MARITZ WHITE PAPER
DATE:
November 2010
How Financial Institutions Are Using Mystery Shopping
Audits to Help Solve Regulatory Compliance Issues
by Chris Koetting, Account Manager, Virtual Customer Research Group, Maritz Research and
Michael Matza, Senior Strategic Consulting Director, Financial Services Research Group, Maritz Research
In October, 2010, the Office of the Comptroller of the Currency (OCC) ordered a Civil Money Penalty
in the amount of $1million against a large bank (600 plus branches) for deficiencies in the institution’s
compliance with consumer laws. The OCC identified the National Banking Association-chartered
institution as having knowingly engaged in deceiving customers on deposit account products. Further,
the OCC found the bank was, through its marketing brochures, highlighting low cost features while
omitting information on costly features such as overdraft protection.
Today’s banking environment is closely scrutinized by the
federal government and this will get more detailed and
encompassing as the Dodd-Frank Act provisions become
effective and enforcement administration is defined.
Given these developments, financial institutions across the
country now see mystery shopping audits as a critical tool
for proactively ensuring individual, branch, and financial
institution level regulatory compliance. A well-designed
mystery shop audit program, which evaluates the primary
methods of consumer communication, can ensure a financial
institution quickly identifies problem areas, responds
effectively, and remains focused on providing consumers with
a safe banking experience.
What are financial institutions facing?
With the advent of the Dodd-Frank Act, the Consumer
Financial Protection Bureau (CFPB) was created. The CFPB’s
role is to manage enforcement of key consumer protection
legislation such as the Truth in Lending Act (TILA)
and the Truth in Savings Act (TISA). The regulations
implementing these statutes, known as Regulation Z and
Regulation DD, mandate that consumers are not subjected
to unfair, deceptive, or abusive practices and further requires
uniformity, accuracy, and clarity of information so consumers
can make informed financial decisions. With management
control over existing federal oversight organizations such as
the Office of the Comptroller of Currency (OCC), the CFPB
has broad powers to monitor financial institution business
processes – and penalize accordingly.
MR-1110-06
© 2010 Maritz All rights reserved
A Mechanism for Monitoring
Compliance
Mystery shopping is a tool employed by financial institutions
and performed by a third party organization to measure
quality of service, application of standards, or to gather
specific information about products and services. Mystery
shoppers pose as normal customers to perform specific
tasks and complete an unbiased evaluation of the target
service, interaction, or standards. In the case of a Consumer
Protection Act-related compliance audit, the objective of
the shop is to verify all current and appropriate disclosure
information is provided when a consumer makes an inquiry.
The point at which consumers receive this information
(i.e., the customer/bank interaction) is where an effective
compliance monitoring solution, such as a mystery shop
program can be applied.
What would a Banking Regulatory
Compliance Mystery Shop Program
look like?
To ensure all aspects of the customer/bank interaction are
monitored, a successful mystery shop audit program must
target the banks’ primary lines of customer communication.
In a traditional banking environment, those primary lines
are telephone, face-to-face (i.e., in-branch), and online. Just
as each financial institution’s approach to retail banking
may differ, their approach to a compliance monitoring
solution may also be different. Thus, a Banking Regulatory
DATE:
MARITZ WHITE PAPER
How Financial Institutions Are Using Mystery Shopping Audits to Help Solve Regulatory Compliance Issues
Compliance Mystery Shop Program must be flexible and
continuous and may include (separately or in combination)
the following:
In-Branch Mystery Shop Program – The shopper
visits the branch and, using a pre-determined inquiry
scenario, requests information on a new savings account
or loan (to include credit card). While at the location, the
shopper also retrieves a business card for target-branch
address verification.
Telephone Mystery Shop Program – Depending on
the bank’s telephone business model (i.e., incoming
calls are received at an individual branch or routed to
a common call center), a shopper calls a target branch
and, using a pre-determined inquiry scenario, requests
information on a new savings account or loan (to include
credit card) be mailed to their home.
Online Mystery Shop Program – The shopper
conducts an inquiry through the institution’s Website or
other Web-based marketing medium.
Marketing Materials Audit Program – In addition
to the Telephone, In-Branch and/or On-Line Programs,
the shopper audits the financial institution’s advertising,
signage and other marketing materials to establish if
current, available, and appropriately displayed.
In each solution the shopper completes an evaluation of
the interaction and photographs all materials provided
in response to the shop solicitation (once received). Key
materials may include:
• Savings Rate & Fees / Credit Card Rates &
Fees Sheet
• Disclosure Brochure or Information Packet
• Other Hard-Copy Information & Product
card received during the mystery shop. An institution can be
quickly notified, via an e-mail alert, whenever a failure to the
evaluation is discovered. The timely notification allows an
institution to take immediate and appropriate steps to target
failing areas and effect changes.
Results are stored as long as necessary, ensuring an audit trail
is maintained and available for review.
The Keys to Success
The keys to a successful Regulatory Compliance Mystery Shop
Program are stakeholder participation, close coordination, and
an effective response plan. Institutions must communicate
the program’s objectives to stakeholders as well as the
methodology and value. How the program is to be executed,
what the standards are, and what constitutes failure or
passing all drive confidence in the mystery shopping tool.
Additionally, a planned, methodical process for reacting to
reported anomalies, at the point of failure, will drive change
and demonstrate an institution’s commitment to consumer
protection.
Summary
Traditional banks and non-depository financial institutions
(i.e., mortgage and finance companies, payday lenders, etc.)
are now, more than ever, subject to regulation enforcement
with possibly severe economic penalties for non-compliance.
While the Dodd-Frank Act and the creation of the CFPB are
expected to have significant impact, many of the rules remain
to be written. What is clear is that enforcement is coming –
some already in effect. Financial institutions that want to take
a proactive approach to compliance, minimize legal liabilities,
and reduce the risk of substantial fines should consider using
mystery shopping as an integral and ongoing tool in their
compliance management strategy.
Marketing Material
Stakeholders have immediate access to shop results via an
online reporting system. In addition to displaying evaluation
results, the reporting system may also include photos of
the material provided by the institution and the business
MR-1110-06
© 2010 Maritz All rights reserved
November 2010
www.maritz.com
(877) 4 MARITZ
[email protected]