Canada’s biggest banks will be required to improve how they handle customer complaints following a sweeping review that found both internal and external processes used by the lenders have a number of flaws in them.
Those findings were in two reports released Wednesday by the Financial Consumer Agency of Canada, the federal regulator tasked by the government with reviewing internal bank complaint-handling procedures (CHPs) and the effectiveness of external complaints bodies (ECBs).
“And as you can see from the reports, we’ve identified a number of areas where we think they can be improved,” said Judith Robertson, the FCAC’s commissioner.
According to the FCAC, it is estimated more than five million consumers lodge at least one complaint with a bank every year, most of which are dealt with internally and at the first point of contact.
Canadian banks are also required to have internal systems for dealing with those complaints and to be a member of one of the two government-approved external ombudsman offices. Both the banks and the external watchdogs, however, have “a number of deficiencies” in their complaint-handling policies, procedures and operations, the FCAC found.
Those shortfalls include unreasonable delays and inadequate training, but also concerns about a system that allows banks to choose their external ombudsman.
“Banks do not make it easy for consumers to escalate complaints,” noted a section of one of the reports.
Soon after the reports’ release, the Department of Finance Canada announced it would launch public consultations this spring to address the review’s findings and to “look at how to strengthen” the external complaints bodies system used by Canadian banks.
It was the federal government that called for the complaint-handling review in its 2018 fall economic update, which came in the wake of concerns raised by consumer advocates and by the FCAC’s earlier investigation into the domestic sales practices of the big banks.
For its complaint-handling 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.
“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 the report. “However, FCAC found that banks’ procedures are much less effective, accessible and timely when consumers escalate more complex complaints to higher levels.”
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.
Still, even at the branch or call-centre level, bank employees may be “under pressure to make sales and control costs,” the report said, which could affect how they deal with a complaining customer. The complex complaint systems can cause consumers to abandon their grievance as well.
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Furthermore, polling done for the FCAC found few consumers were even getting information from their banks about complaint-handling procedures. Issues consumers flag to their banks can also be time-sensitive, such as being unable to access their money to pay a bill.
“In FCAC’s review of complaint files, consumers who were unable to access their funds said they had difficulty purchasing basic necessities and incurred fees for non-sufficient funds and late payments,” the report said. “They also missed payments on debt obligations and suffered damage to their credit bureau reports, which can affect access to affordable credit.”
The FCAC says it will address the deficiencies via its supervision work and with a new financial consumer protection framework being implemented by the government. The agency is also to oversee a third-party review of ECB operations later this year.
Concerns around the external-body system were reignited in 2018, when the Bank of Nova Scotia announced it had decided to join Royal Bank of Canada and Toronto-Dominion Bank in switching from the not-for-profit Ombudsman for Banking Services and Investments to the for-profit ADR Chambers Banking Ombuds Office.
The FCAC said its review “validated some of the broader concerns raised” about the multiple ombudsman model, which the regulator said was not consistent with what is done in other countries and that can make the external dispute resolution system more complicated for consumers.
“FCAC also has concerns about how allowing banks to choose the ECB negatively affects consumers’ perceptions of the fairness and impartiality of the system,” the report stated. “Finally, the Agency questions whether the one-sided competition between ECBs for member banks is accruing benefits to consumers.”
OBSI ombudsman Sarah Bradley said in a press release that they “share FCAC’s concerns about whether the current system of competition between ECBs in Canada benefits consumers,” and reiterated their office’s call for a single ombudsman for retail bank consumers.
ADRBO, meanwhile, said in a press release that it “understands that some procedural shortcomings exist” and that it would be working on implementing the FCAC’s recommendations.
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