Banking ombudsman fires back at critics

Independent complaints body upset banks’ participation in process is voluntary

OTTAWA – There were 397 consumer banking complaints made to Canada’s Ombudsman for Banking Services and Investments in 2011, a 14-per-cent drop from the previous year, the agency said in its 2011 annual report, which reads more like a spirited defence than a dry reporting of statistics.

There were 405 investment complaints, which also represented a sharp drop from the tally in 2010.

“From an operational perspective, the levelling off of banking and investment complaint volumes after several years of double-digit percentage growth enabled us to deliver the first-ever yearover-year reduction in OBSI’S budget,” board chairperson Peggy-anne Brown wrote in her introduction to the annual report, noting that the OBSI also completed a project to clear away some of its backlog of complaints.

“Unfortunately, all of this success has failed to translate into stability for OBSI and the mandate it performs as a key element in Canada’s financial consumer and investor protection framework.”

The not-for-profit OBSI is financed by the banks and other financial institutions it is charged with investigating.

The agency announced earlier this month it is seeking a new independent chairperson to replace Brown, who will step down in September – one of the recommendations of an independent review released last November.

Created in 1996 to review complaints by small businesses against chartered banks, OBSI is the only na- tional independent dispute resolution provider in the financial services industry. Its mandate expanded in the past decade to cover all unresolved grievances.

As arbitrator of last resort, OBSI resolves disputes between the 600 participating banks and investment firms and their customers if an agreement can’t be reached between them.

While the major banks and credit unions participate on a voluntary basis, the investment industry-brokerages, and mutual-fund companies joined OBSI on a mandatory basis in 2002 as required by the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Funds Dealers Association of Canada (MFDA).

“Notwithstanding that the independent reviewer found that OBSI was maintaining its fairness and consistency of decisions in the face of industry pressure, the threat of withdrawal is always there in a voluntary scheme,” Brown wrote. “Sadly, that threat has again been proven real in OBSI’S case, with significant negative outcomes for Canadian financial consumers.”

TD Bank, which accounted for 18.5 per cent of the consumer complaints to the OBSI in 2011 – the biggest share of any financial institution – withdrew from the organization in October. Royal Bank of Canada withdrew in 2008.

“Allowing banks to choose a dispute resolution provider gives all the power to the financial institution and none to the consumer. It is clear that the only system that can function in the public and consumer interest is one where OBSI is the sole approved dispute resolution service for banking consumers,” Brown wrote.

“Make no mistake, this is a power struggle between the interests of consumers/ investors and the interests of large and powerful financial firms. A small non-profit organization cannot hope to survive in this struggle without strong support from industry, or in the absence of industry support, support from government and regulators.”

The 2010 spike in complaints related to the calculation of interest rate differentials on mortgage prepayments, the report said.

“Since then, interest rates have stabilized and banks have also addressed these issues more proactively so that customers have a better understanding of the circumstances surrounding early repayment charges on mortgages. This led to fewer such complaints in 2011,” the report said. “What remained constant in 2011 was that service issues and fraud continued to be the largest contributors to the issues we addressed.”

In 2011 for the first time a bank refused to implement recommendations to improve its practices and provide compensation to consumers. OBSI’S mandate allows it to say this happened, but not to identify the institution involved.