What To Know About the Better Business Bureau and Financial Products

When you're spending a lot of money on financial products like auto loans, investment brokerages, or financial advisors, it's good to do some background research on the company. You don't want to end up having a bad experience—especially not with a large amount of cash on the line.

There are a lot of places you can vet companies: online reviews by objective publishers or by consumers, or—better yet—official agencies such as the Financial Industry Regulatory Authority (FINRA)’s BrokerCheck and the Consumer Financial Protection Bureau’s complaint database. The Better Business Bureau (BBB) is a popular choice, too, but it's best to use it in combination with other research tools. That's because it's not entirely foolproof, and to understand why, you need to know the basics about how it operates.

What Is the Better Business Bureau?

Despite its official-sounding name, the BBB isn't a government agency. It's a nonprofit group that operates regional offices around the United States, Canada, and Mexico. It was founded in 1912 to increase trust between consumers and businesses, charities, and brands.

It does this through five main methods:

• Rating system: If enough public information is available for a company, the BBB will rate it to help consumers gauge how trustworthy it is.
• Review system: If you've done business with the company, you can leave a review for others to see how it went, good or bad.
• Accreditation: It offers a process for businesses to be "accredited," which means they’ve gone through some extra hoops to prove they’re trustworthy and can market themselves as such.
• Complaint process: It offers a complaint-resolution process to try and get businesses to respond to customer complaints, even if it's not in the customer’s favor.
• Reporting scams or false ads: The BBB also offers a way to report any scams you see or any "questionable or deceptive" ads.

It's important to note that working with the BBB—either as a consumer or a business—is entirely voluntary. Businesses don't have to partake in these processes at all if they don't want to.

Furthermore, since the BBB isn't a regulatory agency, you'll still need to report bad advertisements, scams, or other harmful or illegal activity to the proper government channels that can investigate these things and take real action against them.

How BBB Ratings Work

Contrary to popular belief, the BBB ratings don't measure how good a business is. Instead, they measure how likely a business is to respond to its customers, on a scale of A+ to F. Theoretically, the business could have many unhappy customers and still get a good BBB rating.

The BBB draws on publicly available information and complaints that it's received about the business to assign a rating. You might see "NR" or "No Rating" for some businesses. NR means, among other factors, there's not enough data yet for the BBB to rate it, or that its rating is currently under review.

Here's the secret sauce for what the BBB is looking at when it assigns a rating:

• Complaint history: How many complaints a business has received, given its size, and whether those complaints were resolved expediently and "in good faith," even if the customer isn't satisfied.
• Type of business: Businesses that break the law or “raise marketplace concerns” are penalized.
• Time in business: How long a business has existed, if that info is available. If not, the BBB uses the date the company’s BBB file was created as the date it started.
• Transparent business practices: Does the business clearly provide all the important information about its products and ownership, and does it use a real address?
• Failing to honor BBB commitments: If a business agrees to uphold BBB standards but doesn’t, its rating will drop.
• Government actions and licensing: If a business requires licensing and doesn't have it, or if it's had government actions taken against it, it'll be penalized.
• Bad advertising: If a business uses the BBB logo in ads without the BBB’s permission or if it makes false or misleading advertisements, it'll be penalized.

The BBB assigns each business score on a 100-point scale in 13 areas related to the above categories. From there, the BBB will issue a letter-grade final score that you see on the business’s online BBB profile.

What Does BBB Accreditation Mean?

One of the ways the BBB earns its money is by charging businesses to be "accredited." If the business is accredited, it can use the BBB’s accreditation logo and customers may view the company as more trustworthy.

To get accredited, a business has to apply and pay a fee. If approved, a business must meet the following conditions to keep its accreditation:

• Maintain at least a "B" rating with the BBB
• Advertise honestly
• Tell the truth
• Be transparent
• Honor promises
• Be responsive
• Safeguard privacy
• Embody integrity

Filing a Complaint

Besides providing ratings, the BBB also acts as an intermediary between businesses and consumers who have disputes with them. If you want to lodge a complaint about a company with the bureau, you can do that on the BBB website or by writing a letter to the bureau.

Accredited businesses are supposed to respond to consumer complaints within 14 days after they’re received (which may be two days after they’re filed). If the business doesn’t respond, the BBB sends a second notice to the company. It also lets you know when the business responds, or if it doesn’t respond at all. Complaints are usually closed within about 30 days from the filing date.

Of course, just because a company responds doesn’t mean you’ll find it satisfactory. In that case, the BBB can request a second response from the business. It may also recommend mediation or arbitration.

Once a complaint is closed, it will be assigned one of these statuses:

• Resolved
• Answered
• Unresolved
• Unanswered
• Unpursuable

Benefits and Criticisms of BBB Ratings

There's a reason you've probably heard of the BBB before. Millions of people have used it over the years as a tool to help vet whether a company is worth doing business with. Here are some of the benefits of adding BBB ratings to your toolbox:

• Extensive: The BBB maintains ratings of more than 5.4 million businesses.
• Can give consumers power: The BBB doesn't require business owners to reply to complaints, but getting the BBB on your side might give you a bit more clout than if you complain without anyone backing you.
• Helps you out untrustworthy businesses: If a business has a bad BBB rating, you can be fairly confident it's not worth your patronage. That's especially true if it has a pattern of bad ratings on other sites.

On the other hand, the BBB isn't without its critics. Here are some potential drawbacks:

• Conflicts of interest: Since the BBB is charging businesses for accreditation, it has a vested interest in making sure the business is approved. In 2010, ABC News investigated and alleged that the BBB told businesses the only way to raise a poor grade was to pay for a membership.

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

• Not 100% reliable: Businesses that don't pay for accreditation aren't as closely scrutinized, so this can let some big things like government regulatory actions slide under the radar.

Using BBB Ratings To Evaluate Financial Service Companies

BBB ratings can be useful tools, but they're not designed to be the only source you use when you decide on a financial product. Take the ratings with a grain of salt. If a business is accredited, be aware that if there was a small conflict of interest there, that may skew ratings higher. If a business doesn't have much information about it, that doesn't mean it's neutral; it could be a great business or a terrible business.

Instead, the BBB itself advises you to use BBB ratings in conjunction with other research tools. Your best bet is to simply google the company and look at other ratings and reviews that pop up—especially those that are reliable and not subject to manipulation by companies being reviewed or their competitors—to put together a complete picture of the company.