The Canadian government has proposed new rules to govern how complaints against big banks are handled.
But while officials claim to be empowering consumers, they seem to be easing the process for the country’s banks instead.
Ottawa is formally giving banks permission to pick which group will hear and judge all customer disputes, rather than requiring them to use the federally appointed Ombudsman for Banking Services and Investments (OBSI).
The new rules follow the departure of Royal Bank and TD Bank from having complaints heard by the OBSI. Both banks instead favour ADR Chambers, an independent dispute settlement service.
Previously, there was no specific regulation on the point, but the government will now formally allow other private agencies to enter the field of adjudicating consumer complaints—so long as they meet the required standards.
Tyler Fleming of OBSI says the original intent of establishing a single dispute settlement system was so only one objective group would hear every customer issue. He worries that allowing competing services will encourages a race to the bottom on standards, with some agencies handing out lighter repercussions and rulings.
In May, the NDP and public advocacy groups called on the government to require banks to use OBSI as their sole dispute-settlement service. Allowing banks to pick and choose puts the successful bidder in a conflict of interest favouring their employer, they say.
Fleming says RBC and TD left OBSI because they didn’t like some of the judgments they received.
The announcement of the new regulations was made at noon today in a news release from Finance Minister Jim Flaherty.
Under the new framework, which is expected to come into force following a 30-day consultation process, dispute-settling bodies handling complaints will be required to make their decisions sooner, as well as meet standards of independence and transparency.
Judgments must be reached within 120 days of receiving a complaint, down from the industry standard of 180 days. And banks will be required to inform consumers of the name and contact information of the external complaints body being used.
All will also come under the supervision of the Financial Consumer Agency of Canada.
“Today’s sweeping new rules will give more power to consumers looking to resolve a dispute with their bank by creating a stronger, more independent consumer complaint system,” Flaherty said in a statement.
Nothing in the rules, however, will make decisions by the complaint review services binding on the banks. The rules will also prevent complaint group from recommending a systemic remedy for all consumers affected by a policy, restricting their judgment power.
Fleming said although judgments are not binding, “We’ve never had a bank refuse our recommendation.”
The Finance Department says with four billion transactions each year, there are relatively few disputes that require an independent ombudsman. In most cases, disputes are settled at the bank-customer level already.
Fleming says OBSI will have no difficulty complying with the regulations, adding that the issue of the time to settle is mostly due to bank delaying requests for information.