Canadian banks are generally effective at resolving straightforward consumer complaints, but much less effective in handing more complex complaints, according to research released today from the federal government’s Financial Consumer Agency of Canada (FCAC).
The FCAC was tasked with reviewing bank consumer complaint processes by the Minister of Finance in 2018. The research was conducted between November 2018 and June 2019 and evaluated the effectiveness, accessibility and timeliness of complaint handling at Canada’s six largest banks. It also included a survey of 5,000 Canadians who have a bank account or credit card. The report provided a summary of banks in the aggregate, with no rankings or focus on individual banks.
The report estimates that more than 5 million consumers bring at least one complaint to a bank each year. Bank procedures are “generally effective, accessible and timely for relatively simple complaints that can be resolved at the first level,” the report said. But when consumers escalate a complaint to higher levels, banks do not have policies and procedures to handle escalated complaints consistently, they do not monitor, assess or improve their procedures, and training programs are largely informal.
On accessibility – whether consumers know how and where to complain – consumers find it difficult to escalate complaints beyond the first level, and banks do not provide consumers with the information they need to do so.
On timeliness – whether complaints are resolved within acceptable timelines – most first-level complaints are handled reasonably, but most banks fail on escalated complaints because of inefficient bank procedures that lead to consumer fatigue and consumers dropping complaints before they are resolved.
The research also found that banks:
have inadequate procedures to collect feedback from higher-level complaints.
have inadequate procedures to handle complaints objectively. Few have implemented reimbursement policies that provide employees with clear guidelines, and the employees who handle complaints at the first level may not be impartial, because of pressure to make sales and control costs, particularly in the absence of clear policies.
fail to set clear parameters on whether and when to consider the business relationship – how long the customer has been with the bank, how large their account is, etc. Complaint resolution sometimes depends on who the consumer is and not on the harm the bank error may have caused.
inadequately provide annual training regarding complaint handling.
require consumers who escalate complaints to higher levels to resubmit complaints, provide documentation a second time, in part because banks do not have reliable record-keeping.
routinely fail to advise consumers of their right to take external complaints to their third-party dispute resolver if they are not resolved within 90 days. In fact, some banks have misleading letter templates that suggest consumers cannot do this.
A parallel report also released February 19 evaluated the effectiveness of external complaint bodies retained by banks.
Investors looking at their options during RRSP season should also consider how much those options may cost.
Investor advocacy group FAIR Canada has emphasized the importance of transparency in investment pricing, and how small cost differences can amplify over multiple years. Its home page includes a number of videos to help investors understand the costs of some investment choices.
The importance of understanding what investors pay in fees is underscored by upcoming changes that result in lower costs to purchase and own mutual funds.
After many years of debate, the Canadian Securities Administrators (CSA) announced in late December they would ban both trailing commissions paid by mutual fund companies to discount brokers and payment of deferred service charges (DSC) and associated redemption fees. Trailing commissions are amounts paid out to dealers from each mutual fund’s pooled assets as sales compensation in return for ongoing advice. Discount brokers only execute orders and do not provide advice. Deferred service charges are amounts paid by some investors who wish to sell funds within a few years of their purchase, if they have not paid any “up front” sales commissions. The DSC ban does not apply in Ontario. Those changes would reduce the fees paid by mutual fund investors.
The effective date of those changes is still unknown. The CSA indicated it was planning to eliminate DSC in early 2020, while the ban on trailers for discount brokers would follow later in the year. Both changes would likely be phased in over multiple years.
Ontario has balked at the DSC ban, because discontinuing a payment option would reduce access to mutual funds for smaller investors. However, the chair of the Investor Advisory Panel (IAP), the Ontario Securities Commission’s (OSC) independent investor advocacy group, said he expects all mutual fund dealers to eventually abandon the practice because of liability risk.
“DSC funds are now a pariah product,” IAP chair Neil Gross told industry publication Investment Executive. “Use has been largely impossible to justify ever since many mutual funds became purchasable on a zero upfront commission basis.”
Both IAP and consumer advocacy group FAIR Canada have supported a ban on trailer fees and DSC, as well as all other “embedded” fees. FAIR Canada senior policy counsel Douglas Walker said the DSC ban would be “an important step forward in simplifying the mutual fund fee structures that consumers simply do not understand.”
The Bank has been gathering data for the survey since late 2014, but published its results for the first time, reporting its Q4 2019 numbers. Those figures show Canadians expect their wage growth to continue to lag inflation in 2020, and their own income growth to continue to lag their spending growth.
Canadians were surveyed in November 2019. The median response for both wage growth and income growth in 2020 was 2.0 per cent. The median forecast for inflation was 2.2 per cent, and the median forecast for spending growth was 3.36 per cent.
The historical figures published show that except for single quarters in 2017, consumers have forecast wage growth to be below inflation, and income growth to be below spending growth for the entire five years of forecast data.
The survey also displayed expectations of volatility in the labour market, with 10.4 per cent saying they thought they would lose their job in the next year, and 17.9 per cent set to leave their job. Both figures are the highest in the period studied. Survey participants forecast a median house price growth of 4.4 per cent in 2020.
The survey was first announced in 2014 as a complement to the Business Outlook Survey that the Bank of Canada also releases quarterly. It is based on a nationwide survey of about 1,000 households by an external polling firm.
The Financial Consumer Agency of Canada (FCAC) created a new, free budget planning tool for Canadian consumers.
It allows consumers to enter basic financial information, then offers a variety of tools to allow them to tailer their budget. It also offers suggestions, links, guidelines and reward badges. Consumers enter the information via the internet, then save the information via a unique link that has no personal identifiers. The spreadsheet can also be downloaded, with similar functionality with the online tool.
One goal, the agency said, is to help Canadians lay out income and expenses to determine needs versus wants, and then set priority for making purchases and commit to a spending plan. Encouraging Canadians to make and follow a budget is part of the National Strategy for Financial Literacy, among other plans.
The Agency said that budgeting is strongly associated with financial well-being, helps people prioritize their spending and is particularly effective when someone faces financial stress.
FCAC noted that its planner incorporates in part the Budget Calculator Spreadsheet under license from Credit Counselling Society.
The new budget planning tool created by the Financial Consumer Agency of Canada (FCAC) aims to make it easier for Canadians to create and follow a budget because budgeting is strongly associated with financial well-being.
The goal is to create a tool so that consumers without a budget can easily create one: summarize their income and expenses, then use some of the tools to help them separate needs from wants and help balance spending against future needs.
One of the important plusses of the system appears to be its security. Users are emailed a security key code when they first enter data, and there does not appear to be any link to bank accounts, social insurance numbers or other identifiers that could benefit online fraudsters. The ability to download results into a spreadsheet for offline use is another benefit, though FCAC’s use of the Microsoft brand name Excel is slightly problematic.
A short experimentation period raised a number of concerns.
• Its initial “tour” facility does not appear to work on the Safari browser.
• Its default presentation includes a facility that compares the user’s budget to the “average Canadian”. This is clarified as “Canadians in your situation (income range, age, family and housing situation,” which may be helpful to some users but could be disturbing or misleading for many others.
• During the data entry process, there is a request for the category of “savings” after income and before expenses. Some users will be confused whether this refers to current savings or desired periodic amounts from each month to be allocated to savings.
• The tool promotes its ability to refer users to government incentives. The referral to the housing energy retrofit – one sampled – is frustratingly unhelpful. (Not all links were tested.)
• There is notice that participant statistics might be used “for statistical purposes”, which could create an emotional barrier for consumers reluctant to upload financial information to a government enterprise.
Helping consumers budget is a worthwhile goal, but it’s not an easy one. It’s also not clear that the FCAC effort is preferable to other applications that people could use in privacy. Many bank applications can include actual spending data from accounts, which would save considerable input time.