(Toronto) The long wait for the banking sector’s grievance process to be shortened is almost over as a series of regulatory updates are set to take effect later this month.
Posted at 10:52 am
The reforms are included in a new financial consumer protection framework aimed at closing loopholes in the system, but despite almost a decade of preparation, critics say the changes represent minor changes rather than a fundamental solution to the problems.
“It’s not a drastic change, it’s not enough to really protect consumers,” argues John Lawford, executive director of the Public Interest Advocacy Centre.
Banks have already started sending out notifications about some of the changes they need to implement when the rules go into effect on June 30, such as credit cards, except in cases of gross negligence.
The new rules also reduce the number of days after a complaint is first filed against a bank to 56 before someone can escalate the issue to one of the external assessors. Previously, the rules provided for a 90-day period after the bank’s second level of resolution, but a lack of transparency from banks about the timeline meant the actual average time before the matter could be taken to a higher court was around 130 days reached.
Since the Treasury Department sent out an initial consultation paper on the changes in late 2013, concerns about high-pressure selling tactics and upselling in the industry have also been growing. The new rules now specifically state that banks must not apply “undue pressure” to sell a product or service and that those products and services must be “suitable for the person” and their financial needs.
A relationship that remains transactional
But while the new framework will force banks to improve their policies, it’s unclear how enforceable or effective the new rules will be.
“It doesn’t really change the fundamental relationship between banks and their customers, which is always transaction-oriented,” said Rene Kimmett, an intern at the Public Interest Advocacy Center.
The rules don’t go as far as creating a fiduciary duty to act in the best interests of the client like some securities laws do, she notes.
The changes also do not include design rules for financial products used in Australia, the United Kingdom and the European Union, which require banks to design products for an appropriate target market and to ask earlier in a product’s development whether this is appropriate.
These rules are particularly useful for protecting consumers who are offered products and services via push notifications without being able to ask questions about the product and its suitability to achieve their goals, said Dr.me Kimmett.
The Financial Consumer Agency of Canada (FCAC), which is tasked with protecting the interests of bank customers, said the new rules should address many of the concerns about the sales tactics it raised in late May in a report produced with collaboration from mystery shoppers . The document found that around 15% to 20% of mystery shoppers found product recommendations inappropriate, for example when offering premium credit cards, that were not accompanied by questions about spending habits or income. In general, mystery shopping outcomes were worse for visible minority and Aboriginal shoppers.
For its part, the banking industry supports the changes brought about by the new framework, Canadian Bankers Association spokesman Mathieu Labrèche said in a statement.
“Banks expend significant time, effort and resources to ensure customers are receiving products and services that are right for them and that they have consented to. Banks undertake to observe consumer protection measures. »
Two competitors for complaint handling
Aside from the setting itself, critics like Mme Kimmett also points out that while complaints handling time has improved, the problem remains that Canada has two external complaints processors to choose from, creating a kind of competition between the two organizations trying to keep the banks as customers while they make decisions against them.
During the election campaign, the federal government promised to set up a uniform external complaints office and again committed itself to this in this year’s federal budget, but has not yet given a timetable for implementation.
The new rules also do nothing to protect consumers from unfair prices, notes Duff Conacher, co-founder of Democracy Watch, a Canadian advocacy group.
“The rules are not very comprehensive to stop abuse and discrimination and do nothing to stop them [prix excessifs]. »
According to Mr. Conacher, along with better enforcement by the FCAC itself, a much more effective action by the federal government would be to honor the Liberals’ campaign promise to expand the FCAC’s powers to review rates charged by banks and impose changes when they are excessive.
“It was promised, and it was a huge promise because it’s the first time a governing party has promised to give a regulator the power to review prices and enforce changes. »
When asked about plans to set up the single complaints body and introduce expanded powers, a Treasury official reiterated the budget commitment without giving further details, saying the government is regularly reviewing the financial sector framework and financial customer protections.