Response to proposed reforms in banking dispute resolution
Public debate about how best to offer consumers both dispute resolution and redress was stimulated by the withdrawal of two banks from an industry created external dispute resolution body, the Ombudsman for Banking Services and Investments, which has gained growing credibility with consumer organizations for fairness and independence.
Get past the “spin” and learn more about this complex issue
The Consumers Council of Canada has prepared a “Consumer Perspectives 360º Report” entitled “Canada’s Banking Dispute Resolution System” which all interested in the subject are encouraged to read. [Download: PDF| EPUB] This report will help Canadian consumers understand the history of this important but complex consumer protection issue and to clarify misunderstandings confusing the public debate about it. For example, some media reports have characterized OBSI as a public sector solution to providing dispute resolution, when it is actually a child of the banking industry itself. The fast and furious “spin”of this issue has made it more important than ever to review the facts.
Steps government can take to protect consumers now
The Council in August 2012 advised the Department of Finance and Financial Consumer Agency of Canada of its current recommendations concerning dispute resolution in banking:
- A single, regulated independent external provider with a strong governance process is the best way to deliver banking dispute resolution and redress to consumers. The Department of Finance has not accepted this advice.
- The approach to independent external consumer dispute resolution and redress taken by major banks such as Bank of Montreal, Canadian Imperial Bank of Commerce and Scotiabank by using the services of the Ombudsman for Banking Services and Investments (OBSI) as is now constituted better protects the rights of consumers and makes it easier for consumers to manage their responsibilities than does the alternative method offered by the Royal Bank of Canada and TD Bank since they stopped using the services of OBSI.
- The approach to independent external consumer dispute resolution and redress taken by the Royal Bank of Canada and TD Bank does not meet agreed-upon minimum standards, has not had an appropriate level of involvement in its development by consumers, government regulators or industry self-regulators, and has not been the chosen option of most banks operating in Canada, nor organizations representing consumers and investors.
- Regulatory change respecting independent external consumer dispute resolution and redress announced for public consultation by the Department of Finance will require a lengthy and detailed process, with much public input, to reach fair outcomes for consumers, especially because the agency responsible, the Financial Consumer Agency of Canada, is being called upon to adapt to new responsibilities and additions to its mandate to provide consumer protection and because the Department of Finance is assuming a new accountability to the public in approving dispute resolution service providers. Good regulatory work concerning complex matters takes time. The Council remains concerned about positions of the government announced in early 2013.
- Consumers deserve the best available (even an acceptable) process of independent external consumer dispute resolution and redress NOW – not just in some unforeseeable future – so all banks should be required to participate in the Ombudsman for Banking Services and Investments at this time.
- FCAC’s first priorities if there is to be change should be to: (1) assert its new responsibility and assume its new responsibility for improving the internal dispute resolution of banks and (2) develop its processes for monitoring dispute resolution and redress decisions and related compliance and for monitoring and responding to systemic issues identified in both internal and external dispute resolution processes.
- Independent, peer reviewed research should be conducted to determine the resource levels the FCAC will need to perform effectively its proposed new mandate overseeing internal and external dispute resolution processes and systems of redress and managing systemic issues adversely affecting consumers that have been reported to it or that it has identified.
- A public consultation or consultations, open to individuals and in which groups representing consumers are appropriately financially supported as intervenors, should be undertaken to develop the standards, rules and penalties to be used by FCAC in its supervision of banking dispute resolution. FCAC and the Department of Finance should determine ways to fund the participation of independent intervenors tasked with the role of representing consumers in the process of regulatory change.
- All this is essential because the regulatory issues are complex. Just for example:
- A more detailed set of criteria for qualification to offer dispute resolution services will need to be developed to be applied to any applicant dispute resolvers, and this can only be responsibly accomplished once the complete expectations and responsibilities in regulation of these services is well understood.
- A methodology to ensure dispute resolution awards get paid to consumers will need to be developed for public consideration with uncertain consequences for any service provider.
- Because consumers are highly mobile within Canada, FCAC’s supervision and regulation of dispute resolution in banking should assume a basic need of consumers to obtain equitable, fair and easy-to-comprehend-and-access external dispute resolution and redress operated in a way uncluttered in its presentation of service by competing jurisdictional claims. The vision of achieving this should be as through the eyes of consumers.
The Consumers Council of Canada believes adherence to the preceding points would help protect consumers from an unnecessarily confusing, complicated and increasingly costly situation created by the unreasonable actions of two banks.