On July 6, 2012, the Minister of Finance proposed regulations in respect of the resolution of complaints by bank customers. The draft Approved External Complaints Bodies (Banks and Authorized Foreign Banks) Regulations (the proposed Regulations) will be published in the Canada Gazette on July 13, 2012, with a 30-day comment period. The Department of Finance press release makes it clear that the government views these changes as establishing a necessary pro-consumer framework for dispute resolution in the banking sector.
While the principal purpose of the proposed Regulations is to establish a framework for the approval and ongoing business of external complaints bodies, the proposed Regulations also impose disclosure and notice requirements on banks and authorized foreign banks (referred to in this bulletin collectively as "banks"). In addition, changes to the procedures of external complaints bodies required by the proposed Regulations may necessitate amendments to the complaint handling policies and procedures of their bank members.
Despite numerous references to consumers in the press release and the Backgrounder provided by the Department of Finance, the complaints procedures requirements of the Bank Act and the complaints resolution process and reporting requirements of an external complaints body under the proposed Regulations are not limited to consumer complaints or complaints relating to non-compliance with the consumer provisions of the Bank Act. Banks should review compliance with these requirements outside of their consumer business.
Under the Bank Act, banks are required to establish procedures for dealing with complaints made by persons requesting or receiving products or services in Canada from the bank (customer complaints). Currently, the Minister has the power to designate a complaints body to deal with customer complaints and all banks would be required to be members of such designated complaints body. No such designation has been made. Amendments to the Bank Act, which will come into effect together with the proposed Regulations, will allow the Minster to approve external complaints bodies and a bank will be required to be a member of one approved external complaints body.
The Ombudsman for Banking Services and Investments (OBSI) was established more than 15 years ago as Canada's independent financial ombudsman service. However, membership in OBSI is currently voluntary for banks and two Canadian banks are now using the services of the privately owned ADR Chambers Banking Ombuds Office (ADRCBO). In the absence of any regulatory requirements, the OBSI and ADRCBO have established their own terms of reference and procedures for reviewing and resolving complaints and they are not subject to regulatory oversight.
With the introduction of the proposed Regulations, there will finally be a process in place for approval of complaints bodies by the Minister on the recommendation of the Commissioner of the Financial Consumer Agency of Canada (FCAC). Notwithstanding strong opposition by the OBSI, the proposed Regulations allow a privately owned complaints body to become approved as an external complaints body.
The stated purpose of the proposed Regulations is to enhance the process of dealing with complaints under the Bank Act by establishing a scheme for external complaints bodies. External complaints bodies are to be accessible, accountable, impartial and independent and must discharge their duties in a manner that is timely and co-operative.
Pursuant to the Bank Act and the proposed Regulations, the FCAC will have these external complaints bodies within its regulatory ambit. This further expands the types of entities over which the FCAC has jurisdiction, to include not only banks and other federally regulated financial institutions, but also payment networks and now external complaint bodies.
The proposed Regulations require a proposed external complaints body to have a reputation for being operated in a manner that is consistent with the standards of good character and integrity. A complaints body that intends to apply for approval must, prior to submitting an application, have policies and procedures as well as terms of reference that govern its functions as an external complaints body. Moreover, these policies and procedures must address the prescriptive requirements specified in the proposed Regulations.
Given the Commissioner's role in recommending applications for approval by the Minister, applications will be made to the FCAC. The Backgrounder provided by the Department of Finance with the proposed Regulations indicates that the FCAC will consult shortly on how the application process will work.
Obligations imposed on External Complaints Bodies
The obligations imposed on external complaints bodies under the proposed Regulations include:
- making their services available free of charge in both English and French;
- ensuring that any person appointed by the external complaints body to resolve a complaint is impartial and independent to the parties to the complaint;
- notifying persons who have made complaints within 30 days if all or part of the complaint is outside of the external complaint body's terms of reference;
- advising the FCAC without delay if the external complaints body determines that a systemic issue is raised by a complaint;
- dealing with and resolving a complaint in a manner that only affects the parties to the complaint; and
- resolving complaints by making a final recommendation within 120 days after the date the complaint was originally received.
The requirements set out above seek to provide individuals with a more timely resolution of their complaints by requiring an external complaints body to provide notice within 30 days if a complaint received by it is outside of its mandate and to resolve any complaints within its mandate within 120 days. These are more specific and shorter deadlines than are currently stated on the OBSI and ADRCBO websites.
Under the proposed Regulations, external complaints bodies are required to comply with various administrative requirements in their handling of complaints. For example, at least once a year, an external complaints body must consult with bank members, as well as with persons who have made complaints since the previous consultation, in respect of the discharge of its functions and the performance of its activities.
Unfortunately, there is no guidance on the scope of this consultation process and it is not clear if the proposed Regulations require the external complaints body to consult with all persons who have filed complaints over the last year or if only a random sampling will be sufficient.
External complaints bodies will be required to submit an annual report to the Commissioner of the FCAC on the discharge of their functions and activities, including a summary of the results of the annual consultation process. This report is also to be made available to the public "without delay".
In addition to the annual report, an external complaint bodies will be required to have a third party evaluate the performance of its activities every five years. This evaluation is to be done in accordance with terms of reference to be established in consultation with the Commissioner of the FCAC.
An external complaints body will also be required to make available to the public the following information:
- information about the identity of its members;
- information about its constitution and governance and the terms of reference that govern its functions;
- information about all sources of funding for its activities including the fees charged to its members and how those fees are calculated; and
- information in respect of the results of its five-year evaluation.
All information that is to be provided under the Regulations must be provided in language that is clear, simple and not misleading.
Effect on Banks
The Regulations define a complaint as a complaint made to an external complaints body by a "person" about a "product or service" that was requested or received by the person from a member of that body. The term "person" is defined in the Bank Act to include an "entity". Accordingly, the proposed Regulations apply to complaints made by businesses in respect of commercial products and services, in addition to complaints made by consumers. This accords with the Bank Act requirements with respect to procedures for dealing with complaints, which are not limited to consumer complaints.
The Backgrounder provided by the Department of Finance with the proposed Regulations contemplates that the FCAC will be consulting shortly on proposed guidelines to clarify expectations for banks' internal complaint handling procedures.
Once the proposed Regulations are finalized, each bank will need to review the complaints procedures for the external complaints body of which it is a member to check if any changes to its own complaints handling policies and procedures are required. The rules with respect to federally regulated trust and loan companies are somewhat different, but those that are members of an external complaints body will also have to conduct such a review.
Under the FCAC compliance regime, banks are currently required to report systemic issues in respect of the consumer provisions of the Bank Act to the FCAC within 60 days of such an issue being identified. The FCAC views a systemic issue as a compliance issue that could affect multiple consumers and/or could potentially have market-wide implications. Banks should note that external complaint bodies will be required to advise the FCAC immediately of systemic issues identified through complaints. By requiring external complaints bodies to report what they perceive as systemic issues to the FCAC, the FCAC will be provided with even more information on banks and their internal practices, including information on potential systemic issues that are not related to the consumer provisions of the Bank Act, and the FCAC may even receive such information before the bank itself has reported the issue to the FCAC.
As drafted, the proposed Regulations will be effective when registered. However, the timing of the related amendments to the Bank Act and the effective date of the final Regulations will need to be co-ordinated to allow time for applications for approval of external complaints bodies – including development of the application process by the FCAC, preparation and implementation of the required policies and procedures by complaints bodies and receipt of Ministerial approval – and any necessary amendments to bank policies and procedures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.