The future of Canada's national bank ombudsman is in peril as the country's only independent office for consumer banking complaints looks at shutting down those operations after the departure of the country's two largest financial institutions.
Sources close to the Ombudsman for Banking Services and Investments (OBSI) say its board of directors has approved a scenario that would see the consumer banking complaints office closed unless Ottawa prevents banks from ignoring the service and choosing their own complaints handlers.
Royal Bank of Canada and Toronto-Dominion Bank have pulled out of OBSI, deciding instead to hire their own dispute resolution service for customer complaints, using arbitration firm ADR Chambers to handle problems with clients.
According to sources, OBSI's board feels the organization can no longer continue as a credible ombudsman if banks are allowed to leave if they are unhappy with its decisions. RBC pulled out of OBSI for consumer banking complaints in 2008, while TD announced it was leaving in November. Both banks are required to remain part of OBSI for their investment dealer operations.
OBSI, a non-profit office that is funded by the industry but has independence from the banks, has been waiting for the Department of Finance to clarify whether banks can opt out of the federal ombudsman process and employ their own complaint-handling services, which are funded directly by the financial institution.
However, with no word on forthcoming regulations, the office has started to consider other scenarios for its future, sources say.
OBSI was created in 1996 at the suggestion of the banks, which preferred the arrangement of an industry ombudsman rather than a formal government department. Though the banks fund OBSI, no single institution holds sway over its decisions. All complaints that a customer can't resolve with the bank's internal complaints officer are elevated to OBSI.
The ombudsman handles files ranging from disagreements over penalties associated with cancelling a mortgage, to complaints over missing money in accounts.
However, friction has built between OBSI and RBC and TD over the years. The banks say they were upset with the length of time it took to resolve problems. As well, sources indicate the banks were upset about the financial settlements OBSI required them to pay, and for the powers the ombudsman wielded.
In the 2010 budget, Finance Minister Jim Flaherty announced that Ottawa would require the banks to belong to an "approved" third-party ombudsman, but did not stipulate that it needed to be OBSI. The banks interpreted this as permission to use their own arbitrators.
Industry watchers are looking to Thursday's federal budget, where Mr. Flaherty could seek to clarify the matter, but there is no indication the government will move on the issue. Several sources within the industry say a two-year wait for regulations has baffled banks and OBSI alike.
A spokeswoman for the Department of Finance said Monday night that the matter is a concern for the government.
"Currently, all banks are required to have a consumer complaints procedure in place and have a third-party dispute handling body. However, there is a variation in procedures used. This is a source of concern for us and more importantly, for consumers," Mary Ann Dewey-Plante, spokeswoman for Mr. Flaherty, said in a statement.
Ottawa wants banks to use government-approved dispute resolution services, Ms. Dewey-Plante said. The statement suggests financial institutions may be able to choose their own complaints adjudicator, as long as it is sanctioned by the government.
"We have passed legislation forcing banks to belong to government-approved, independent third-party bodies; establishing uniform regulatory standards for internal complaints procedures and giving the Financial Consumer Agency of Canada the authority to monitor as well as enforce compliance. We are now finalizing regulations," the statement said.
A call to OBSI board chairwoman Peggy-Anne Browne was not returned. Officials with the ombudsman's office would not comment on the potential of shutting down the consumer banking complaints office, but provided a brief e-mailed statement.
"We believe that Canadians deserve a banking dispute resolution system that is independent and impartial, and not beholden to any one stakeholder group," OBSI spokesman Tyler Fleming said in the statement. "There are regular Board discussions around scenario planning that take place, but we remain optimistic that the integrity of the system will be restored and that RBC and TD will once again participate in OBSI for banking complaints."
Should OBSI close down its consumer banking complaints arm, it would still continue handling disputes involving investments for customers of each of the banks.
The move comes after OBSI chief executive officer Douglas Melville appeared before the House of Commons finance committee last week to discuss the bank's decision to use their own mediators – a move he said gives all the power to the financial institution" and none to the consumer.
"We are literally the only avenue for consumers to get compensation in the event of a problem caused by their bank, outside of the courts," Mr. Melville said. "A service hired by the bank and that, consequently has the bank as a client, creates the perception, if not the reality, of a loss of critical independence. 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. It is a clear conflict of interest."
While RBC and TD have decided to opt out of using OBSI, other banks say they have no plans to leave. Bank of Nova Scotia said in a statement Monday that it would remain in the organization. "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 De Rabbie said.