Canadian consumers are not well served by the ability of banks to choose their own dispute resolution firms, according to a report from the Government of Canada's Financial Consumer Agency of Canada (FCAC).

FCAC released its review of bank complaint handling and the effectiveness of external dispute resolution firms on February 19. Canadian banks have been allowed to choose third-party firms to provide dispute resolution rather than be required to use the Ombudsman for Banking Services and Investments (OBSI), which was established to serve that purpose. Royal Bank (since 2008), TD Bank (2011), National Bank (2017) and Scotiabank (2018) have all opted to use ADR Chambers Banking Ombuds Office (ADRBO).

FCAC's review took place between November 2018 and June 2019, after a request by the Minister of Finance in 2018. The report evaluates the operations of OBSI and ADRBO against FCAC-established rules. By most measures, FCAC evaluates OBSI most favourably, and the report's criticism of ADRBO is quite severe in some instances.

In addition, the FCAC report explicitly questions whether the competition between these firms for member banks benefits consumers. It notes that “only two of the large six banks have elected to be members of the (dispute resolver) that compares most favourably to international best practices.” It also observes that having multiple dispute resolution firms adds confusion to consumers, complexity and inefficiency, and makes regulatory supervision more complicated and resource intensive. “FCAC also has concerns about how allowing banks to choose the [dispute resolver] negatively affects consumers perceptions of the fairness and impartiality of the system. Finally, the Agency questions whether the one-sided competition between [dispute resolvers] for member banks is accruing benefits to consumers.”

Consumers brought more than 5 million complaints to banks in 2018, most of which were dealt with by the banks’ own complaints-handling staff. External complaint firms investigated just over 500 complaints that banks were unable to resolve. FCAC found that while the external firms “meet most of the requirements, there are deficiencies.”

FCAC’s report evaluated the industry as a whole, and the two firms comparatively, on a number of dimensions. On most dimensions, its evaluation was more favourable to OBSI. Here are a few examples:

• On timeliness, it found that ADRBO averaged 156 days and OBSI 112 days to propose final recommendations. Consumers found the delays frustrating, and FCAC specifically flagged ADRBO’s initial view process as too lengthy.

• ADRBO was cited as not meeting expectations for reporting complaints lodged against it by consumers. “FCAC observed a significant number of issues raised by consumers about a perceived lack of timeliness, impartiality and accessibility.”

• ADRBO’s procedures for ensuring that it conducts investigations in an impartial and independent manner “are neither adequately detailed or sufficiently comprehensive.”

• While OBSI “demonstrates a strong commitment to effective complaint resolution”, ADRBO is “not meeting expectations for effectiveness."

• Neither organization meets expectations for identifying and reporting issues that may affect a large number of consumers.

• OBSI was described as transparent and thorough in its consultations with complainants, banks and regulators and was said to consult openly and widely with consumers and consumer representatives. ADRBO does survey banks and complainants, but “it does not appear to use the surveys to identify areas for improvement. Nor does ADRBO regularly perform additional consultations with consumers or consumer representatives.”

• While OBSI has well-developed investigation protocols, ADRBO “does not provide its investigators with detailed instructions or guidelines.”

Minister of Finance Bill Morneau, who requested the report in 2018, said the Department of Finance Canada would launch public consultations in spring 2020 to “address the findings of these reports and look at how to strengthen the external complaints bodies system in Canada.”

Consumers Council of Canada has published a number of papers on the issue, including a discussion paper in 2018 that favoured making OBSI a single dispute resolution provider, and called the policy that allowed firms to select their own arbiters “a flawed policy that has led to an uneven playing field among banking competitors and between banks and consumers.” In a public statement that year, Council chairman Don Mercer said “the federal government needs to protect bank customers by mandating a single impartial, non-profit external complaints body – a right that should be restored to them promptly.”