Four of the big banks had an idea a few years ago to deal with pesky customer complaints.
Instead of using the long-standing Ombudsman for Banking Services and Investments, they would switch to a hand-picked alternative for their third-party dispute-resolution business. On Friday, this self-serving arrangement comes to an end. Muscled by the federal government, Bank of Nova Scotia, National Bank of Canada, Royal Bank of Canada and Toronto-Dominion Bank return to OBSI.
And what good timing. Bank-related complaints jumped over the past year at OBSI, which has more than 1,500 member banks, credit unions and investment companies. The biggest driver of banking complaints: fraud – a worsening problem that is giving the banks all they can handle and more.
OBSI, created in 1996, is where you go after you take a complaint to your bank or investment company and don’t get a satisfactory response. If OBSI decides to investigate your complaint and finds in your favour, it can recommend compensation of up to $350,000.
A criticism of OBSI is that it often doesn’t rule for the complainant. But OBSI was tough enough that Royal Bank of Canada announced back in 2008 that it would use an alternative for-profit dispute-resolution service, with TD and others following later.
OBSI chief executive Sarah Bradley said these defections raised concerns about banks choosing their own dispute-resolution provider, even as they held most of the power in disputes with customers.
“It’s kind of like letting the home team pick the referee, in a sporting sort of analogy,” Ms. Bradley said in an interview.
The tipping point for banks leaving OBSI was Scotiabank’s 2018 departure, which prompted a Globe and Mail editorial saying that banks should not be able to pick their own dispute-resolution service. The federal government seemed to take a similar view as it announced in a 2019 fall economic statement that it would have the Financial Consumer Agency of Canada study complaint-handling in banking.
The FCAC’s report noted, as Ms. Bradley did, that banks resolve most complaints themselves. But it also said bank customers sometimes abandoned complaints because the process could be slow and hard to navigate when escalating beyond the first point of contact.
While noting areas for improvement in OBSI and the other dispute-resolution service used by banks, the FCAC also found flaws in having multiple third-party dispute-resolution services. These issues influenced legislative changes culminating with the Nov. 1 return of RBC, National, Scotiabank and TD to OBSI, as well as Scotia’s Tangerine online banking division.
One more criticism of OBSI is that its rulings are not binding on member banks and investment companies. “We’ve had a refusal from securities companies, but never from a bank,” Ms. Bradley said. “I would say that’s evidence that we’re able to get to what we consider fair resolutions on the banking side.”
OBSI’s work was until recently a more-or-less even split between banking and investment cases, with a 90-day goal for completing banking investigations and 120 days for investing matters. Ms. Bradley said banking now accounts for about two-thirds, partly because of regulatory rule changes aimed at reducing the number of complainants who gave up out of frustration.
The other thing driving the banking side of OBSI’s business is fraud. Ms. Bradley summed the problem up as fraudsters gaining access to bank accounts and transferring money out using means such as e-transfers and global money transfers.
Last year, 24 per cent of banking complaints to OBSI ended with monetary compensation that totalled $921,294, with a median of $500 a claim. Thirty per cent of investing complaints were resolved with compensation that totalled $1.8-million, with a median amount of $2,200.
OBSI’s banking cases thus far in 2024 have resulted in compensation of $1.7-million, another sign of the rising tide of bank-related issues.
The plain truth of these numbers is that OBSI is no sure bet to resolve disputes. It sometimes accepts the bank’s version or determines that blame lies with the complainant for, say, not properly guarding their personal banking information against fraud.
But OBSI is still the equalizer for customers of banks and investment companies. Go to OBSI when you complain to a bank or investment company and get nowhere. Consumer enquiries received by OBSI in the third quarter alone totalled 4,001, which tells you a lot of people are in that frustrating position.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.