Following the release of required reviews of the operations of Canada’s two banking dispute resolution operators, the issue of how to improve outcomes for consumers now rests with the Finance minister.
Since 2008, Canadian banks have been allowed to select their own external dispute resolution firm – a third-party arbiter for complaints that the bank cannot resolve with customers – rather than be required to use the Ombudsman for Banking Services and Investments (OBSI), which was established to serve that purpose. Royal Bank (since 2008) TD Bank (2011), National Bank (2017) and Scotiabank (2018) have all opted to use ADR Chambers Banking Ombuds Office (ADRBO).
The Financial Consumer Agency of Canada (FCAC) was given responsibility to oversee and approve the arbiters, and, as part of that process, FCAC requires an independent review of each arbiter every five years. ADRBO’s five-year report was released earlier this summer, and OBSI’s was released September 1. Both reports were authored by Professor Poonam Puri.
In its release following the two reports, FCAC noted that both reports made recommendations for the improvement of the external complaints bodies as well as improvements since the processes were last reviewed. The reports condoled that OBSI “met and exceeded regulatory standards, and that ADRBO was substantially compliant with regulatory standards.”
A 2020 FCAC report similarly rated the operations of OBSI as superior to those of ADRBO, and was quite critical of the latter in some areas. That FCAC report was also explicitly critical of allowing banks to select their arbiter, noting that “only two of the large six banks have elected to be members of the (dispute resolver) that compares most favourably to international best practices.” It said multiple dispute resolution firms adds confusion to consumers, complexity and inefficiency, and questioned whether the competition provided any benefits to consumers.
The Federal government signalled its support for the FCAC position, first in mandate letters to cabinet ministers, and then in the 2022 Budget, where the government committed to “introduce targeted legislative measures to strengthen the external complaints handling system and to put in place a single, non-profit, external complaints body to address consumer complaints involving banks.”
The use of the phrase “non-profit” is notable, because OBSI operates in that manner, while ADRBO is a “for-profit” enterprise. OBSI has a similar resolution role in securities regulation, but that role is mandated and securities firms cannot choose an alternative arbiter.
The completion of the reports and the FCAC statement would appear to leave the next step to the government to act on its budget promise.
One common criticism of Canadian financial dispute resolution regulation is an inability to compel payment. The Puri reports repeat this criticism, writing that arbiters’ decisions should result in binding judgements rather than the current “name and shame” enforcement protocol, in which recommended settlements can be ignored by firms.
Puri also wrote that if the movement to a single banking dispute resolver is unsuccessful, there should be more consistency between the procedures of the providers. The reports outline some differences. “We do not believe that a consumer should be prejudiced or have different rights depending on the (complaints organization) chosen by the bank,” and added that FCAC should require all arbiters “to apply the same standards and measure their performance in the same ways to allow for direct comparison by the government, the regulator and the public.”
OBSI has been criticized by some financial services firms for being more of a consumer advocate than arbiter. The Puri report on OBSI’s banking complaints concluded: “that any perception of impartiality is not warranted and that OBSI meets and exceeds its standards for impartiality and independence.”
Consumers Council of Canada has published a number of papers on the issue, including a response to the Department of Finance’s call for submissions on how to strengthen Canada’s external complaint handling system in 2021, and a 2018 discussion paper. In a public statement that year, Council chairman Don Mercer said “the federal government needs to protect bank customers by mandating a single impartial, non-profit external complaints body – a right that should be restored to them promptly.”