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Banks should not have choice of dispute mediator: Ombudsman

Banks should not be allowed to choose which organization settles disputes they have with their customers, the head of the Ombudsman for Banking Services and Investments told the House finance committee on Tuesday.

This controversy started in 2008, when Royal Bank of Canada , the country's largest bank, decided that it would no longer send customers with unresolved complaints to OBSI. Instead, it introduced what it described as a new "independent dispute resolution process" for its banking customers, who are now sent to ADR Chambers, an arbitration firm. RBC said at the time that OBSI was taking too long to resolve problems.

The government has been studying the issue for years now, with Finance Minister Jim Flaherty announcing in the 2010 budget that Ottawa would require banks to belong to an "approved" third-party dispute handling body. He also said the government would establish minimum standards for how banks deal internally with customer complaints.

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But as the government continued to look at the matter, Toronto-Dominion Bank decided last fall that it, too, would stop using OBSI's services to resolve banking complaints.

It was the banking industry itself that created OBSI in 1996, after Ottawa threatened it would create an ombudsman because of the number of complaints the government was receiving from small businesses about the banks' lending practices. OBSI is funded by the hundreds of banks, investment dealers and other financial institutions that use its services. Banking customers traditionally have been sent to OBSI when they can't reach an agreement with a bank's own internal ombudsman.

"Banks now want the government or parliament to 'lock-in' their own chosen private providers of dispute resolution to resolve complaints with their customers," Douglas Melville, the chief executive officer of OBSI, told the House committee Tuesday, according to a copy of his prepared remarks. "It is difficult to see how this is anything but a giant step backward for consumer protection in Canada."

"The public policy question is this: should banks be permitted to choose their own provider of dispute resolution?" he said. "In essence, hire and pay for the organization that will judge and rule on their market conduct?"

He asked the committee members to consider what banks would do if, hypothetically, they were given the choice of being regulated by the Department of Finance or by a private company of their own choosing.

"The independent investigation of consumer complaints cannot be credibly handled by a private for-profit supplier chosen and paid for by the bank," Mr. Melville argued.

Three-quarters of the individuals who take a complaint to OBSI are 50 years of age or older, and more than half are seniors, he said.

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"For many of these individuals, the financial harm they suffer when a bank or investment firm makes a mistake is magnified by having fewer years to make up the losses and fewer income or job opportunities," he said.

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