issue in a consumer complaint.

What Happened

The DFPI issued the proposal to implement Section 90008 of the California Consumer Financial Protection Law (CCFPL), which requires the DFPI by rule to require certain “covered persons” to provide timely responses to consumer complaints and inquiries.

Who Would Be Affected by the Proposal?

As we noted in advance of the adoption of the CCFPL, the term “covered person” is defined broadly to include any person that offers or provides a consumer financial product or service to California residents. But then the CCFPL exempts from coverage a large number of persons that fit within the definition but are already subject to some level of California or other agency supervision. The proposed regulations on complaint handling add two categories of exempted persons: (i) any consumer reporting agency as defined by the Fair Credit Reporting Act and (ii) any student loan servicer as defined by Section 1788.100(s) of the California Civil Code. But even after these exemptions, the proposed regulations on complaint handling would still apply to, among others:

  • Merchants, retailers and others regularly extending consumer credit under the federal Truth in Lending Act, such as through retail installment sales contracts meeting certain conditions
  • Debt collectors
  • Payday lenders operating under the California Deferred Deposit Transaction Law
  • Persons and entities providing debt settlement and credit repair services

The Burdensome Proposed Requirements

The proposal would require responses to both “complaints” and “inquiries”:

  • A “complaint” would generally mean any expression of dissatisfaction from a consumer regarding a financial product or service.
  • An “inquiry” would mean a question or request for information, interpretation or clarification submitted by a consumer regarding a specific issue or problem with a financial product or service.

1. Requirements for Complaints

The regulations would require affected providers of consumer financial services to issue a written “final decision on all issues” in each complaint within 15 calendar days of receipt. This written response would need to include the following details: an explanation of the decision, the specific reasons for the decision, a summary of the steps taken to respond to the complaint and any corrective action that will be taken in connection with the complaint.

A recipient of a complaint could extend the response time frame up to an additional 45 calendar days if it provides the complainant with a written update regarding the status of the complaint within three calendar days after the end of the initial 15-day period.

The regulations would also require affected providers to, among other things:

  • Maintain a telephone number through which complainants can make oral complaints either (i) to a live representative during regular business hours or (ii) in a voicemail, which would need to be returned by a live representative within 24 hours.
  • Disclose in all written communications to consumers of financial products or services—except for text messages—the procedures for submitting complaints in at least 12-point text.
  • Prominently display at or near the top of the main page of their websites a link to a complaint form and instructions on how consumers may submit oral and written complaints.

Public Reports to the DFPI: Affected providers would also be required to submit very detailed statistics on complaint handling to the DFPI every quarter as well as a description of any “patterns of complaints” and a “summary of all corrective action taken.” These submissions to the DFPI would be made public.

Third-Party Service Providers: Affected providers also would need to contractually require third-party service providers to conduct independent investigations—in addition to the providers’ own investigations—of complaints involving the third party’s conduct.

2. Requirements for “Inquiries”

The requirements for handling “inquiries” would be similar to the requirements for handling complaints, with some notable exceptions—specifically that recipients: (i) would need to review each inquiry to determine whether it should be handled as a complaint; (ii) would not be entitled to an extension of the 15-calendar-day period for responding to an inquiry; (iii) would need to submit to the DFPI an annual (rather than quarterly) report regarding inquiries, which apparently would not be made public; and (iv) would not need to require third-party service providers to conduct independent investigations of inquiries.

Why It Matters

The mandated complaint- and inquiry-handling processes and the reporting requirements may require a substantial investment in compliance resources, particularly given that the reports will become public. Further, the requirement that affected providers require third-party service providers to conduct independent investigations of consumer complaints involving the third party may add significant transaction costs to negotiating such third-party relationships. Likewise, existing contracts with third-party service providers would have to be amended to conform to that requirement.

Affected providers may also find it difficult to fully and adequately respond to complaints and inquiries in the relatively short response time frame allowed by the proposal. The proposal also would appear to require responses even to frivolous or irrelevant disputes, disputes filed by credit repair organizations, and duplicative disputes.

In light of these concerns, affected providers of consumer financial services should strongly consider submitting comments to the DFPI in advance of the July 5 comment deadline. If you would like assistance in preparing comments, please contact any of the authors or the Manatt professional with whom you work.



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