AS THE REGULATORY ENVIRONMENT has shifted to a customer centric focus, remediating customer harm has become a significant ongoing concern, not to mention a focus for our prudential regulators. Recent
headlines have placed a spotlight on banks and unfortunate events
that have caused customer harm. To name a few:
■ ■ ■ One bank should have refunded GAP insurance but failed to do so;
■ ■ ■ Military members were not afforded Servicemember Civil Relief Act (SCRA) protections
to which they were entitled;
■ ■ ■ Customers wrongly had their vehicles repossessed after their bank unnecessarily force-placed insurance on them; and
■ ■ ■ Due to a third party programming glitch, customers were charged $2 for some prepaid
card transactions rather than $1 as disclosed (see page 10 for more information).
Let’s face it: like it or not, mistakes will happen. And when they do, it’s important for the
bank to have a Remediation Policy that is proactive and consistent, and that makes customers whole in a timely manner. Banks need structured guidelines that will effectively and
maintain a strong customer risk-and-control framework, in the face of increasing external
challenges (regulations, technology) and an expanding customer base. With the proper
policy in place, the bank can achieve a more robust and sustainable control framework
over time. Here we discuss the merits of a well-documented Remediation Policy and how
to set internal standards and establish a disciplined process for a remediation process that
is a good fit for your bank now and in the future.
Affirm the Bank’s Commitment
POLICY TIP: Articulate the Board’s commitment to safe and sound banking
practices and consumer compliance—and acknowledge that the bank
desires to remediate events which may cause customer harm.
The bank’s Remediation Policy should include a general policy statement, or guiding principles setting forth the bank’s commitment to making harmed customers whole through
prompt and complete financial restitution. The policy should defer to related procedures
which should outline in greater detail, how that process will work. In the end, the goal is
to have a documented policy, and procedures that ensure full and verifiable remediation,
for both current and former customers who may have been harmed.
When the Policy Applies
POLICY TIP: A comprehensive Remediation Policy will outline what types of
harm are covered.
A primary policy consideration is determining when it will apply, or more specifically,
describing what events will trigger a remediation and restitution process. For example, does
it apply to any and all customers who suffered some level of harm or is there a threshold
that must be met before the remediation policy is triggered? It is important to note that
“consumer harm” can be monetary and/or non-monetary.
Monetary harm is easier to quantify, and would include, for example, erroneous fees or
inaccurate interest calculations. Restitution will generally be in the form of:
■ ■ ■ A check;
■ ■ ■ Credit applied back to an account; or
■ ■ ■ An account adjustment, such as a principal reduction on a loan.
Non-monetary harm includes inaccurate credit reporting or erroneously denied applications for credit or modifications. In these cases, the bank’s ability to remediate the
harm may be more difficult.