The Mounting Costs of Poor Financial Services Processes

Nothing stirs awareness and action faster in the financial services industry than a big fine and a consent order.  The two are a clear indication that a financial services company did something very wrong.  Sometimes the problem is true “wrong doing” that breaks the law, but often the problem stems from poor processes and controls that allowed bad things to slip through the cracks.

The financial services organizations I work with often note that aging software applications and manual processes cause broken processes that lead to poor customer satisfaction.  That’s not good, but in an industry where poor service and low reputations have become the norm, it rarely stirs action for change.

Consumers are fed up with the poor experiences they get from the financial services industry.  This has led regulatory bodies like the Office of the Comptroller of the Currency to order an overhaul of bank practices, levy significant fines, and negotiate settlement agreements that force banks to add yet more layers of costly compliance oversight.

J.P. Morgan became the latest victim today as noted in an article in the Wall Street Journal.  Regulators allege the bank made errors in hundreds of thousands of debt-collection lawsuits and caused credit-card customers to pay for services they didn’t receive.  J.P. Morgan was ordered to refund $309 million to 2.1 million credit card customers and will pay a fine of $80 million for the services not received with additional possible fines to be levied for the debt collection lawsuit problems.

I found the specifics mentioned in J.P. Morgan’s settlement agreement with the OCC very telling of the state of out-of-control processes in many financial services companies.  The Wall Street Journal article summarized them nicely.  Select quotes include:

  • “The documents depict a bank that allegedly failed to control outside lawyers and bank employees involved in suing credit-card, student-loan, auto-loan and some business borrowers who defaulted on their payments.”
  • “The bank and outside lawyers allegedly filed inaccurate sworn documents in court, didn’t properly notarize documents and made statements of fact that hadn’t been personally verified.”
  • “J.P. Morgan, along with outside lawyers, allegedly failed to verify the accuracy of information it used to file legal documents seeking to collect past-due debt from consumers.”

Everything noted in those quotes are problems with ineffectively controlled processes.  The OCC ordered J.P. Morgan to “strengthen its policies to ensure details included in legal filings are accurate, develop procedures to locate and maintain underlying account documents and ensure employees and other staff involved in litigation have the required information.”  The other fines the OCC ordered last year to Capital One Financial ($210 million) and Discover Financial Services ($214 million) were for similar allegations indicating that problems like these are wide-spread throughout the industry.

While these fines aren’t huge numbers for multi-billion dollar financial institutions like J.P. Morgan, Capital One, and Discover, they are many times the cost required to correct the problems, sending a strong message to financial services companies to clean up their acts.

Financial services clearly needs some significant help to get it’s processes under control, both for the sake of making happier customers and for avoiding significant fines and additional consent orders.  How should they go about fixing their problems?  Maybe they should take a hint from their regulatory, the Office of the Comptroller of the Currency who uses Appian to gain better control of its regulatory processes which seem to be becoming more and more effective.

To learn more about how financial services companies can dramatically improve their process controls through modern BPM technology, please read my new white paper, “Why Financial Services Firms Should Stop Throwing Money at Enterprise Risk Management.”

Evan McDonnell

Vice President of Solutions