Budget promises reform to banking complaints

The federal government has reiterated its pledge to reform complaint handling in the banking sector and tapped the Financial Consumer Agency of Canada (FCAC) to lead the process.

In the 2023 federal budget, the government proposed “to introduce targeted legislative measures to strengthen the external complaints handling system for banks and to designate a single, not-for-profit, body […] to be the sole external complaints body.”

The promise would do away with the existing model that requires banks to use a qualified external complaint handling body (ECB) — but allows them to choose between the Ombudsman for Banking Services and Investments (OBSI) and ADR Chambers Banking Ombuds Office (ADRBO).

That approach has come under fire from consumer advocates, which have argued the multiple ECB model is unfair to consumers.

Those concerns were validated in a review by the FCAC that was published in 2020, which found several failings with the existing system, including that it falls short of international standards and that the multiple-ECB model adds complexity and inefficiencies for consumers.

That review also raised concerns about “how allowing banks to choose the ECB negatively affects consumers’ perceptions of the fairness and impartiality of the system.”

And, it questioned whether allowing competition in complaint handling benefits consumers.

While OBSI originally dealt with all banking complaints, most of the big banks have since gravitated to ADRBO, including Bank of Nova Scotia, National Bank of Canada, Royal Bank of Canada and TD Bank Group. Of the Big Six, only Bank of Montreal and CIBC still use OBSI.

In the wake of the FCAC’s report in 2020, the Prime Minister’s 2021 mandate letter to Finance Minister Chrystia Freeland directed her to establish a single, independent ombudservice for banking complaints. The 2022 federal budget promised to follow through on that pledge.

Tuesday’s budget not only reiterated the promise, but also indicated that the FCAC will select the sole arbiter of consumer complaints.

“All Canadian financial consumers would benefit from a strengthened external complaints system in banking, with additional benefits for lower-income households, as they are generally more at risk of having lower levels of financial literacy and confidence,” the government noted in its statement on the impact of the proposed reforms that accompanied the budget.

During pre-budget consultations, a collection of consumer groups — including FAIR Canada, CanAge, Prosper Canada, Option consommateurs, Public Interest Advocacy Centre, Kenmar Associates, Canadian Association of Retired Persons, and the Consumers Council of Canada — called on the government to follow through on its promise to overhaul complaint handling in the banking sector.

“It has been over a year, and one budget, since the government identified this issue as a priority, yet we have seen no action,” the groups said in a joint pre-budget submission.

“It is critical that we replace this broken system with one that effectively levels the playing field for financial consumers and adheres to well-accepted international guidelines and best practice standards for banking ombuds services,” it added.

The groups argued that addressing the flaws with the current complaint handling system is more urgent in the prevailing economic climate of high inflation, rising interest rates and a predicted economic slowdown.

“Amid these economic challenges, consumers need the certainty that they can access a fair, independent ECB that reflects international standards for financial ombuds services to fairly resolve complaints that banks themselves are unable to resolve satisfactorily,” they said. “OBSI is best placed to meet this standard.”