couple doing online banking / Ridofranz

Consumers may soon be getting more protection as new federal rules aim to improve customers’ treatment at the hands of their banks.

In mid-August, the federal government published long-awaited regulations that represent the final step in a new consumer protection framework for the banking sector, which began with legislative changes in 2018.

The reform aimed to beef up conduct and oversight requirements amid concerns regarding retail sales tactics at the big banks. A 2018 Financial Consumer Agency of Canada (FCAC) review found that intense focus on sales at the banks increased the risk of misconduct — particularly the mis-selling of financial products and services — and that banks’ processes for monitoring and mitigating these risks were insufficient.

In 2018, the Canadian Bankers Association stated that it “supports proposed FCAC enhancements.”

The Liberal government passed legislation to address these concerns almost three years ago, but the accompanying regulations still haven’t been adopted. They will now take effect on June 30, 2022.

The new rules streamline and consolidate existing regulations in the new consumer protection framework. However, there’s also a significant new obligation requiring banks to resolve customer complaints within 56 days (eight weeks). Current FCAC guidance calls on banks to address consumer complaints within 90 days.

An FCAC review published in February 2020 found that only two of the Big Six banks took fewer than 90 days on average to resolve complaints that were elevated to their senior complaints officers (as opposed to easy-to-resolve issues that could be addressed by banks’ front-line staff). One of the other banks averaged 207 days to address these more complex complaints, and the overall average for the Big Six was 130 days.

The FCAC’s review pointed to several reasons for these prolonged timelines, including the banks’ practice of directing initial complaints to lower levels in the complaints-handling process, requiring clients to jump through bureaucratic hoops before reaching dedicated complaints personnel. The review noted that about 80% of complaints are handled this way.

When customers’ grievances do reach complaints officers, the FCAC’s review found the officers often don’t have direct access to the banks’ records, slowing investigations because they must rely on busy branch personnel to help collect information on the complaint’s merits. Moreover, if a customer’s complaint is found to be valid, the officers rarely have the authority to impose a resolution. Even when a complaints officer sides with the consumer, the officer has to persuade the unit that’s at fault to provide redress.

“This process can lead to delays as the [officer] negotiates with the business line,” the FCAC’s review found, noting that while the amount of money at stake may be negligible to the bank overall, the amount can be significant for the unit responsible for paying back a complainant.

While such negotiations are playing out behind the scenes, customers are kept in the dark and grow frustrated with the process, FCAC’s review found. “This type of delay can undermine consumers’ confidence in the fairness and objectivity of banks’ [complaints-handling],” the FCAC’s report stated.

Meanwhile, delays can compound consumers’ troubles. The FCAC’s report noted that some of the most common consumer issues involve retrieving funds, unauthorized transactions and alleged fraudulent account access — all time-sensitive issues.

“The impact of these problems can grow more acute with each hour that passes before the bank addresses them,” the FCAC stated. Aggrieved consumers can end up facing late-payment charges, insufficient-funds fees or debt defaults that ultimately harm the consumers’ credit rating while they pursue complaints with their bank.

As a result, many complainants are left to begrudgingly accept redress they view as inadequate or simply abandon their complaint altogether. The FCAC review found “the length of time it takes banks to resolve complaints is an important cause of attrition.”

The new timeline requirements aim to bring the banks’ complaints-handling processes in line with international standards. The new 56-day standard matches requirements for banks in the U.K., but is less stringent than the 45-day limit in Australia.

The Department of Finance Canada considered those jurisdictions’ rules when setting the new standards, noting in its analysis that “timely resolution” of consumer complaints is considered best practice under the G20’s principles for consumer protection in the financial services industry.

Finance estimated that bringing complaints-handling times down to 56 days from the current average of 130 days will cost the banking sector approximately $19.4 million over 10 years. The projected costs relate largely to added staffing in the banks’ complaints departments.

In the meantime, the federal government also is reviewing the banking sector’s external dispute resolution system — where client complaints can land when the banks’ internal process fails.

In July, Finance launched a review of the existing system, which allows banks to choose between approved dispute resolution providers (the Ombudsman for Banking Services and Investments or ADR Chambers Banking Ombuds Office). The review, which runs until Oct. 14, aims to strengthen the system amid concerns that allowing competing services adds complexity, hampers consumers’ access and undermines trust in the process.

The Liberals’ election platform states the party will establish “a single, independent ombudsperson for handling consumer complaints involving banks, with the power to impose binding arbitration.”

Whether reforms to the external complaints system emerge from the consultation remains to be seen. But an overhaul of that framework, combined with tough new deadlines for internal complaints processes, could lead to improved consumer protection when dealing with the Big Six.