What level of transparency should you have with rejected applicants?
When an applicant is opening a bank account or applying for a credit card online - the best-case scenario is their application is approved without any hiccups. But what happens when they are denied? Applicants often call the financial institution to find out why. When this happens, many financial institutions aren’t sure how transparent they should be with denied applicants about why they weren’t able to open an account or sign up for a new financial product.
Getting denied from anything can elicit a strong reaction. We all remember that one time you didn’t get the promotion you worked really hard for, or the time you didn’t score an invite to the party you were looking forward to. Being on the other end can be just as challenging; I’m probably not the only one who agreed to do one of those classic favors like driving someone to the airport or helping a friend move, just because I couldn’t bring myself to say no in the moment.
When it comes to denying someone for a financial product — like a bank account or credit card — it gets even trickier. Money can be a touchy subject for people, so customer service people can easily get wrapped up in feeling empathetic to denied applicants. However, it's important to err on the side of caution in situations like these. Why? Fraudsters will frequently be the ones who call you and ask questions to understand why they were denied and use that information to beat your security checks in the future. Even broad details like which stage of the process they were denied, can equip the fraudster with more information to improve their attack tactics.
Here are some tips that have worked well for our clients in the past when communicating account declines:
Keep it general. You have a legal obligation to provide an adverse action notice if you are using credit information in your decisioning, but your customer service team is not obligated to provide the exact reason why someone is denied for fraud. Any extra information they share with the person could educate fraudsters for their next fraud attempt.
Limit access to account denial information internally too. If your customer service team has this information, they may get manipulated into telling a fraudster some critical information under pressure. Your identity decisioning platform should keep a record of it for audits, but keep the details on a need-to-know basis.
Provide a next step to remediate the situation. Remember that mistakes are possible and put a plan in place for your legitimate customers to validate their identity. This could include asking them to send in more documentation or even coming into a branch.
Transparency with your customers is essential, but transparency with fraudsters can be detrimental. The key to handling this sticky situation is having some discretion, respect, and an objective process to get to the truth.