Ombudsman Impartiality Is a Delicate Balance

The recent announcement that another major Canadian bank is withdrawing from the national banking ombudsman service in favour of a private dispute resolution service for customer banking complaints raises interesting questions about independence and impartiality.

In September, the Ombudsman for Banking Services and Investments (OBSI) confirmed that Bank of Nova Scotia will no longer use the service for banking complaints as of November 1. Instead, it will join Royal Bank of Canada and Toronto-Dominion Bank in using ADR Chambers Banking Ombuds Office (ADRBO) to resolve complaints, the Globe and Mail reported.

Scotiabank will still use OBSI for investment disputes, as do the other banks.

Banks are required by federal regulation to have an independent service to investigate, mediate and adjudicate complaints about banking services.

OBSI and ADRBO are currently the only approved private service providers for banking complaints. (ADRBO does not handle complaints against investment firms.)

The head of OBSI was quoted in the Globe as saying there is “an inherent conflict of interest” in letting banks decide who will handle their customer complaints. It’s “a real problem for consumer protection in the banking sector,” Sarah Bradley, ombudsman and chief executive, said.

Those concerns were echoed by other consumer advocates, who expressed concern that a private, for-profit service cannot be as independent and fair as the OBSI, which is funded by financial industry members, based on size and revenues, and operated on a not-for-profit basis.

The OBSI website describes how OBSI investigates complaints about banking and investment services and makes non-binding recommendations for compensation if it finds that consumers have lost money or been treated unfairly. It tries to facilitate settlements between the financial institution and the customer, where possible. If it cannot settle the matter, it makes a formal non-binding recommendation. Compensation is capped at $350,000.

Financial institutions don’t have to accept the recommendation, but any refusal is made public and they seem to be relatively rare. The OBSI website lists one refusal in 2016, four in 2015, six in 2014, five in 2013, three in 2012 and one in 2007. All related to investment losses, rather than banking complaints.

The OBSI opened 721 cases in 2017 – 370 banking cases and 351 investment complaints – and recommended total compensation of $2.6 million according to the 2017 annual report. Average compensation for banking complaints was $2,089; for investment complaints it was $16,000.

Earlier this year, the Financial Post reported that there was a 28% increase in bank-related complaints to OBSI in 2017. Almost one third of the complaints related to credit cards; mortgages were 18% and personal accounts were 16% of the banking complaints. Chargebacks were the leading credit card issue; prepayment penalties generated the most mortgage complaints, according to OBSI.

In 2017, many of the large banks also faced complaints about aggressive sales tactics, as both employees and consumers said the banks were pushing products on customers to meet sales and revenue targets.

In November 2017, ADRBO started taking complaints about National Bank Canada, in addition to RBC, TD and DirectCash Bank. Bow it is adding Scotiabank to the list.

A spokesman for Scotiabank said one of the reasons for moving from OBSI to ADR Chambers was to provide customers with a more streamlined service and faster response times.

Customers must exhaust the bank’s internal complaint process before going to OBSI or ADRBO.

ADRBO’s 2017 Annual Report says it opened 275 new complaints (from 1248 initial contacts) and it closed 267 files, including all of those opened in previous years.

The ADRBO website explains that it makes an initial assessment within 30 days of receiving a complaint. If it concludes the complaint isn’t within the scope of its mandate or that it will not likely come to a different conclusion than the bank, it will issue an “initial view” letter declining the case. In 2017, that was the result in more than 60% of new cases. (Final reports were issued in 16% of new cases; 18% were still under investigation or under review; 4% had been resolved by agreement between the bank and customer.)

For many years, OBSI faced complaints that it’s process was too slow, leaving some consumers waiting for months or years to learn whether they would receive compensation or not. But based on the 2017 numbers, there doesn’t seem to be significant difference between the two services in investigation times for banking complaints.

In 2017, it took ADRBO an average of 54 days to complete its investigations. OBSI also reported that it completed its banking investigations in an average of 50 days in 2017, and none took longer than 120 days.

It is always a challenge to create and manage an effective, independent consumer dispute resolution process, particularly when it is offered free of charge to the consumer. Any system is going to face suspicion that it is biased in favour of those paying for it, especially when it’s funded by the parties being investigated and potentially sanctioned. If some can opt out and move to another service provider when they don’t like the way it works, it inevitably causes doubts about fairness and impartiality.

ADR Chambers commissioned an independent audit of its investigation and adjudication processed in 2012, in response to earlier public challenges to its independence and fairness. The audit report is available here. It made several recommendations to improve transparency and communications with consumers which I think are applicable to any similar consumer complaint system, whether private or public:

• Adopt clear policies for contract investigators and office staff to provide accurate and timely updates to parties to an investigation
• Clearly articulate what feedback is being sought when a draft investigation report is provided to parties to the investigation.
• Provide an explanation of the relevance of case law or contract documents referred to in the investigation report and attach the relevant supporting documents for clarity and understanding of the report.

Clearly, transparency and timely communication are essential to any consumer dispute resolution process. The consumer, unfamiliar with the process, is naturally suspicious of the ongoing relationship between the business and the service provider. They must have visible assurance that the claim is being handled fairly and in their interests.

On the other hand, an adversarial relationship between the service provider and the business that is subject of the complaint is not productive either. The investigator must be able to get all the relevant information to make an objective assessment. And final recommendations must have credibility if they are to be accepted, especially when they are non-binding.

It’s a delicate balancing act and, as the banking industry example shows, a loss of confidence can result in a run on the bank – or on the banking ombudsman.