Amid a surge in consumer complaints about their banks, the federal Finance department is mandating that the non-profit Ombudsman for Banking Services and Investments (OBSI) serve as the sole provider of external complaint handling.
Finance Minister Chrystia Freeland said OBSI will be designated as the single external complaints body for the banking sector effective Nov. 1, 2024, putting an end to the fragmented dispute resolution system for banking complaints.
The announcement was among a series of measures the Finance Department said are intended to improve the treatment of Canadians at the hands of their banks. The measures include pushing the banks to work with homeowners facing sharply rising mortgage costs, directing the banks to reduce “junk” fees (such as fees for insufficient funds) and calling on the Financial Consumer Agency of Canada (FCAC) to work with banks to improve access to low-cost accounts.
Making OBSI the sole complaint handler will put an end to the controversial practice of allowing banks to chose their own referee for resolving consumer complaints.
“For too long, banks have been able to choose who adjudicated complaints that Canadians have had with their bank. Canadians deserve an impartial advocate that will work on their behalf,” the government said in a release.
“Over the next year, OBSI will transition to better serve Canadians in dealing with their complaints in a timely, effective, and fair manner.”
OBSI got its start as the dispute resolution service for the banking industry before expanding to deal with investment industry complaints too. Over the years, a number of banks withdrew from the service and began using mediation firm ADR Chambers Banking Ombuds Office (ADRBO) instead.
In 2015, following an effort to set standards for dispute resolution, the federal government formally designated both OBSI and ADRBO to deal with customer complaints that the banks couldn’t resolve internally.
Currently, four of the Big Six banks — Bank of Nova Scotia, National Bank, Royal Bank of Canada and TD Bank Group — use ADRBO, as does Digital Commerce Bank and Tangerine.
Consumer advocates have long called for policymakers to put an end to the fragmentation of complaint handling at the banks, and they’ve advocated for OBSI to be named the sole provider.
Organizations including FAIR Canada, the Public Interest Advocacy Centre and Kenmar Associates applauded the government’s decision Tuesday.
“FAIR Canada and other consumer groups have repeatedly pointed out how Canada’s approach to banking complaints fell short of international standards and best practice,” said Jean-Paul Bureaud, executive director at FAIR Canada, in a release.
“We’re pleased to see the federal government take these steps to improve it and to designate OBSI as the sole ECB for all banking customers.”
In 2020, a report from the FCAC found that the fragmented system resulted in consumers suffering delays and complications in getting their complaints resolved. It also concluded that the multiple-provider model “introduces inefficiencies and complexities and is not consistent with international standards.”
The choice of OBSI as the sole provider is based on a recommendation from the FCAC following an open application process.
“FCAC welcomes the designation of a single external complaints body for banking. When combined with the complaint handling requirements introduced last year under Canada’s Financial Consumer Protection Framework, this change will provide Canadians with a simpler, fairer and more effective complaint handling system in banking,” said Judith Robertson, commissioner at the FCAC, in a release.
Over the next year, both OBSI and ADRBO will continue their work resolving banking complaints until OBSI takes over the job on its own in late 2024.
Last week, OBSI reported that banking complaints have soared this year, rising by over 300% year over year.
In response to surging case volumes, the non-profit said the fees it charges the banking sector will increase by about 160% for fiscal 2024.
“In the coming year, we look forward to working with the FCAC, the banks that will be returning to OBSI, as well as the Canadian Bankers Association, our existing participating banks and other stakeholders to ensure a smooth transition,” said Sarah Bradley, ombudsman and CEO at OBSI, in a release.
On the other measures announced Tuesday, the government said that some banks have already agreed to offer basic, low-cost accounts and that the FCAC will begin work to enhance access to these accounts and to establish caps on fees for insufficient funds.
“Where necessary, the government will negotiate the implementation of these reforms with banks and the Canadian Bankers Association,” it said.
On mortgages, Freeland said she met with the CEOs of the big banks last week and “outlined her expectations that they abide by the government’s new mortgage guideline” that was issued by the FCAC, “which directs banks to proactively work with mortgage holders at risk of default on their principal residence to provide tailored mortgage relief.”
These relief measures can include waiving prepayment penalties, waiving internal fees and costs, extending amortization and not charging interest on interest, the government said.
Freeland “emphasized to the bank CEOs that she will be closely monitoring the banks’ compliance,” it said.