Ottawa’s confirmation this month that Canadian banks will be able to hire a third-party ombudsman of their choice to settle disputes with retail customers is unsettling and raises important questions. Among them, will the banks routinely switch ombudsman firms in a search for the one that provides the most favourable rulings? Can Ottawa guarantee customers will have a transparent, stable and impartial way to settle disputes with their banks?
Until a few years ago, customers took disputes with their banks to a single industry body: the Ombudsman for Banking Services and Investments (OBSI). But unhappiness with the length of time it took for OBSI to settle disputes, as well as conflicts over its findings, prompted two major banks, RBC and TD Canada Trust, to pull out of the voluntary organization and hire dispute resolution firm ADR Chambers to handle the role. There was some hope among consumer advocates that Ottawa would oblige the industry to deal only with the OBSI when it came to complaints about regular banking services; the banks are still stuck with the OBSI regarding disputes involving investments. But that hope died on July 6 when Finance Minister Jim Flaherty announced a new framework that would allow chartered banks and other financial institutions to hire the ombudsman of their choice.
As before, it will be the banks that foot the bill; customers who are unhappy about an unexpected account charge or high mortgage prepayment penalty will still be able to file a complaint for free and avoid the expense of going to court against a Goliath. This is a vital service; Canada’s highly profitable major banks operate under a charter system that limits competition, and the average retail customer needs something to level the playing field in a dispute. The Finance department says it will regulate the makeup and practices of the companies that get into the bank ombudsman business in order to guarantee their impartiality. But by creating an open market for ombudsman services, the field has been tipped back in the banks’ favour. Will these for-hire bodies be able to make recommendations that go against their paying clients without fear of losing business to a competitor?
A single industry-funded body such as the OBSI that all financial institutions must join would be protected from commercial pressures and be able to help settle disputes without fear of economic consequences. That in turn would help secure Canadians’ faith in the fairness of our banking system.