FAIR Canada has provided comments to the federal Department of Finance (“Finance”) and to the Financial Consumer Agency of Canada (“FCAC”) on their Proposed Regulations and Proposed Guidelines for External Complaint Bodies (“ECBs”). FAIR Canada is of the view that a pro-consumer framework would have been created had Finance mandated OBSI as the sole dispute resolution provider for financial institutions or had it had created a single statutory ombudsman for financial services. However, Finance chose not to do so, and appears to be proceeding with a system that endorses multiple ECBs. The Proposed Regulations do represent progress in that they set standards for external dispute resolution services for banks that have left OBSI where no such standards existed previously, and they provide for government oversight of ECBs.
However, FAIR Canada is concerned that the direction being taken in permitting multiple ECBs creates a pro-bank system and is far less optimal than mandating participation in OBSI or having one independent statutory bank ombudsman.
The framework is a major step backward for consumer protection in Canada, falls below international standards and creates a system that lacks independence and results in one-sided competition. It offers choice for banks but not for consumers, results in less consistency in decision-making and makes effective oversight more difficult. In addition, it will be more difficult to identify widespread unfair practices (also known as “systemic issues”) and act on these in a timely manner, resulting in less oversight of unfair banking business practices and no redress for consumers who have been overcharged.
Ombudsmen vs. Non-independent External Complaint Bodies
A true ombudsman has a responsibility to assist consumers with the complaint process, including the articulation of their complaint, given the significant imbalance of power and knowledge between the consumer and the bank. Currently, private for-profit ECBs (for example, ADR Chambers Banking Ombuds Office) do not provide this necessary support to consumers and do not provide consumer-friendly services nor are they true ombudsmen.
The Proposed Regulations and the Proposed Guidelines need to include a requirement to have a process and the necessary resources in place to provide consumers with assistance in articulating their complaint, and provide interpretation services if needed since many Canadians do not have the Canadian official language skills necessary to pursue their complaint. ECBs that do not provide assistance to consumers will have cost advantages over those that do – this is price competition that benefits banks at the expense of vulnerable consumers.
Recommendations to Improve Proposed Regulations
In our written comments, FAIR Canada provided Finance with recommendations to improve the Proposed Regulations and Proposed Guidelines to the extent it is possible to improve the proposed flawed system. Our recommendations, which are essential to providing basic protections to consumers, include:
- Fairness – Fairness needs to be a guiding principle for ECBs. This principle is omitted in its entirety from the proposed scheme. Fair processes must be observed and decisions which are fair need to be promoted.
- Consumer-Friendly Dispute Resolution – We recommend that the Proposed Regulations require ECBs to provide similar services to those provided by an ombudsman. Any ECB that does not act like a true ombudsman should be prohibited by the Proposed Regulations from holding itself out as an ombudsman and should not be approved as an ECB for consumer complaints.
- Binding Decisions – The decisions of the ECB should be binding on financial firms and on the consumer/complainant, if the complainant accepts the resolution. In the UK, Australia and New Zealand decisions are binding if the consumer accepts the resolution. We see no reason for a less consumer-friendly system in Canada.
- Compensation Limit – The compensation limit should be mandated in the legislation and should be the same for all ECBs. We recommend using OBSI’s current compensation recommendation limit of $350,000.
- Limitation Period – The tolling of any limitation period should be introduced as a requirement when consumers use the services of ECBs so as to preserve a consumer’s right to take civil action if the proposed resolution is not acceptable to the consumer.
- Governance Requirements – The ECBs should be required to operate in a manner that is consistent with the standards of good character and integrity; that is, there should be a requirement that a majority of an ECB’s board of directors be independent from the members of the ECB and that there be an independent chair of the board.
In our written comments to Finance and the FCAC, we also provided comments to improve accessibility, accountability, set out other governance requirements for ECBs, noted that the requirement to resolve a complaint within 120 days may lead to consumer harm and outlined what is needed for effective regulatory oversight.
Public Submissions Oppose Multiple ECBs and Proposed Regulations
Kenmar Associates has also published its submission to the Department of Finance, citing its disagreement with the proposed regulations. The Public Interest Advocacy Centre also submitted comments which call on the Minister of Finance and Governor in Council to withdraw the Proposed Regulations as they are fundamentally flawed and “critically harmful to financial consumers and to the Canadian financial system as a whole.” The Small Investor Protection Association also rejects a system of multiple ECBs and calls for a single legislation-enabled national external complaints service for financial services along the lines of the UK’s Financial Ombudsman Service.
The Globe and Mail Editorial ‘New ombudsman rules tip playing field in banks’ favour’ and article Banks will win customers lose under Flaherty’s new spat – resolution rules points out several shortcomings of the Federal Government’s proposed regulations for banking complaints. The Financial Post’s John Greenwood also has negative comments on the draft regulations.