Financial industry firms refused a handful of compensation recommendations from the Ombudsman for Banking Services and Investments (OBSI) last year, but OBSI is also concerned about clients accepting low settlement offers rather than risking a refusal.
In its latest annual report, OBSI indicates that while it is still concerned about firms refusing its recommendations, the acceptance of ‘low-ball’ settlements is becoming an emerging issue, too. According to a letter from OBSI chair, Fernand Bélisle, in the report, the settling of complaints for amounts that are well below its recommendations is raising concerns at the dispute resolution service.
“Consumers and investors should not feel coerced to accept reduced offers rather than face the possibility of a firm refusal of OBSI’s recommendation, resulting in no compensation at all,” it says; noting that refusals and ‘low-ball’ settlements will both be priorities for the year ahead.
According to the report, OBSI recommendations generated a total of $4.3 million in compensation for clients in 2014, down from $4.9 million in 2013. The vast majority of this ($4.1 million worth) involves investment complaints. And, it reports that it recommended compensation in 42% of investment complaint cases, compared with just 14% of banking cases. Eight cases ended with firms refusing the recommendation, representing 1.1% of closed files.
The decline in total compensation came despite the fact that OBSI closed more cases in 2014. It reports closing 539 cases during the year, up 14.4% from the previous year. And, it says that the number of investment complaints dropped in 2014, down to 345 from 434 in 2013. This is also well down from 2010, when it received 562 complaints in the wake of the financial crisis.
The source of complaints remains much the same as in past years, OBSI says, led by suitability issues, along with leverage and off-book transactions. OBSI also notes that complaints involving structured products are on the rise too.
OBSI also reports that it is on track to completely alleviate its backlog of investment complaints by May 1. It says that these efforts to eliminate the backlog, coupled with a series of process changes that it adopted to speed up complaint resolution, has reduced the average number of days to close an investment complaint case by 17%; and, it is now beating its target of resolving 80% of complaints within 180 days.
The picture for future complaint volumes is a bit uncertain, OBSI says, as it has rapidly expanded its membership; which, coupled with recent market volatility, and the impact of the Client Relationship Model (CRM) reforms, may well affect complaint volumes in the year ahead.
Indeed, the expansion of OBSI’s mandate to cover firms such as exempt market dealers, scholarship plan dealers, and portfolio managers, has resulted in 895 new firms joining the service, more than doubling its membership to almost 1,500 firms. It also added a handful of new banks in the past year as well.
OBSI received 225 complaints about the banking industry in 2014, up 9% from the previous year. It also closed 223 cases during the year, up 14% from the previous year. Most of the complaints were about mortgage prepayment penalties, chargebacks and fraud involving credit and debit cards, and other loan-related issues. Total compensation ordered during the year was a bit over $150,000.