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.
Canadian consumers are not well served by the ability of banks to choose their own dispute resolution firms, according to a report from the Government of Canada's Financial Consumer Agency of Canada (FCAC).
FCAC released its review of bank complaint handling and the effectiveness of external dispute resolution firms on February 19. Canadian banks have been allowed to choose third-party firms to provide dispute resolution 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).
FCAC's review took place between November 2018 and June 2019, after a request by the Minister of Finance in 2018. The report evaluates the operations of OBSI and ADRBO against FCAC-established rules. By most measures, FCAC evaluates OBSI most favourably, and the report's criticism of ADRBO is quite severe in some instances.
In addition, the FCAC report explicitly questions whether the competition between these firms for member banks benefits consumers. It notes 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 also observes that having multiple dispute resolution firms adds confusion to consumers, complexity and inefficiency, and makes regulatory supervision more complicated and resource intensive. “FCAC also has concerns about how allowing banks to choose the [dispute resolver] negatively affects consumers perceptions of the fairness and impartiality of the system. Finally, the Agency questions whether the one-sided competition between [dispute resolvers] for member banks is accruing benefits to consumers.”
Consumers brought more than 5 million complaints to banks in 2018, most of which were dealt with by the banks’ own complaints-handling staff. External complaint firms investigated just over 500 complaints that banks were unable to resolve. FCAC found that while the external firms “meet most of the requirements, there are deficiencies.”
FCAC’s report evaluated the industry as a whole, and the two firms comparatively, on a number of dimensions. On most dimensions, its evaluation was more favourable to OBSI. Here are a few examples:
On timeliness, it found that ADRBO averaged 156 days and OBSI 112 days to propose final recommendations. Consumers found the delays frustrating, and FCAC specifically flagged ADRBO’s initial view process as too lengthy.
ADRBO was cited as not meeting expectations for reporting complaints lodged against it by consumers. “FCAC observed a significant number of issues raised by consumers about a perceived lack of timeliness, impartiality and accessibility.”
ADRBO’s procedures for ensuring that it conducts investigations in an impartial and independent manner “are neither adequately detailed or sufficiently comprehensive.”
While OBSI “demonstrates a strong commitment to effective complaint resolution”, ADRBO is “not meeting expectations for effectiveness."
Neither organization meets expectations for identifying and reporting issues that may affect a large number of consumers.
OBSI was described as transparent and thorough in its consultations with complainants, banks and regulators and was said to consult openly and widely with consumers and consumer representatives. ADRBO does survey banks and complainants, but “it does not appear to use the surveys to identify areas for improvement. Nor does ADRBO regularly perform additional consultations with consumers or consumer representatives.”
While OBSI has well-developed investigation protocols, ADRBO “does not provide its investigators with detailed instructions or guidelines.”
Minister of Finance Bill Morneau, who requested the report in 2018, said the Department of Finance Canada would launch public consultations in spring 2020 to “address the findings of these reports and look at how to strengthen the external complaints bodies system in Canada.”
Consumers Council of Canada has published a number of papers on the issue, including a discussion paper in 2018 that favoured making OBSI a single dispute resolution provider, and called the policy that allowed firms to select their own arbiters “a flawed policy that has led to an uneven playing field among banking competitors and between banks and consumers.” 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.”
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.”
Canadian consumers will be able to use debit cards on trains, buses and planes after the implementation of new rules announced by Payments Canada.
Under current rules, merchants must have consistent online connectivity to accept debit payments. So while Canadians are a “global leader” in debit card use, this has made debit impractical for certain transactions, particularly that involve mobility such as bus fares and in-flight purchases. Most airlines and VIA Rail now restrict on-board purchases to credit, and don't take debit payments. (Many have also disallowed cash.)
In its release, Payments Canada specifically noted the new Rule E5 would appeal to "public transit operators, whose business models require quick authorization." The Rule offers delayed authorization, removing the requirement for immediate online connectivity, and should broaden point-of-sale debit card acceptance. In the transit scenario, operators can allow passengers to pay and ride without payment authorization. The rule should also enable debit payment at parking meters and vending machines.
While the change by Payments Canada will permit the transactions, there was no information on how quickly merchants and other payment participants would implement any changes.
Fewer Canadians are carrying cash, and debit cards are used for more transactions than cash, according to Payment Canada’s annual Canadian Payments Methods and Trends Report. More everyday lower value transactions are also using debit.
Consumers Council of Canada President Don Mercer said Canadians “stand to benefit from new secure ways to pay. However, as with all payments choices, consumers should become informed on the terms and conditions before choosing any method of payment.”
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.