Despite the steadily rising number of client complaints, financial services firms are winning the bulk of cases handled by the Ombudsman for Banking Services and Investments, and more cases are being settled.

OBSI’s annual report, released Tuesday, reveals that its caseload has swollen by 200% over the last three years, and in 2009 alone it opened 990 cases, which was up 48% from the previous year. Investment industry complaints are leading the way, up 73% last year (accounting for 599 cases), versus a 21% increase in banking industry cases (391 cases). Complaints about suitability, fraud, mortgage fees and loan refinancing were the most common issues, it notes.


While the caseloads are growing, the industry is still winning much more often than it loses at OBSI. In 2009, OBSI resolved 558 cases in favour of industry, and made compensation recommendations in 222 cases (seven cases were withdrawn). Compensation was recommended in 151 investment disputes and 71 banking cases, and all of OBSI’s recommendations were accepted by the firms. OBSI didn’t disclose the monetary value of these recommendations.

OBSI also reports that of the787 files that were closed in 2009, 185 were facilitated settlements, up from 91 last year, and this represents a 20-fold increase from just three years ago.

OBSI says that the higher caseload is likely due to greater awareness of the service, thanks to referrals by regulators, and because firms are doing a better job of telling clients about the service. However, on the second point, it allows that there is still a long way to go. “As in previous years, too many clients are telling us that their firm did not tell them about OBSI and their right to bring their case to us,” it notes.

Investment industry complaints

On the investment side, OBSI reports that compensation is recommended in about 35% of cases, notwithstanding the sharp increase in the number of cases. “As in previous years, a majority of OBSI investigations related to the suitability of investment advice. In some cases, the investment advisors did not fulfill their ‘know your client’ obligations. In other cases, in particular those involving complex investment products, advisors did not properly explain the risks and characteristics of the investments they were recommending,” it says, noting that suitability issues account for almost half of the investment-related cases it opened last year. Also, in 2009, OBSI says it also saw a sharp increase in complaints about discount broker margin calls and transaction errors.

According to OBSI’s report, TD Waterhouse Canada led the way among investment dealers with 46 new case files opened during the year, well ahead of second place Edward Jones, with 26 cases. Canaccord Capital Corp. and BMO Nesbitt Burns tied for third spot with 18 cases each. Among fund dealers, Investors Group Financial led the way with 29 cases opened, followed by WFG Securities with 24, and IOCT Financial with 13 cases. It does not indicate how these cases were resolved.

Banking industry complaints

On the banking side, about 43% of the cases opened in the year were classified as “service issues”. The most common issues in 2009 involved mortgage prepayments, interest rate increases and payment scams, it says.

“Mortgage complaints in 2009 mostly concerned prepayment penalties charged to customers seeking to refinance their mortgages to take advantage of historically low market rates. Because of the significant drop in mortgage interest rates during the year and the way in which prepayment penalties were calculated, some customers were surprised by the size of the amount they owed,” OBSI says. However, it reports that in most cases, the mortgage documentation clearly disclosed the prepayment penalty.

Moreover, OBSI found that none of the complaints about interest rate increase on lines of credit were valid. “We found no circumstances that warranted compensation in connection with this large group of complaints,” it says.

In terms of payment scams, OBSI says that in the past, it has recommended compensation in a few cases where bank staff failed to recognize warning signs of a scam when making money transfers. But that, likely due to increased bank staff awareness, “we have noted a definite trend where fraudsters have moved away from banks to small local money remittance services that are beyond the reach of federal regulation and OBSI’s mandate.”

It adds that, “As the economy recovers and interest rates rebound, we expect the nature of banking complaints coming to OBSI will return to the usual issues of debit fraud, transaction errors and service issues.”

According to the report, TD Bank led the way with 102 cases opened in 2009, followed by Scotiabank at 79, and CIBC with 48 cases. Again, it doesn’t reveal how these cases have been resolved.

Increased caseload depletes OBSI surplus

OBSI says that it spent its accumulated surplus dealing with the increased caseload in 2009. During the year, revenues were $5,537,716, and expenditures were $6,363,310.

“During 2009, expenditures had been increased with board approval to allow the service to handle a significantly increased case load,” it says. “Rather than increasing the levy on participating firms part-way through the year, the board directed management to rely upon OBSI’s accumulated surplus. By the end of 2009, the accumulated surplus had been depleted.” For 2010, the service’s budget is projecting expenditures of $7,097,273.

IE