Voice of the Customers: Local Trusting Culture and Consumers’ Whistle-Blowing in the Financial Services Industry
50 Pages Posted: 6 Nov 2017 Last revised: 26 Jan 2019
Date Written: January 2019
We use complaints filed to the Consumer Financial Protection Bureau to study the interplay between social norms and the effectiveness of consumer protection laws through private citizens’ whistle-blowing. We find that a higher local trusting attitude reduces the number of complaints filed against financial institutions in that place. Employing a difference-in-differences approach, we further find that, after the establishment of the Bureau, banks in low-trust areas reduce fees charged to consumers more compared to banks in high-trust areas. Our results suggest that the threat of consumer whistle-blowing affects how banks treat their customers, and they shed light on the interaction between informal culture and formal institutions—guardrails for economic exchange—as well as on stakeholders’ influence in corporate policies.
Keywords: Culture; Trust; Whistleblowing
JEL Classification: G21; G32
Suggested Citation: Suggested Citation