Finding the best way to handle consumersí banking complaints

Canadians may be well served by their banks but even so, at some point or other, we have all had a disagreement with our bank. The federal Bank Act requires banks to have a procedure for handling customer complaints but how that is done has become the subject of hot debate recently. Now, the Department of Finance has waded in with proposed legislation and it is looking for comments from interested parties.

In 1996, what was to become the Ombudsman for Banking Services and Investments (OBSI)  was established to provide a free and independent service for resolving small-business owners' disputes with their banks. Over the next few years, OBSI's mandate expanded to include consumers of banking and investment services.

Securities regulators require investment dealers to be members of OBSI, but the Bank Act has no such requirement. It is not mandatory for banks to be members ó and therein lays the problem. Two of the Big Five banks have withdrawn from OBSI ó Royal Bank of Canada in 2008 and TD Bank in late 2011 ó and hired a company called ADR Chambers Banking Ombuds Office to provide their dispute-resolution services.

The feds responded with proposed legislation, first in 2010 and again in July. The 2010 legislation said banks could belong to only federally approved external complaints bodies and it gave the Financial Consumer Agency of Canada (FCAC) the authority to monitor and enforce compliance. The legislation  now proposed seeks to establish explicit standards that external complaint bodies must meet ó including standards for independence, timeliness and transparency.

"These proposed regulations will also require banks to cooperate with their external complaints body,î says the Department of Finance press release, "by, for example, informing customers of the name and contact information of their external complaints body so that consumers clearly know who to contact when a dispute arises.î

But many in the financial services industry feels the legislation doesn't go far enough. The government should simply legislate that all banks be members of OBSI. The Canadian Foundation for Advancement of Investor Rights (Fair Canada)  points out that the proposed legislation falls short of the G20 Principles on Financial Consumer Protection.

"Banks will be able to entertain bids from approved service providers and choose the one that gives them the best deal and serves their interests,î FAIR pointed out in a recent newsletter. "This could result in severe risks to independence and impartiality, two principles which are fundamental to effective dispute resolution for consumers.î

Furthermore, FAIR notes the difference between a private external complaints body and an ombudsman: "An ombudsman, such as OBSI, has a responsibility to assist consumers with the complaints process, including the articulation of their complaint. Current private, for-profit external complaints bodies typically do not provide this support to consumers. Vulnerable consumers, including seniors and immigrants, may abandon legitimate complaints due to the barriers they will face in articulating their claims.î