Today’s article is a guest post from legal blogger Matt Faustman.

Every year, MSN Money surveys adults about the quality of customer service at 150 of the best-known companies across the country and in 15 industries to find the MSN Money Customer Service Hall of Shame winners. The survey is now in its seventh year and the year-over-year industries that have acquired a bad rap for poor customer service remain the same. In the end, we dislike the banks, the cable television providers, and the credit card companies the most.

The results suggest that companies in industries where customers have limited options end up with the worst customer service records. Why? Customers feel taken for granted, trapped, and abused – and often their feelings are borne out in reality because companies do begin to take their customer for granted. They also know it can take a lot of time and money to switch financial institutions and so the customers stay … and grumble (often online).

One of the roots of the customer service problem today is technology. Technology has made it easier than ever for us to connect with people around the globe, so we are no longer bound by geography or distance. It has also created barriers against trust because it cannot replace the value of the personal interaction and people choose to do business with those they trust.

When every angry customer can go online and post about their terrible customer experience for hundreds or thousands of others to see, it’s harder for companies to hide. Many would say this transparency is good but in a world where consumers file lawsuits often and companies have begun suing consumers for defaming them online, how should companies use customer service to avoid legal nightmares entirely?

1. Create Customer Service Opportunities by Asking Unhappy Customers to Complain

This one isn’t rocket science, but it’s one thing that many companies fail to do. Once they’ve sealed the deal, it’s easy to walk away and start looking for the next deal – forgetting the ones who got you that far.

By committing your company to a practice of ongoing client or customer contact and opening the door to opportunities to fix what’s gone wrong, you’ve created a customer service opportunity. Even those situations when you simply can’t make things better for your customer are a good kharma shot for everyone because others see that you honestly tried.

2. Become an Excellent RecordKeeper

Every client, every customer, every vendor is an opportunity for a lawsuit but by keeping excellent records of your interactions with each you’ll have the information you need to supply to a state regulator, an insurance company, and your legal staff if a client complains or sues.

Depending on your business and how you interact with others, implement methods to store records of every interaction and train your employees on why it’s important. It’s not just about becoming a records hoarder, it’s about remembering what worked and what didn’t and protecting yourself in case you’re sued.

3. Plug any Privacy Leaks

It’s critical not to disclose to third parties any client information unless it’s allowed by state or federal law. Getting serious about protecting your client data is key and it means carefully reviewing privacy notices with your legal advisors and ensuring that client data on computers, paper records, and wireless networks is secure.

In the event that data is lost or stolen, it’s vital that you own the incident immediately and inform those who are affected. Never hide it because both while federal and state regulators take these breaches seriously, your customer base is likely to take it even more seriously. Handling it in an upfront manner, apologizing, and letting them know what you’re doing to fix the problem is a sure way to turn a nasty situation into a customer service score.

In the end, lawsuits are filed by people, and most people find it hard to sue someone they respect and like. Nearly everyone can tolerate it when a company makes a mistake, but no one likes it when the mistake is hidden or covered up. It makes customers feel cheated and erodes trust.

About the Author: Matt Faustman is the co-founder of UpCounsel, where businesses can easily hire trusted lawyers. He writes about business legal issues, efficiency, and the future of labor. You can follow more of his business insights on twitter at @upcounsel.

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