A federal regulator says there are a number of flaws in the policies and procedures that Canada’s biggest banks use to deal with customer complaints, and the watchdog says it will try to force lenders to shore up those gaps.
The Financial Consumer Agency of Canada on Wednesday released two reports detailing the results of a review of internal bank complaint-handling procedures and the use of external complaint bodies, or ombudsman offices.
According to the FCAC, it is estimated that more than five million consumers lodge at least one complaint with a bank each year, most of which are dealt with internally. However, the watchdog also found there are shortcomings with both the internal and external processing of consumer concerns, such as lengthy delays when customers try to escalate their complaints past the level of a branch or call-centre employee.
“The review found that banks’ (complaint-handling procedures) are generally effective, accessible and timely for relatively simple complaints that can be resolved at the first level,” stated one report. “However, FCAC found that banks’ procedures are much less effective, accessible and timely when consumers escalate more complex complaints to higher levels.”
For its review, the FCAC examined the processes of the Bank of Montreal, the Bank of Nova Scotia, the Canadian Imperial Bank of Commerce, National Bank of Canada, the Royal Bank of Canada and the Toronto-Dominion Bank, which accounted for 82 per cent of escalated complaints reported to the agency over the past two years.
Even at the first level, bank employees may be “under pressure to make sales and control costs,” which could affect how they deal with a complaining customer. Furthermore, polling done for the FCAC found few consumers were even getting information from their banks about their complaint-handling processes.
“Banks do not make it easy for consumers to escalate complaints,” the complaint-handling report said. “In most cases, consumers are required to produce evidence of a final resolution from each level before they can take a complaint to the next step.”
Banks do not make it easy for consumers to escalate complaints
The Canadian Bankers Association said in a statement that “providing an effective mechanism for resolving differences is a longstanding priority for banks in Canada,” and the industry group noted the FCAC had found its members resolve most complaints quickly and satisfactorily. Improvements banks made to their procedures since spring 2019 would also not have been reflected in the review, which was conducted between November 2018 and June 2019.
“We will carefully consider the findings of the report and look forward to continuing engagement with the FCAC and key stakeholders,” the group added.
In addition to having internal complaint-handling procedures, lenders must also belong to one of two government-approved external complaint bodies, which the FCAC also examined: the ADR Chambers Banking Ombuds Office or the Ombudsman for Banking Services and Investments. Consumers can elevate their complaints to an external ombudsman when their bank fails to provide then with a satisfactory and timely resolution.
The FCAC, though, said it found a lack of awareness and deficiencies with the external bodies, such as that they are “falling short” of the regulator’s expectations for reporting systemic problems.
Another concern consumer advocates have had with external ombudsman offices is that the banks can choose which one they use. Those concerns were reignited in 2018, when Scotiabank decided to switch from not-for-profit OBSI to the for-profit ADR Chambers. Scotiabank’s decision matched earlier ones made by RBC and TD Bank, meaning Canada’s three biggest banks are using a for-profit ombudsman.
The FCAC’s external complaint body (ECB) report voiced a number of concerns with the multiple-ombudsman model, saying it “is not consistent with international standards,” and can undermine consumer trust in the financial system. While it did not find evidence that the external bodies are not independent, the agency said there is “room for improvement” at the ombudsman offices.
“FCAC also has concerns about whether the competition between ECBs for member banks is benefitting consumers,” the report said. “Finally, the Agency is also concerned about the additional complexity and inefficiencies introduced by the multiple-ECB model.”
A third party is to conduct the first mandatory five-year evaluation of the external bodies this year, an “opportunity” the FCAC said it would use to have the third party more closely study the operations of the ombudsman offices.
The FCAC’s complaint-handling and external-body review was done after it was called for by the federal government in its 2018 fall economic update. The request came in the wake of concerns about complaint-handling raised by consumer advocates and by the FCAC’s investigation into the domestic sales practices of the big banks.
The FCAC says lenders will be directed to design better policies and procedures and to ensure there are enough resources to handle the workload. The agency also wants to bolster the transparency and public awareness of the external complaint bodies.
Financial Post
Email: gzochodne@nationalpost.com | Twitter: GeoffZochodne