Financial literacy and other determinants of consumer complaint behavior : an empirical study utilizing the CFPB’s complaint database

Too many in the United States lack the necessary skills to make sound financial choices. In combination with a wide range of options in the consumer-finance market and the inherent conflict of interest that exists between profit-maximizing financial-services providers and their financially naïve customers, consumer-protection regulation is of great importance. The Consumer Financial Protection Bureau was established subsequent to the Great Recession, and has enabled consumers to submit complaints about unfair, deceptive, or abusive acts or practices by financial services companies. Several empirical studies have attempted to explain consumer complaint behavior. However, there are few contemporary studies focusing on financial literacy and socio-economic characteristics regarding consumer complaint behavior. Accordingly, the research question of the thesis is: How do financial literacy and other socio-economic characteristics relate to mortgage and student loan complaints? The research question is answered using a truncated regression with a lower limit of zero, with and without the cluster command on the individual variable. The data consists of over 218,000 mortgage complaints and 34,000 student loan complaints originated from the Consumer Financial Protection Bureau over the time period 2012-2017. In addition, there are 22 relevant variables from other sources. The results from the study suggest that areas containing (1) more upscale socio-economic consumers, (2) more highly educated consumers and (3) consumers with more time on their hands complain more frequently. The variable for financial literacy ended up insignificant. However, the insignificant result may owe to the fact that people with higher degree of financial knowledge are better at distinguishing good financial products and services from bad, which may neutralize the tendency to complain.nhhma