Financial industry ombudsman Doug Melville is calling on policymakers to support mandatory membership in the ombudservice for banks.
Speaking to the House of Commons Standing Committee on Finance Tuesday afternoon, Melville called for Parliament to support the Ombudsman for Banking Services and Investments. He warned that allowing the banks to choose their own dispute resolution mechanism represents, “a giant step backward for consumer protection in Canada”.
Royal Bank left OBSI several years ago, and TD Bank exited last October. Now, Melville noted, the banks want the government to ‘lock-in’ their chosen private providers of dispute resolution. That, he warned, would be a mistake.
“The immediate turmoil caused by TD’s sudden recent departure is now behind us but it has raised a fundamental question for parliamentarians and regulators to answer,” he said. “The public policy question is this: should banks be permitted to choose their own provider of dispute resolution? In essence, hire and pay for the organization that will judge and rule on their market conduct?”
Melville argued that “the independent investigation of consumer complaints cannot be credibly handled by a private for-profit supplier chosen and paid for by the bank,” noting that this represents a clear conflict of interest. “The service will know who it is they need to please in order to keep the business, and it’s not the individual making the complaint,” he said.
“We are firmly of the view that the dispute-resolution process that consumers access needs to be credible, independent, and impartial – not beholden to any one stakeholder group. Allowing banks to choose a dispute resolution provider gives all the power to the financial institution and none to the consumer,” he told the committee.
“It is clear that the only system that can function in the public and consumer interest is one where OBSI is the sole approved dispute resolution service for banking consumers, and we would ask for your support in this regard,” he concluded.
While membership in OBSI is mandatory for investment dealers and mutual fund dealers, it’s not for banks and other financial firms. Last fall, an independent review of OBSI recommended that membership be made mandatory, along with a series of other fundamental reforms, including giving OBSI binding powers, and establishing an appeals process for its decisions. Securities regulators have said they are considering mandatory membership for firms under their jurisdiction, and increased oversight of the service, and OBSI is also reforming its governance in response to the report.