For several years, the federal government has failed Canadian retail consumers and small business in providing access to justice in banking, including for seniors, who have comprised 38% of ombudsman banking complaints.
The Ombudsman to Banking Services and Investments (OBSI) was created more than two decades ago by Canada’s largest banks as a national, independent and not-for-profit organization to resolve consumer disputes, in order to get ahead of the federal government before it went ahead with enacting a statutory ombudsman. OBSI was created initially for the resolution of banking complaints and its mandate was expanded to include investments.
OBSI, the only independent referee and dispute resolution service for consumer and small business complaints with banks, has slowly been abandoned by most of the big Canadian banks. Consumers are forced to hope that they will be dealt with fairly and impartially by a for-profit dispute resolution service provider paid for by the banks. The Montreal Canadiens would never be happy about the Toronto Maple Leafs choosing and paying the ref for any game, but this is effectively what the banks are doing to consumers, except that banking consumers are worse off than hockey players. They are amateurs with no home game, always playing in the bank’s arena, against the bank’s staff, and in front of the bank’s referee.
Since OBSI’s inception, something went wrong and the largest Canadian banks abandoned OBSI, replacing it with their own for-profit dispute resolution service, hired and paid for by each bank. OBSI’s relevance has been dying at the hands of most of the same big banks that first established OBSI two decades ago. The federal government sees this happening, and hasn’t done anything about it. To the credit of the securities regulators, the Canadian Securities Administrators, led by the Ontario Securities Commission, refused to permit the same thing to happen in investments: the regulator prevented banks, insurance companies and other dealers from abandoning OBSI for dispute resolution in investments.
It certainly was not that OBSI was awarding too much compensation to consumers that caused the big bank mass exodus. The banks have never paid $1 million in aggregate for an entire calendar year, which is less than a “rounding error” or one month’s compensation of a big bank CEO. So the only logical inference to be drawn is that OBSI was a little too independent for the big banks’ liking. Some of its “too independent” behaviour may have included such OBSI practices as investigating problems discovered in complaint accounts that the customer didn’t themselves identify. Financial services industry members did not like this practice, but OBSI has said it is consistent with the practices of other financial services ombudsmen around the world.
An external bank ombudsman’s role is to investigate unresolved consumer complaints independently and recommend appropriate settlements. Banking complaints from retail consumers and small business (everyday Canadians) that require dispute resolution include excessive fees for prepayment of mortgages, fraud and missing and stolen funds. Investment-side complaints include high-risk investments that the consumer didn’t understand, unexpected fees, predatory practices, unsuitable investments that consumers can’t sell in times of crisis, fraud and problems with joint accounts and powers of attorney.
Seniors are particularly vulnerable, because of challenges such as physical or cognitive impairments, insufficient time horizon to replenish capital losses or death of partners who traditionally managed the finances. More than 38% of OBSI banking complainants are over age 65, and many are low income. They often need extra assistance and focused attention, which is more likely to be available from an independent non-profit ombudsman than a dispute resolution service provider that is focused on its bottom line.
Canadians, including the especially vulnerable seniors who need extra support and protection, need a statutory ombudsman that is independent from the banks. They need a statutory ombudsman to recommend solutions in cases that are big enough to warrant concern, but too small to be dealt with through the courts or too expensive to be dealt with through the courts for the average Canadian.
Increasingly irrelevant in banking, OBSI should recognize its inevitable and slow death at the hands of the big banks, announce that it will cease to act for any bank at a chosen date in the near future and inform Canadians that the big banks have killed the only independent ombudsman for consumer banking complaints.
The federal government should explain to Canadians why it has failed to create a statutory banking ombudsman with binding authority to protect bank customers and instead has allowed the banks to set up OBSI and then failed to protect OBSI when the banks turned against it. The federal government should inform the public whether any explanation exists besides the unwillingness of any Minister of Finance, in the last decade, to stand up to the banks.
Canada’s banking system is among the best in the world and Canadians have a high degree of confidence in the sector. What drives that confidence is consumers’ trust in government policies to protect our banks, ensuring the stability of the sector, and ensuring fair treatment of consumers. The current ombudsman problem is bad for consumers and bad for consumer confidence in banks.
It’s time for the federal government to publicly commit on a timely basis to a statutory banking ombudsman, not just to protect Canadians – especially seniors and other vulnerable Canadians – but to safeguard public confidence in one of our most important industries and to ensure that the confidence is justified.
Ermanno Pascutto is founder and executive director of FAIR Canada