What You Should Know About the BBB and Financial Products

When you spend a lot of money on financial products such as auto loans, investment brokerages, or financial advisors, it’s a good idea to do some research on the company. You don’t want to have a bad experience, especially when there’s a lot of money at stake.

There are numerous resources for vetting companies, including online reviews by objective publishers or consumers, as well as official agencies such as the Financial Industry Regulatory Authority’s BrokerCheck and the Consumer Financial Protection Bureau’s complaint database. The Better Business Bureau (BBB) is another popular option, but it is best used in conjunction with other research tools. That’s because it’s not completely foolproof, and understanding why requires a basic understanding of how it works.

What Exactly Is the Better Business Bureau (BBB)?

The BBB, despite its official-sounding name, is not a government agency. It is a non-profit organization with regional offices in the United States, Canada, and Mexico. It was founded in 1912 to increase consumer trust in businesses, charities, and brands.

It accomplishes this in five ways:

  • Rating system: If enough public information about a company is available, the BBB will rate it to help consumers determine how trustworthy it is.
  • System of reviews: If you’ve done business with the company, you can leave a review so that others can see how things went, good or bad.
    Accreditation: It provides a method for businesses to be recognized.
  • “Accredited” means they’ve gone through extra steps to demonstrate their trustworthiness and can market themselves as such.
  • Complaint resolution: It provides a complaint-resolution process to encourage businesses to respond to customer complaints, even if the outcome is not favorable to the customer.
  • Reporting scams or false advertisements: The BBB also provides a way to report any scams or “questionable or deceptive” advertisements you see.

It’s worth noting that working with the BBB, whether as a consumer or a business, is entirely voluntary. Businesses are not required to participate in these processes if they do not wish to.

Furthermore, because the BBB is not a regulatory agency, you must still report bad advertisements, scams, or other harmful or illegal activity to the appropriate government channels so that these things can be investigated and real action taken against them.

BBB Ratings and How They Work

Contrary to popular belief, the BBB ratings do not assess the quality of a company. Instead, they use a scale of A+ to F to determine how likely a company is to respond to its customers. In theory, the company could have many unhappy customers and still maintain a good BBB rating.

The BBB assigns a rating based on publicly available information and complaints received about the business. Some businesses may have a “NR” or “No Rating” designation. NR indicates that there is insufficient data for the BBB to rate it, or that its rating is currently being reviewed.

Customer reviews do not affect a company’s BBB rating.

Here’s the secret sauce for what the BBB considers when assigning a rating:

  • Complaint history: The number of complaints received by a business in relation to its size, and whether those complaints were resolved expeditiously and “in good faith,” even if the customer was dissatisfied.
  • Businesses that violate the law or “raise marketplace concerns” are penalized.
  • Time in business: How long a company has been in operation, if that information is available. If not, the BBB begins with the date the company’s BBB file was created.
  • Transparent business practices: Does the company clearly provide all relevant information about its products and ownership, and does it use a legitimate address?
  • Failure to honor BBB commitments: If a company agrees to uphold BBB standards but fails to do so, its rating will suffer.
  • Government actions and licensing: If a business is required to have licensing but does not have it, or if government actions have been taken against it, it will be penalized.
  • Bad advertising: A business will be penalized if it uses the BBB logo in advertisements without the BBB’s permission, or if it makes false or misleading advertisements.

The BBB assigns a score of 100 points to each business in 13 areas related to the above categories. The BBB will then issue a letter-grade final score, which will be displayed on the business’s online BBB profile.

What Is the Meaning of BBB Accreditation?

The BBB makes money in part by charging businesses to be “accredited.” Customers may view the company as more trustworthy if it is accredited and can use the BBB’s accreditation logo.

A company must apply for accreditation and pay a fee. If approved, a company must meet the following requirements to maintain its accreditation:

  • Maintain a “B” rating with the BBB.
  • Sincerity in advertising
  • Tell the truth Be honest Keep your promises
  • Protect your privacy by being responsive.
  • Be a person of integrity.

It should be noted that a company does not have to be accredited to receive a BBB rating.

Complaint Submission

Aside from rating businesses, the BBB also acts as a go-between for businesses and customers who have disagreements with them. If you want to file a complaint against a company with the BBB, you can do so via the BBB website or by writing to the bureau.

Accredited businesses are required to respond to consumer complaints within 14 days of receipt (which may be two days after filing). If the company does not respond, the BBB sends a second notice. It also notifies you when the company responds or does not respond at all. Complaints are typically resolved within 30 days of filing.

Of course, just because a company responds does not guarantee that you will be satisfied. In that case, the BBB can ask the company for a second response. It could also suggest mediation or arbitration.

When a complaint is closed, it is assigned one of the following statuses:

  • Resolved \sAnswered
  • Unresolved
  • Unanswered
  • Unpursuable

Dispute resolution services vary by region, so the bureau recommends contacting your local BBB office for more information.

BBB Ratings: Advantages and Drawbacks

There’s a reason you’ve likely heard of the BBB. Millions of people have used it over the years to determine whether a company is worthwhile to do business with. Here are some of the advantages of including BBB ratings in your toolbox:

  • Extensive: The BBB has ratings for over 5.4 million businesses.
    Can give consumers power: While the BBB does not require business owners to respond to complaints, having the BBB on your side may give you a little more clout than complaining alone.
  • Helps you avoid untrustworthy businesses: If a company has a low BBB rating, you can be fairly certain it is not worth your business. This is especially true if it has a history of receiving low ratings on other websites.

The BBB, on the other hand, is not without its detractors. Here are some potential disadvantages:

  • Conflicts of interest: Because the BBB charges businesses for accreditation, it has an incentive to ensure that the business is approved. ABC News investigated and claimed in 2010 that the BBB told businesses that the only way to improve a poor grade was to pay for membership.

Around the same time, then-Connecticut Attorney General Richard Blumenthal wrote a letter to the BBB asking it to discontinue the “pay-for-play” method, and Blumenthal announced the BBB agreed on Nov. 18, 2020. “Pay-to-play—or its perception—is unacceptable and unconscionable, as the BBB has rightly recognized,” Blumenthal said in a statement. “Cash can no longer inflate BBB ratings, as it did in the previous system.”

  • Not completely reliable: Because businesses that do not pay for accreditation are not as closely scrutinized, major events such as government regulatory actions may slip under the radar.

Using BBB Ratings to Assess Financial Service Providers

BBB ratings can be useful tools, but they are not intended to be the only source you use when making a financial product decision. You should take the ratings with a grain of salt. If a company is accredited, be aware that a small conflict of interest may skew the ratings higher. If there isn’t much information available about a company, that doesn’t mean it’s neutral; it could be a great or a terrible company.

Instead, the BBB recommends using BBB ratings in conjunction with other research tools. To get a complete picture of the company, simply Google it and look at other ratings and reviews that come up—especially those that are reliable and not subject to manipulation by the company being reviewed or their competitors.