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Rules give banks permission to pick favoured dispute-settling body

The Canadian government is proposing a set of new standardized rules to govern how complaints against big banks are handled, but Ottawa is formally giving banks permission to pick who will hear customer disputes.

OTTAWA — The Canadian government is proposing a set of new standardized rules to govern how complaints against big banks are handled, but Ottawa is formally giving banks permission to pick who will hear customer disputes.

The new rules follow the departure of the Royal Bank (TSX:RY) in 2008 and Toronto-Dominion (TSX:TD) in 2011 from having complaints heard by the federally appointed Ombudsman for Banking Services and Investments (OBSI) in favour of ADR Chambers, an independent dispute settlement service.

Although there was no specific regulation on the point, the government will now formally allow other private agencies to enter the field of adjudicating consumer complaints as long as they meet certain standards.

Critics were quick to pounce on the announcement.

The Public Interest Advocacy Centre called the regulations weak and said they would could “destroy” OBSI since rivals more to the banks’ liking are likely to emerge.

“The regulations require these external complaints providers to have people who are working on complaints be impartial and independent of the parties but everyone knows the banks will choose a provider that gives them favourable results,” said John Lawford, counsel for group.

“The bank is choosing them, the bank is paying them, it doesn’t sound like an independent process to me,” added NDP finance critic Peggy Nash, who called on Flaherty to reinstate the previous system back in May.

Tyler Fleming of OBSI said the original intent of establishing a dispute settlement system in 1996 was that it would be heard by one body, noting criticism that allowing competing services encourages a “race to the bottom” on standards.

Asked why Royal and TD left OBSI, Fleming said he believed it was mostly because they didn’t like some of the body’s judgments.

The announcement of the new regulations was made at noon Friday in a news release from Finance Minister Jim Flaherty. Officials briefed reporters but could not be quoted.

Under the new framework, which is expected to come into force following a 30-day consultation process, dispute-settling bodies will be required to make their decisions sooner and meet standards of independence and transparency.

As well, the bodies will come under the supervision of the Financial Consumer Agency of Canada.

“Today’s sweeping new rules will give more power to consumers looking to resolve a dispute with their bank by creating a stronger, more independent consumer complaint system,” Flaherty said in a statement.

But nothing in the rules will make decisions by the complaint review provider binding on the banks and they will have a choice of who will hear the cases.

As well, the rules will take away the ability of the complaint bodies to recommend a systemic remedy for all consumers affected by a policy, restricting judgment solely to the individual complaint.

Fleming said that although judgments are not binding, “we’ve never had a bank refuse our recommendation.”

Among the changes proposed, judgments must be reached within 120 days of receiving a complaint, down from the industry standard of 180 days.

As well, those involved in the resolution of complaints must be independent and banks will be required to inform consumers of the name and contact information of the external complaints body.

The Finance Department said in a statement that the new rules will give more power to consumers and create a stronger, independent complaint system.

“The regulations will — for the first time ever — set explicit requirements that external complaints bodies must meet for approval, including high standards for independence, timeliness and transparency.”

The Canadian Bankers Association said the new regulations “will provide clarity and consistent standards.”

It noted that with four billion transactions each year, there are relatively few disputes that require an independent ombudsman. In most cases, disputes are settled at the bank-customer level.

Fleming said OBSI will have no difficulty complying with the regulations, adding that the issue of the time to settle a complain is often due bank delays in complying with requests for information.

“It’s not fair to close a file on a client after 120 days if the bank has been withholding information,” he said.