The Federal Government’s proposed new regulations for banking complaints represent progress in that they: (1) set standards for external dispute resolution services for banks that have left OBSI, where no such standards existed previously, and (2) provide for government oversight of these entities.
However, they do not live up to the G20 Principles on Financial Consumer Protection and, fall short of being “pro-consumer” as touted by the government. First, consumers have no choice of dispute resolution service provider – they must use the service chosen by the bank. Banks, on the other hand, will be able to entertain bids from approved service providers and choose the one that gives them the best deal and serves their interests. This could result in severe risks to independence and impartiality, two principles which are fundamental to effective dispute resolution for consumers.
Second, there is no requirement that the external complaints body be truly “independent”. The regulations permit a non-independent body and only require that the individual who hears a particular complaint be impartial and independent of the parties to the complaint.
Third, the regulations open the door to more competition among dispute resolution service providers who will compete with each other to be hired by a bank, in order to be the bank’s chosen supplier. Competition will mean that banks will receive more favourable service from the suppliers. This will lessen the focus on fairness to consumers, as there will be no reason for competition to entice consumers to use a service provider. This competition for banks’ business will not benefit consumers .
Finally, opening up banking dispute resolution to multiple disparate, for-profit service providers will reduce consistency in decision-making and could contribute to increased consumer confusion about the dispute resolution process.
We commend the Globe and Mail for its Editorial ‘New ombudsman rules tip playing field in banks’ favour’, which points out several shortcomings of the Federal Government’s proposed regulations for banking complaints. We agree with many of the points articulated in the editorial.
FAIR Canada would like to note, however, that it is not correct to refer to the private external complaints bodies outlined in the new banking complaint regulations as “ombudsmen”, as there is a big difference between an ombudsman and private, for-profit external complaints bodies (ECBs). Ottawa’s proposed regulations are directed at ECBs. 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 ECBs 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 claim. It is interesting to note that the Department of Finance Backgrounder and the Proposed Regulations do not refer to the ECBs as “ombudsmen”.
The Financial Post’s John Greenwood also commented on the draft regulations.
FAIR Canada will be providing comments on the proposed regulations, which are due by August 12, 2012. Kenmar Associates has already published its submission to the Department of Finance, citing its disagreement with the proposed regulations. We encourage any stakeholder with an interest in financial consumer rights to submit a comment letter to the Federal Government.