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A construction worker sits in front of TD Canada-Trust Head office in Toronto, May 26, 2011.

J.P. Moczulski for The Globe and Mail/j.p. moczulski The Globe and Mail

Canada's independent banking ombudsman has suffered another major blow with the pullout of Toronto-Dominion Bank's personal and commercial banking division, which has decided to set up its own independent office to handle customer disputes.

TD Bank Group, the retail division of Canada's second-largest bank, said Wednesday it was starting a new external ombudsman, which will be operated by ADR Chambers, a company that provides dispute resolution services.

Starting in November, the new office will handle all customer disputes that TD's own internal ombudsman can't resolve on its own.

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TD will no longer be part of the Ombudsman for Banking Services and Investments (OBSI), dealing a considerable setback to the efforts that began in 1996 to operate a single independent dispute resolution service for the sector.

TD becomes the second major bank to pull its retail division from OBSI, after Royal Bank of Canada exited three years ago.

OBSI was created 15 years ago as an independent way for customers to settle disputes with their financial institutions when such matters can't be resolved with the bank directly. Several major financial institutions have clashed with OBSI over the years, concerned about delays in resolving matters and disagreeing over the amount of settlements that OBSI has demanded from the banks to resolve claims.

"We believe that [ADR]offers a better proposition for our customers," Paul Huyer, TD Bank Financial Group's Ombudsman, said in an interview, referring specifically to resolving disagreements faster.

ADR figures it can respond in half the time OBSI usually takes on cases that are considered straight-forward matters. OBSI has up to 180 days to respond to disputes and usually does so in 120 days, TD said.

But OBSI disputes that figure, saying it takes on average 59.3 days to handle such cases that are not overly complex or don't involve extensive research or debate with the bank.

However, the move raises questions about whether the new ombudsman will be at arms-length from TD. OBSI was originally conceived to be completely independent from the financial institutions it deals with.

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"We believe they are quite arms-length," Mr. Huyer said. ADR makes its methods for dispute resolution public, he added.

At least one other major bank doesn't have any intention of leaving OBSI. A spokeswoman for Bank of Nova Scotia said it has not considered making a similar move.

"We believe in the value of an objective point of escalation for customer care and we don't have any immediate plans to change," Scotiabank spokeswoman Ann DeRabbie said.

OBSI spokesman Tyler Fleming said the TD move is a clear sign that Canada must decide what kind of dispute resolution system it should have for the banking sector.

"OBSI undergoes rigorous independent evaluations of our operations and we are in regular discussions with regulators, among other things," Mr. Fleming said. "All dispute resolution providers should be subject to the same requirements."

OBSI is puzzled by TD's complaints that cases weren't being handled fast enough, and said proper handling of complaints takes time.

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"TD's Ombudsman has never raised timeliness as an issue for banking complaints and we consistently exceed our timeliness standards for the resolution of banking complaints. However, it does take time to conduct a thorough review of a complaint; from a consumer's perspective, speed is important, but so is quality."

The retail arms of each major bank are not required to be part of OBSI, and can elect to depart. However, brokerages are required by regulators to resolve disputes through the independent ombudsman. TD's brokerage arm, TD Waterhouse, is remaining with OBSI.

OBSI was created to have more teeth in pursuing resolutions with the banks, including seeking financial compensation if a customer is able to show the bank had made errors in dealing with accounts. How the amounts of those settlements are determined has always been a sticking point between banks, brokerages and OBSI.

Mr. Huyer said the amount of compensation wasn't a concern for TD Bank Group in this case, and that the number of times ADR disagrees with TD is expected to be similar to the number of times OBSI sided with customers over the bank.

TD Bank Group has about 40 cases still being handled by OBSI. Some of those will likely be resolved with OBSI, while others may transfer to ADR, Mr. Huyer said.

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