1. © 2014 Maritz Research, Inc. All rights reserved.
– white paper –
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HOW FINANCIAL INSTITUTIONS ARE USING MYSTERY
SHOPPING TO HELP MITIGATE REGULATORY COMPLIANCE
ISSUES WHILE IMPROVING THE CUSTOMER EXPERIENCE
by Michael Matza, Senior
Strategic Consulting Director,
Maritz Research & Brian W. Smith,
Owner, Smith Regulatory
Strategies, LLC

2. – white paper –
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Financial institution executives increasingly label regulatory compliance as the leading
challenge they face for the foreseeable future and readily identify the costs in manpower
and expense associated with compliance as increasing dramatically.
In the last year, federal regulators — notably the Consumer Financial Protection Bureau (“CFPB”)
and the Office of the Comptroller of the Currency (“OCC”) — have increased efforts to ensure
financial institutions’ compliance with the myriad of federal consumer protection regulations. The
efforts have resulted in numerous enforcement actions against some of the nation’s leading financial
institutions and credit card providers, with large fines and consent orders for restitution of literally
100s of millions of dollars to aggrieved consumers.
Federal regulators, not content with their results to date, have served notice they will turn their
attention equally to deposit gathering processes, mortgage lending, and payments. The CFPB
is primarily focused on the largest institutions. They, along with other regulators, have clearly
signaled their intention to hold all financial institutions, both large and small, equally responsible
for compliance with consumer protection laws, irrespective of the size of those institutions.
As never before, today’s consumer-facing banking environment is increasingly scrutinized
by regulators who employ new arsenals of tools to: invite consumer input, test the performance
of the banks and to detect compliance failures. Given these developments, financial institutions
across the country now find themselves in need of equally powerful tools to proactively ensure
employee, branch, and institution-level regulatory compliance. Well-designed and effectively executed
mystery shopping audits have emerged as a particularly useful tool for proactively ensuring
regulatory compliance at these three levels. A compliance-focused mystery shop program,
which evaluates the primary methods of consumer communication, is a new weapon financial
institutions can employ to quickly identify problem areas and for helping mitigate risk while
improving the customer experience.
What are financial institutions facing with the advent of the Dodd-Frank Act?
The Consumer Financial Protection Bureau (CFPB) was created by the Dodd-Frank Act. The CFPB’s
role is to ensure consumers are not subjected to unfair, deceptive, or abusive practices and further,
that information provided to consumers is accurate and clear so consumers can make informed
financial decisions. Along with other federal regulatory agencies, the CFPB is charged with
enforcement of key consumer protection legislation such as the Truth in Lending Act (TILA) and
the Truth in Savings Act (TISA). Largely, as a result of CFPB actions, regulatory focus has shifted
toward the behavioral aspects of compliance, i.e., how the interpersonal interaction between
financial institution and its customers may impact the fairness or even abusiveness of their
treatment of customers.
Management and boards of directors are increasingly focused on this as their individual and,
collective responsibility and ultimately, their liability for compliance failure has grown exponentially.
Given the turmoil and often uncertainty created by Dodd Frank, financial institutions can depend
on the following: compliance management programs must change to reflect a more consumer-
oriented perspective and there is a unique connection between the customer experience and/or
marketing research groups and a bank’s compliance department’s daily activities.
© 2014 Maritz Research, Inc. All rights reserved.
A compliance-focused
mystery shop
program, which
evaluates the primary
methods of consumer
communication, is a
new weapon financial
institutions can
employ to quickly
identify problem
areas and for helping
mitigate risk while
improving the
customer experience.

3. – white paper –
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introducing CrowsNest™
To address these new challenges and opportunities, CrowsNest™
by Maritz Research, provides
an independent view of a financial institution’s regulatory compliance. CrowsNest™
enables an
institution to determine how well employees are following internal compliance guidelines while
providing a better understanding of how their customers are responding or being impacted by
these guidelines in practice.
CrowsNest™
identifies and evaluates an institution’s compliance vulnerabilities and indicates actions
for addressing deficiencies. CrowsNest™
evaluates how well the institution is applying the federal
regulations pertaining to product offerings and customer communications from both behavioral
and customer experience perspectives.
How does CrowsNest™
work?
CrowsNest™
is a mystery shopping solution focused on exploring a financial institution’s success
in compliance with consumer protection regulations. Mystery shoppers are asked to make inquiries
or to go through the process of opening checking or credit card accounts or obtaining a loan,
a mortgage or other service with targeted banks.
Specifically, CrowsNest™
is designed to:
• Proactively monitor compliance with regulations and internal guidelines
• Provide insights into customers’ interaction with and understanding of products,
terms and processes
• Identify opportunities to address vulnerabilities through employee coaching
• Reduce the risk of incurring penalties through early detection of noncompliance
• Provide reports to inform management and directors to demonstrate
compliance to regulators
• Address remediation progress and consent orders’ concerns
Thus, a banking regulatory 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 or checking 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 residence.
© 2014 Maritz Research, Inc. All rights reserved.
CrowsNest™
is
a mystery shopping
solution focused on
exploring compliance
with regulations.

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Online Mystery Shop Program – The shopper conducts an inquiry through the institution’s
website or other web-based marketing medium.
Marketing Materials Program – In addition to the telephone, in-branch, and/or online programs,
the shopper reviews the financial institution’s advertising, signage, and other marketing materials
(including material sent to a shopper’s residence) to establish if they are 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 rates and fees / credit card rates and fees sheet
• Disclosure brochure or information packet
• Correspondence or other hard-copy information and product marketing material
Benefits of Maritz’ online reporting – business intelligence for the right
person at the right time
Stakeholders have immediate access to shop results via our business intelligence 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 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.
Online benefits include:
• Timely access to mystery shop results
• Quick identification of noncompliance issues
• View performance across multiple channels or regulations
• Insights via executive summary level reporting
• Access to industry experts to help interpret and recommend
• Ability to share results with large groups. Personalized results can be provided to various
levels of the bank’s organization (e.g., individual branch, call center, or regional managers)
• Capacity to view trends over time
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.
© 2014 Maritz Research, Inc. All rights reserved.

5. summary
Traditional banks and non-depository financial institutions (i.e., mortgage and finance companies,
payday lenders, etc.) are now, more than ever, subject to regulatory enforcement with possibly
severe economic penalties for noncompliance. While the Dodd-Frank Act and the creation of the
CFPB are expected to have significant impact, many of the rules and policies remain to be
written. What is clear is that heightened enforcement is coming – current evidence abounds.
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.
identification | prevention | remediation
RESEARCH
For more information, please contact Maritz Research
visit www.maritzresearch.com/crowsnest
call (877) 4 MARITZ
email CrowsNest@maritz.com
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dashboard with key results Location-level Scorecard Individual Shop Results