Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 8 - Evidence - Meeting of March 9, 2005
OTTAWA, Wednesday, March 9, 2005
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:08 p.m. to examine and report on consumer issues arising in the financial services sector.
Senator Jerahmiel S. Grafstein (Chairman) in the chair.
[English]
The Chairman: Honourable senators, today we will continue the committee's study on consumer protection mechanisms within the financial sector. I want to say to all of you that have been involved in this that we were delighted to learn that, either the Minister of Finance or his officials listened carefully to what goes on here. Senators were strongly of the view that consumer protection should be increased for deposit receipts to $100,000 from $60,000, and this was done in the budget. We want to thank the senators who made this an issue. We want to thank the witnesses who listened to our concerns about this, and we want to thank the Canadian public who were listening carefully to what we have done. We have received a lot of responses not only through CPAC but also on the Internet. This committee is being watched on the World Wide Web. What is said here is being carefully listened to not only by the Canadian public but also the government. We want to thank the Minister of Finance for responding so promptly to one of our concerns. We hope that he will respond to our other concerns when we decide what those concerns are.
We are delighted to welcome Ms. Labelle and Mr. Gravelle, who are here on behalf of the Centre for the Financial Services OmbudsNetwork. Perhaps you could tell us a little bit about the organization and your work.
We do have your written brief. Hence, by curtailing your comments, it will allow all senators an opportunity to exchange views with you.
Please proceed.
Ms. Huguette Labelle, Chair and Independent Director, Centre for the Financial Services OmbudsNetwork: Honourable senators, we will be brief so that we have more time for discussion.
[Translation]
First of all, we would like to thank you for this invitation to take part in the proceedings of your committee, particularly with respect to assistance provided to consumers as well as their protection.
[English]
We want to speak briefly about the network of which we are a part. As you probably know, this network has a number of elements. One of them is the industries themselves, and their management of complaints — which is a very important element — because you hope that this is where much of the redress will take place, in a timely way and to the satisfaction of all concerned.
The second important element is the ombudservices themselves, the ombudsman for banking and investment, the general insurance ombudservice and the life and health ombudservice. That, too, is an essential part of this network.
The third element is the centre — which is why we are here representing the centre. The centre is the unique access point for those consumers who do not know where to go when they have a complaint. The centre provides that service and also promotes standards for redress for consumer protection and consumer assistance within the network and certainly to ourselves.
I will not make any further comments at this time. I would now invite Mr. Gravelle to say a few words on the operation of the centre.
Mr. Pierre Gravelle, Chief Executive Officer, Centre for the Financial Services OmbudsNetwork: Honourable senators, it will come as no surprise to anybody that given the surprise and complexity of the financial services industry in Canada, it sometimes happens that consumers have difficulty connecting with the person or agency best suited to assist them with their particular issue. When consumers, investors or policyholders contact our centre, a consumer assistance specialist determines the nature of the inquiry or complaint and what the caller has done so far to get an answer or a resolution of the issue. The specialist then explains the options available to the consumer and outlines the steps required to resolve the issue.
[Translation]
In this context, our specialists must make sure that there is constant follow-up for the updating of protocols and resource persons for the processing of complaints within financial institutions. It is important that the consumer be referred to the appropriate resource.
A follow-up with consumers is also important to be sure that they were given the right referral. We also regularly ask them whether we can do anything else to assist them.
[English]
In terms of the regulatory aspect of our work, the center and the ombudservices do not play an enforcement, disciplinary or compliance role. That is obviously the role as you know of regulators and self-regulatory bodies. However, if a consumer raises a regulatory issue that would normally attract a regulator's attention, if appropriate, our specialist will explain which regulator has jurisdiction and provide contact information.
I shall now give you a few statistics — but they are detailed in our presentation. It is interesting to know that more than 100,000 people have visited our website since December 2002 when we were launched. New to the site in 2004 was the addition of an online complaint handling tool that allows consumers to electronically file a complaint with one of the three ombudservices present today.
Last year, we also added a resource area for industry members. Since December 2002, as well, our consumer assistance specialists have assisted nearly 7,000 people.
[Translation]
Our specialists exceeded our service standard aimed at responding to 90 per cent of the calls in 20 seconds or less. When a consumer calls the centre, we try to avoid the use of a recorded message but have someone provide a personal and direct response.
[English]
You will find other relevant statistics in our submissions to you and in our recently released annual report.
The experience so far has shown that the financial services ombudsnetwork in total makes a difference. It acts as a resource. It provides consumers with access to specialists. It brings them in contact with those who are best able to resolve their issues and problems within the financial institutions. It also provides access to independent, third-party redress mechanisms to the ombudservices when all the redress mechanisms in the financial institution have been exhausted. At the end of the day, because of this personal contact and interaction with the consumer, it increases consumer confidence in the financial services market as a whole.
As I said earlier, regulators are mandated to handle market conduct issues. The centre and the ombudservices focus on helping the individual consumer obtain redress for his or her concern.
Those are our brief introductory comments. We welcome the opportunity to respond to your questions.
Senator Fitzpatrick: Welcome, Ms. Labelle and Mr. Gravelle.
Your comments, along with the briefs and material that I read earlier, have been educational and helpful to me. The service that you provide is an excellent service.
How readily do Canadians using these services recognize that they are available? I was hoping that when you came here you might have a schematic with all of the different layers, showing the centre and the organizations — I presume there are also private organizations; the individual banks have ombudsmen. It is a matter of general public education. I do not know whether you have funds that you can allocate for promotional purposes. I am not sure that the person who lives down the street from me knows about the service. I would be interested in knowing from you whether there is a program under way to communicate and publicize what you are doing?
Ms. Labelle: Senator, if you have a service, it must be known; otherwise it does not exist. We have been very conscious of that. We use different approaches to try to reach out to Canadians. Local newspapers are a very good source. Members of Parliament and members of legislatures are good. We also use libraries. We use a variety of sources, and we repeat because to do it once is, of course, not enough. That is one aspect.
The website that we have established has really made a huge difference. Mr. Gravelle was mentioning that in the last two years we have had over 100,000 hits. These hits are getting longer. People are spending a longer amount of time at the website.
This is a question that is always difficult. Until someone has a problem, they are not interested. They do not see what you pass on to them. What they need to know is that there is an easy way to find us the day they do have a problem or that the people they would normally go to know that we exist.
Perhaps Mr. Gravelle may wish to add something.
Mr. Gravelle: The strategy we have adopted, as Ms. Labelle suggested, is working through multiplier groups. A person may not need to know about the financial services of OmbudsNetwork until he or she has a problem. We want to be accessible at that moment, and to be accessible, we have to know where the consumer may go.
Many consumers will go immediately back to the point of sale or they will escalate the complaint within the financial institution. That is the right thing to do. We must all go back to the point of sale. Many consumers do not know this. They will turn to, perhaps, their elected official. They may turn to a regulator. They may turn to a Chamber of Commerce. They may turn to some community groups or credit counselling agencies.
Our multiplier strategy has led us to contact repeatedly and continuously these various groups and organizations that are in contact with people so that they may be aware that our services are there should they be made aware of a consumer issue.
Senator Fitzpatrick: Have you had any discussions with the banks on a cooperative promotional arrangement, so that banks would post a sign that says a consumer can contact such and such and so and so in the case of a complaint? I suspect many of these complaints can be dealt with and resolved, that they may not be as big a problem as they appear, or that they can be corrected. I should hope that the banks might cooperate in something like that.
Mr. Gravelle: In fact, all of the financial institutions do cooperate in that regard. Federally regulated financial institutions are required by law to belong to a third-party dispute resolution mechanism. Similarly, there are requirements for provincially regulated institutions. This requires the institutions themselves to inform their consumers not only about their internal complaint-handling policies, but also the redress mechanisms that are available within the institution, escalation, for instance, and also the third-party dispute resolution mechanisms that exist. By sending statements periodically to their clients, the financial institutions do mention the existence of the network and the ombudservices.
I want to comment on another observation that you made. You are quite right, from our limited experience so far — limited experience, because we are only two years into being — at least 50 per cent of all of the referrals have gone back to individual financial institutions at various levels of escalation. From that perspective, the system works.
[Translation]
Senator Plamondon: I am familiar with the structure since at the time I was appointed senator, I was part of your board of directors as well as the board of directors of the life insurance ombudsman service. At the time, it was just the bare bones of a service, as you note, the service is fairly recent.
Let me now talk about my concern. First of all, the service is not sufficiently known. How do we know whether it is widely known? You are right, Mr. Gravelle, to note that it is when we need it that we start looking for it. When we have a policy for life insurance or damage insurance, then we should receive a complaint form that would be set aside at the same time as the insurance policy, somewhat similar to the practice of banks. Consumer groups were successful in ensuring that the application for redress forms were to be made available in banks. I was wondering whether that was the practice nowadays. In the case of property insurance, for example, would each contract sent out be accompanied by a complaint form as well as information about the mechanism for redress?
As for my second question, I am concerned when someone makes a complaint that ends up being subject to legal time limitations because of the time for the processing of the complaint. Is this something that you are sensitive too at the present time?
Do you give consideration to a complaint relating to matters over which you have no power, such as the closure of branches, for example? After all, it is a complaint. It is not just a request for information. Do you take this complaint into account and to whom do you report on such matters?
Mr. Gravelle: As far as your first question is concerned, the complaint form is not attached to the insurance contract when it is issued, as far as I know. To the best of my knowledge, however, the practice of the damage insurance industry is to inform their clients periodically about redress in the case of complaints. As for banks, not only is there a statement of policy on the matter and the material sent by financial institutions to their clients but it is also available in the branches.
Senator Plamondon: My question dealt mainly with the insurance sector since I know that it is required in the case of banks.
Ms. Labelle: To my knowledge, there is a lack in this respect. This may be something that you would like to raise with the conciliation service of the health and damage insurance sector.
Mr. Gravelle: As for your second question concerning time limitations, we must always act in the interest of consumers and this means respecting the time limits so that any action or redress falls within the prescribed period.
When the consumer contacts the centre, we are seized of a complaint, not to examine it or to dispose of it, but to make sure that we can instantly indicate to the consumer what legal recourses he has and guide him towards the right person with a phone number to use in order to continue pursuing his complaint.
When the conciliation services ombudsmen make their presentation, you will see that they work within time constraints so that the consumer's rights are not swept under the rug.
Senator Plamondon: Regarding the complaints?
Mr. Gravelle: Look, we use the simplest and most general definition of a complaint or a data bank. As far as we are concerned, a complaint is essentially someone showing dissatisfaction or concern. That is how we register the complaints. As for shutdowns, of course, the conciliation services will not make any pronouncement on a decision to close some branch or another.
In the federal legislation, however, there are provisions and obligations that the financial institutions, including the banks, must respect. At that point, we will advise the consumer to turn to Canada's consumer financial agency.
Senator Plamondon: Thank you.
Senator Massicotte: My comment is somewhat in the same vein. I consider I am well enough informed and I do not know who does what. Let us say I am a consumer and I register a complaint about a bank or a life insurance company. I disagree. I go on my website and I call you. I am an unhappy consumer. What happens? I call your office?
Mr. Gravelle: You are going to talk to a professional and credible party who knows the environment, the financial sector. He will engage you in a dialogue in order to try to understand the specific nature of your concern, the nature of the product, what company produces it, what steps you have taken so far. Is this simply a concern to be dealt with by the proper regulations authority, a branch closure, for example, or is there actually a wrong to be righted, that you think should be addressed? In that case, we will advise you on the steps you should take. There is the matter of providing support to the consumer during the next stages. It is the consumer who must take the initiative to continue.
Senator Massicotte: Hypothetically speaking, let us say my service charges at the bank are too high. Where will you advise me to go?
Mr. Gravelle: We will advise you to go to the bank. We will suggest that you go to the branch. After that, if you are still not satisfied, you have the right to escalate. If you are still not satisfied, we will tell you that if after that first step, you are not satisfied with the result, you may consult the bank's customer services and, ultimately, the bank's ombudsman. If you are still not satisfied, you may deal with the ombudsman for banking services and investments.
Ms. Labelle: We do not just tell you to go to the branch. We give you the name and the phone number of the person to contact. If you tell us you have already done that, then we will immediately direct you to the appropriate conciliation service which would be the ombudsman for banking services and investments.
Senator Massicotte: So, first I go to the branch or phone them. I am asked for a letter or a written complaint. I assume that you will tell me to go to the bank's regional office. I will be asked for another written document to confirm my disagreement. If I go and see the ombudsman, is he going to ask me for another confirmation in writing or is he going to accept my verbal request?
Mr. Gravelle: No, once you have gone through the first step and that you have sent in your written complaint, then that document is sufficient; you will get a reaction.
Senator Massicotte: It is the same document?
Mr. Gravelle: Yes, you will inform the bank that the answer given to your request was not satisfactory and so you will thus proceed to the next level. What I wanted to add was that we will tell the consumer what he needs to have in hand at the outset after we have given him all the information on how to escalate the complaint and what process to follow. We will have advised him as to the documents he must keep, the receipts and whatever he can put down into his written complaint to make it clear and precise.
Actually, we have assisted one or two consumers in the past with the writing of the complaint to help them out. Sometimes some consumers do not have what it takes to write up that kind of text.
Senator Massicotte: In my experience and in that of some other colleagues who have had this problem, the stages are complicated and difficult. You always have to write something down and there is a timeframe of a few weeks. I would say that a rather high percentage of people decide that it is faster to pay the $22. The problem is not settled. Statistics show that the results are not good for a large number of people and they simply throw in the towel. That means that we have not attained the initial objective.
Ms. Labelle: One of the extra things we do is to advise the consumer to come back any time during the process. If he thinks the problem is not getting settled or if he needs extra help, we can help him. There will always be consumers throwing in the towel along the way, for all kinds of reasons. In some cases, they drop it because they get information making them realize it is unfortunate, that there is nothing to be done, that they had already signed the contract and so on. Others may perhaps let things drop before. But we have done a follow-up on a sampling of people who got in touch with us at the outset. The satisfaction rate with the process was actually very high.
Senator Massicotte: Your organization's process or the bank's?
Ms. Labelle: With what we had done. It did give us an idea of what went on after that. Would you like to comment that study?
Senator Plamondon: To complete what Senator Massicotte was saying, you do a follow-up otherwise people just give up. That is one of the important things with the conciliation centre, the other services and the financial institutions under them. When someone goes to the centre of the network, no one shuffles the complaint aside. There is an impartial third party at the head of the network. Anytime you do not get the right answer or you find the process too complicated, you call up and say: I did not get a satisfactory answer. Sometimes they will get in touch with you. You are the one who makes the decision. The consumer is the one making the decision.
Senator Massicotte: The consumer decides whom he can call?
Ms. Labelle: Absolutely.
Senator Massicotte: You are not the ones taking the initiative?
Mr. Gravelle: We tell the consumer he can call us if he is having any problems. We call him back to find out if the referral information we gave him was satisfactory and if he requires any further help. That is the only way to operate.
Senator Massicotte: Let us say that I call you as a consumer in distress. You give me the advice and two or three weeks later, you call me back to find out whether I am satisfied?
Mr. Gravelle: Always, after two weeks, we do that, yes.
Senator Massicotte: That is excellent, you do a follow-up on all the people who call.
You referred to the complexity of the process. It is true that Canada's financial sector is very complex with banks, insurance, investment. Throughout all that, Canada's financial institutions operate in a very complex regulatory context with the federal and provincial regulatory authorities. The consumer never knows whether a given company or product is being offered by a company under federal or provincial jurisdiction, whether Quebec, Ontario or British Columbia. The idea suggested by those people is excellent. Regulation officials and the people from the industry, in 2001, suggested a national gateway for an easy access for all consumers no matter the jurisdictions or the nature of the products. We are sort of the consumer's lightning rod giving advice and help throughout the process. There is no single gateway. They can call us but they can also call the conciliation services.
Very often, consumers will turn to their MPs or consumer groups. That is something we have to deal with. That is why we do networking with the various organizations active in this field and that remain in contact with consumers.
[English]
Senator Fitzpatrick: I have a short question on the complexity of our system and a new part of our banking system that has arrived on the scene — payday loan organizations. Do you receive complaints about payday loan organizations? What do you do with them? Are they part of your oversight program?
Mr. Gravelle: Senator, we have had one or two complaints, perhaps, at the most in respect of payday loans — and that it is not because we are not on the radar screen of the people who utilize such organizations. For some reason, people have not complained about their relationship with payday loan groups, although we have had some complaints about certain mortgage lenders. Money Marts have no organization, no association and no infrastructure and, therefore, no self-regulatory environment.
The Chairman: There is an association.
Mr. Gravelle: There is one. It is a business association as opposed to being a consumer-oriented association, perhaps.
In those circumstances, we would contact that particular payday office to inquire on behalf of the consumer about the nature of the problem. In fact, if the issue could not be resolved, we would no doubt suggest to the consumer to contact the appropriate regulator.
Senator Kelleher: This is a new organization. I am always aware that there are difficulties associated with setting up any new organization. Bearing in mind the responsibilities you have been given under the legislation, do you feel, after two years of operation, that you have been adequately funded for these responsibilities?
Ms. Labelle: Let me comment briefly. We are not in the legislation per se. This is a network system. The godparents of the system are the joint forum of regulators and the associations on behalf of the industry; yet it is to be, and is, independent and impartial in its work. It is financed by the industries themselves, based on a formula that was agreed upon right from the beginning. Of course, one could have always more money to do more things, but at this time we are satisfied that we are able to discharge our responsibilities with the resources we have been given, at least at the centre. I think the ombudservices will be able to comment on that as well tomorrow in terms of their own services.
Senator Kelleher: That is an encouraging answer.
Can you give me some idea of the numbers of complaints that you receive?
Ms. Labelle: We have to look at two mechanisms. In terms of direct calls, we have had over 7,000 calls in the last two years.
The Chairman: This is on page 9 of the brief.
Ms. Labelle: Basically, what happens there is that we do divide those calls between the complaints per se and what could be called inquiries. As you see, the great majority are considered complaints from the beginning. Of course, as we mentioned earlier, in the last two years we have had over 100,000 visits to the website. Of course, it is more difficult to determine there what is a complaint and what is an inquiry, although some of the work that we have been doing to enhance our website will allow us to increasingly determine that.
Mr. Gravelle: We said earlier that in the first two years we handled about 7,000 contacts. The great majority of these contacts were complaints as opposed to inquiries. General insurance-related issues generated most of the activity, representing 42 per cent of total volume. This does not come as a surprise because of the issues related to auto insurance, premiums, and policy renewal.
Ninety-five per cent of our contacts were made directly by telephone. We are pleased and proud of the fact that we can provide a personalized response system and referral systems to consumers. That is absolutely key.
Depending on your wish, we could go through the various sectors — banks, insurance, investment — but these statistics have been provided to you in our annual report. I would not want to simply give you a long litany of statistics, if you already have them. Perhaps this would allow time for other questions as well.
Senator Kelleher: Which of your activities do you feel are the most effective in protecting, educating and assisting consumers?
Mr. Gravelle: Without any doubt, it is the interaction with the consumer. That personal interaction allows us not only to hear the consumer out but to enter into a dialogue. It offers us a window to raise public awareness and to provide some assistance, some hints and counselling in terms of what to do next. Sometimes, it helps us demystify the process of complaint handling in various financial institutions.
Senator Kelleher: On average, how long does it take to resolve a complaint? Do you have a time frame?
Mr. Gravelle: I do not. The committee will have useful feedback from the financial services ombudsmen later today and tomorrow. They would know how long a complaint has been with an institution and how long a complaint usually stays at the level of the ombudservice before it is resolved.
If you have a well-documented complaint, it should not take too long to resolve, unless there are side issues that are raised along the course. I can assure you that sometimes, when we go back to the point of sale, complaints are resolved within a matter of days. I would suspect that a good majority of complaints are resolved that quickly.
[Translation]
Senator Plamondon: I very much believe in the structure before us. I would not have gone along with it at the beginning. It seemed to me that before the centre was set up, the complaints ended up getting lost in the institution, people became discouraged and would not even contact the institution's ombudsman. In cases where there was a customer service, we wondered whether the purpose of this service was to sell rather than provide assistance to the client.
Now that all of this has been settled with the banks, an attempt has been made to apply the same procedure to damage and life insurance. The five financial sectors of Canada have shown a true willingness to act rather than settle for regulation providing the minimum in the form of a regulation. This approach requires the sectors to promote their own institutions, to fund the system and to be credible. At the same time, because of the centre there is a third party that is aware of all the complaints. They are able to engage in a follow-up. We did not have this type of system previously.
In my view, once this centre is well known, that is not presently the case, the process will be efficient. If it did not prove to be so then we would require a regulatory process, one that would be similar. I am sure the industry will want it to be efficient without any need for regulations. Once the five financial sectors make an effort to adopt an efficient structure, it will be in everyone's interest.
[English]
The Chairman: Senator Plamondon, this is a comment as opposed to a question. We are here to question the witnesses before we can continue. Do you have a final question for the witnesses?
[Translation]
Senator Plamondon: Here is my question: The five sectors are experiencing many problems but they are not contacting the centre. I was told that under the Damage Insurance Act, it was possible to turn down an application on housing insurance without providing any explanation.
It may be because of selection or another reason. What is the recourse open to the consumer in such a case? He will contact the centre and will be told that there is no requirement under the legislation to accept such an application. Perhaps we will have to make recommendations for regulations to be included in the Insurance Act. That does not mean that the system is inefficient but rather that there is nothing to support it.
[English]
The Chairman: There were a number of comments and questions. If you want to comment or respond, please feel free; otherwise, we have several other senators who wish to ask questions.
Do you wish to comment on the comment?
[Translation]
Ms. Labelle: I am in full agreement with your remark. I have nothing to add, it was well said.
[English]
Senator Moore: I want to follow up on some of the issues raised by Senator Kelleher. In your brief, you say you have a small staff. How many people are on your staff?
Mr. Gravelle: We have three consumer assistance specialists, and the director of the consumer and assistance and referral service. I also have a director of public awareness, communications and research, all combined, and an administrative associate secretary to the board and myself. Lean and mean, senator.
Senator Moore: Looks like it. I am impressed by the number of contacts. You say 95 per cent were by telephone, which to me works out to 6,750 by phone, and 90 per cent of those are handled within 20 seconds. You obviously have a warm body at the other end of the telephone, not just a computerized telephone system. You have direct human contact and are able to dispose of these issues.
Mr. Gravelle: Yes.
Ms. Labelle: We also have extended hours of access, recognizing that there are different time zones in this country.
The Chairman: What are the time zones?
Mr. Gravelle: From 8:30 in the morning until 7:00 in the evening.
The Chairman: Seven days a week?
Mr. Gravelle: The people are physically present five days a week, but of course we have recordings on weekends. Our experience shows that beyond 7:00 p.m. we do not get any calls, and we do not get any calls on weekends either.
Ms. Labelle: We tried it later, senator, when we first opened and there were so few calls after 7:00 that we felt it was not efficient.
Senator Moore: It says here 66 per cent from Ontario, 13 per cent from Quebec, 7 per cent from B.C. Why? How do you account for that? Is it because you are based here?
Mr. Gravelle: I think the first consideration is demographics, population. Second, the other services also have expressed a similar take-up rate.
As well, the Financial Services Commission of Ontario, which had a consumer handling operation within the organization — that is the provincial regulator — more or less disbanded that service and issued a directive to insurance companies that they would now simply refer to us. This is a big referral to us.
I should like to say, Senator Moore, as well, that this is quite a unique initiative in the sense that, to my knowledge, nowhere in the industrialized countries have all financial services come together to provide a single-access window to consumers. Second, this is a modest beginning. We have been two years in operation. What is important is that we work not only with the full support of the industry, but also with the full support of the regulators, which is absolutely key.
Senator Moore: When in 2002 did you begin?
Mr. Gravelle: December 2002.
Ms. Labelle: Two years and a few months.
Senator Harb: Knowing what you have done on the public-sector side, if that is any indication, I believe that your industry is well served and very fortunate to have the excellence that you bring to the table, both in terms of your credentials on an individual basis as well as the lengths of services you have provided Canadians over the years. I want to congratulate you, on behalf of my colleagues.
I recall two years ago one of my colleagues — Beryl Gaffney, the Member of Parliament for Nepean — was trying to set up the ombudsman office that to a large extent would have been funded by government. Now it is funded by your own members. This is an excellent beginning.
You have six founding members: the Canadian Bankers Association, Canadian Life and Health Insurance Association, the Insurance Bureau of Canada, the Investment Dealers Association of Canada, the Investment Fund Institute of Canada, as well as the Mutual Fund Dealers Association of Canada. These are the associations that decided to set up the network. Is there any plan to expand further? Are there other players that might have interest in the financial sectors that might apply and become members?
Ms. Labelle: Let me comment briefly. There are, for example, the cooperatives. We hope this is a group that will join the network in totality. The other one is Desjardins, which is very large in the province of Quebec. There is about 5 per cent left out there nationally that we would hope would join us. You will see some of the ombudservices have been in discussion with some of these groups, and we have been as well, to try to invite them in. We hope that over time we can cover closer to 100 per cent than we now have.
Senator Harb: My second question regards the nature of the complaints you receive. I want to throw this out for your comment. Do you receive any complaints with regard to privacy issues — for example, people who raise issues about the fact that personal information may have been released without their knowledge, exchange of information may have taken place — or have any of your members have brought your attention to such complaints of privacy issues?
Mr. Gravelle: We have not received specific complaints related to privacy issues probably because Canadians generally are well aware of their recourse respecting privacy infringements. The Privacy Commissioner of Canada has high visibility. That accounts for this.
The nature of our complaints relates mainly to services or products, advice, suitability, transactions, errors. Some of the complaints will have what we perceive to be a violation or a regulatory breach. We are not equipped to comment on that because we do not do an investigation. However, we will immediately counsel the consumer to seek recourse vis-à-vis regulators as well as to seek redress or compensation within the financial institution or through access to the Financial Services OmbudsNetwork.
Senator Harb: What can we do as a government to support you? What are the kinds of things you would think government should do in order to make your job easier and that of your ombudsman?
Ms. Labelle: I am sure there are a number of things that would be helpful. One would be to continue to assist us with information, such that consumers are aware, in ways beyond what we have now. That would certainly be helpful.
Mr. Gravelle, do you have an additional comment?
Mr. Gravelle: I agree with Ms. Labelle. In addition, I would support the working partnerships developed with government agencies. The Financial Consumer Agency of Canada, FCAC,or a regulator would be seized with a regulatory breach because its role is in market conduct and compliance or non-compliance issues, but it does not deal with consumer redress, per se.
In many respects, from the consumer protection perspective, there is an extension of roles. FCAC has a finite role, we have one role. Thus far, the working relationships developed and the exchange of information that takes place bodes well for the future. This will give us added visibility and will support and enhance the access of consumers to our services.
[Translation]
Senator Massicotte: Since you are so well informed about the industry, I have a question for you. I gather that in the United States there is some discussion about privacy. When people use a computer to surf the Internet, supposedly the sites that they may visit are not private. It is possible to find out what sites were visited.
In the U.S., certain insurance companies make use of this information to find out whether people have visited a cancer site. Such information is available. As a result, some insurance companies in the United States refuse applications when an applicant interested in breast cancer, for example, has visited a particular site very often. They conclude that there is a problem in the family. It is a way of refusing the application. They make use of this information to do so.
I asked Canadian companies whether they use such methods. They are very much aware of their existence but so far, at least two years ago, they were not doing this. I assume that it is not illegal to proceed in this way. It seems to be a sensitive issue. Consumers in Canada are not aware of the fact that there is a file where people may find out if you have visited an Internet site, people can find out where you have gone.
Ms. Labelle: It is a fundamental question of ethics. I doubt whether there would be legal protection. I do not know if there is any legal recourse.
Mr. Gravelle: It is a question that might be put to the representatives of the industry themselves. I know that they are looking into this matter. It is a very important issue.
[English]
The Chairman: It might be useful for the viewing public on the Internet to have your telephone number and your website address. I notice that it is not in your material provided today. We might as well use the good offices of CPAC and the Internet to promote you.
Mr. Gravelle: With pleasure, chairman. For service in English, the toll-free number is 1-866-538-3766.
[Translation]
For service in French, you have to dial 1-866-668-7273 and the website address is www-cfson.ca.
[English]
Our website is www.cfson.ca. We welcome inquiries.
The Chairman: Previous witnesses have not been as compliant with giving us some meat to take a look at in respect of the statistics that you provided. When I do the analysis, I see that 40 per cent to 50 per cent of the complaints or inquiries are related to general insurance and about 40 per cent are related to securities issues. Essentially, the bulk of them are under those two categories. Within those two categories, one of the concerns that I note is disability insurance. This is obviously a large and growing problem. Could you give us some advice or information about how you deal with disability claims?
I notice that you have been precise in this area in saying that they are health-related and travel concerns, et cetera. For instance, travel is huge issue for older travellers with disabilities. Please give us some information about that growing problem.
Mr. Gravelle: The number of complaints has been relatively stable over the years. In the life and health insurance sector, the Canadian Life and Health Insurance Association and the Canadian Life and Health Insurance OmbudService, CLHIO, can attest to that. Health complaints may occur because of a rejected medical claim or a dispute on the quantum of a disability or a refusal to provide disability or medical expertise. It is a complex area. The CFSON does not profess to be experts in this matter and we operate an assistance and referral service. Senators might be invited to pose these questions to either the CLHIA or the Canadian Life and Health Insurance OmbudService, who will appear before you tomorrow.
Ms. Labelle: Perhaps I could add to that. We hope that by publishing this information it will draw the attention of the specific industries to the major areas of complaint. As well, when we receive recurrent complaints about a particular enterprise rather than an industry, we find that many seem to be more systemic in nature. We communicate with the industry to bring it to their attention, at the highest level, if necessary. I know that does not deal directly with the point that you mention, but we do not have special advice for you on that matter, although I wish we did have. We are hopeful that the information published by the ombudservices and by our services bring to light certain issues to the industry that may not be advised otherwise.
The Chairman: In your brief, I notice that the number of visits to your website has increased by about 80 per cent in the last year. That answers all of the concerns of the senators about the knowledge and awareness of the service. As you become better known, there will be an increase in volume and that will then turn from visits to complaints.
You also mentioned about Industry Canada's Canadian Consumer Information Gateway, which is related to Senator Kelleher's question. This question was implicit in all questions of honourable senators about the poor consumer who has a problem and is confused as to how to seek redress quickly. Rather than simplifying it, there seems to be a complexity, I understand from looking at the information.
For example, if one were to go to the website of Canadian Consumer Information Gateway of Industry Canada, what would happen next?
Mr. Gravelle: They will see a direct link to our website and receive information about the consumer complaint handling protocols, access to industry associations or to the industry. They will receive information about the complaint protocols within individual financial institutions by sector.
They will have information about regulators if they wish to pursue the regulatory track, and they will also see consumer gateway. That means that we have simply imported or migrated on to our website the capacity to file electronically using Industry Canada's software, the Canadian Consumer Information Gateway.
The Chairman: Have they been cooperative in that regard?
Mr. Gravelle: We have had excellent cooperation. We were the first sector to pioneer the use and the application of the software developed by Industry Canada. We are thankful for their cooperation and support.
The Chairman: My final question arises out of Senator Fitzpatrick and Senator Massicotte's questions. All honourable senators are wrestling with this. We think we are very knowledgeable, and it appears to us after having gone to a financial institution or dealing with insurance that we were not knowledgeable about this service. It strikes us that if we are very much involved in information and we are not knowledgeable, the general public must not be.
Have you discussed with the banks, investment brokers and your partnership group making available a very simple document at point of sale so that people know that if there is a problem on the counter or via their website there is an easy access to knowledge about an ombudsman being available if they have a complaint.
When I have gone into a bank — and I have gone into more banks in the last couple of months to find out about banking, and found that it is not really user friendly. There are many documents; there are many complexities. You are covered by cameras. Particularly, for a new Canadian, it is a pretty awesome place to go to in one sense. It strikes me that point of sale in branches, with security brokers, with security dealers, and with insurance companies where there is a point of sale, a simple brochure would be helpful to respond to Senator Massicotte's, Senator Fitzpatrick's, Senator Kelleher's and Senator Plamondon's point — that is, knowledge to the consumer.
Ms. Labelle: That would be ideal. We have entered into discussions with some of the industries to see if this could be done. Your assistance would be welcomed in this regard.
The Chairman: That may be one of our recommendations.
Senator Massicotte: Is your office and phone number also included in the correspondence of other ombudsmen?
Mr. Gravelle: If I start with the financial institutions, they will indicate to their consumers or clients the internal complaint mechanisms or procedures, and they will also refer to the third-party resolution service, which is one of the three ombudservices. They will provide a phone number.
At the moment, they will not make a clear reference to us, the centre, and will not give or are not giving a phone number for us.
Senator Massicotte: Do you think they should?
Mr. Gravelle: I think it would be ideal, absolutely.
The Chairman: Thank you, Ms. Labelle and Mr. Gravelle. This has been fascinating. All honourable senators are interested and we have learned a lot.
I just wish to put on the record that I asked Ms. Labelle and Mr. Gravelle to send us a letter with respect to any recommendations they may have regarding ways that we can try to improve what we consider to be an excellent service. We will look at those. If the committee thinks those are acceptable, we will include those in our recommendations.
We are delighted to welcome our next witnesses, Mr. Michael Lauber, Ombudsman and Chief Executive Officer, and Ms. Peggy-Anne Brown, Chair of the Board of Directors, from the Ombudsman for Banking Services and Investments. We hope that your comments will be brief, to allow capacious opportunity for senators to question you and to clarify your evidence.
Mr. Michael Lauber, Ombudsman and Chief Executive Officer, Ombudsman for Banking Services and Investments: Honourable senators, I have been the Ombudsman for Banking Services and Investments since its inception in 1996 as the Canadian banking ombudsman. As you mentioned, Ms. Peggy-Anne Brown is with me today. She has been our chair since 1997.
Today, I will address some operational issues and Ms. Brown will address some governance issues.
You have just had a complete discussion about the CFSON. I will not comment further on that. Perhaps will you have some questions later with regard to that process.
The ombudsman process is based on the simple principle that every client deserves a fair and prompt resolution of complaints. That is why we try to make our process accessible and keep it relatively informal. Every customer receives a comprehensive written report of our investigation, including our findings and reasons for our decision. Reports can range from three or four pages up to 20 pages or more.
The ombudsman's decision on the resolution of a complaint is based on fairness in the circumstances, taking into consideration good financial services and business practices, accepted industry standards and practices, standards established by the industry regulatory bodies, professional associations and individual financial services providers. Of course, we give recognition to the laws and regulations.
The final decision on the fair resolution of complaints rests solely with the ombudsman, and there is no appeal of my decision to the board of directors.
The ombudsman's mandate initially focused on small business. We started in 1976. We added consumer issues about a year later. In 2002, we expanded our mandate to include independent investment firms. We have moved from 13 member financial groups to now 500 organizations that are members of OBSI.
Our contacts with customers have more than doubled since 2002, to approximately 3,200 a year last year. The number of complaints investigated by OBSI has gone up 250 per cent in that time.
Over 50 per cent of the complaints we investigated last year related to investments. An information binder was sent to you, and it contains complete statistics for our 2004 year that will be the statistics section of our annual report when we publish it.
The Chairman: Thank you for that. This is helpful. It will save us many questions.
Mr. Lauber: In terms of our scope, all regulated financial services providers in Canada may join OBSI as a matter of right. At present, our industry members include all the banks, most trust and loan companies in Canada, members of the Investment Dealers Association of Canada, members of the Mutual Fund Dealers Association of Canada and the Investment Funds Institute of Canada. We have several insurance companies and a credit union. A provincial credit union system is talking to us about joining.
Later in these hearings, the committee will be hearing from consumer groups and investor advocacy groups. I believe we have a good rapport with these groups. However, they do have some expectations and criticism of OBSI. I should like to highlight a couple of them. Many want OBSI to have binding powers even though no firm has failed to follow our recommendation in those nine years. Potentially, binding powers would require a more formalized process that would work to the detriment of the consumer.
Some of these groups do not understand the different roles and powers of regulators and ombudsmen. Regulators enforce compliance with laws and regulations and discipline firms for breaches, but regulators do not provide redress. Most do not have the ability to provide redress. An ombudsman investigates and provides redress based on fairness in the circumstances. We have no power to discipline the firm.
In the case of unsuitable investments, some argue that OBSI unreasonably expects the clients to have taken action to mitigate damages. As is well established in common law, we do expect clients to take reasonable actions to minimize losses, once they become aware — and that is the operative phrase, ``once they become aware'' — of a bad situation. In other words, one cannot continue to speculate on the back of the firm once you know there is a problem.
Consumers are also entitled to a fair and impartial assessment of their complaint. However, some argue they should advocate for consumer investors and provide advice to them. Senator Plamondon raised the issue there. We cannot advocate for one party and be seen as independent by the other. We must render a decision based on fairness in the circumstance and we must be independent of both parties. We cannot advocate for the consumer or the industry. I speak for neither side. Fairness applies to both the consumer and the financial services provider.
In terms of advice, our mandate does not allow us to provide advice; our code of conduct does not allow us to provide advice; nor does our insurance policy allow us to provide advice. I think the latter may be more sticky.
With regard to seniors — a topical issue these days — seniors and other vulnerable consumers require special care. Our procedures are designed to identify these individuals and our investigation is tailored to address special circumstances. Nevertheless, the investor groups in particular are often critical of our decisions involving seniors.
I would just like you to consider these comments when these groups appear. They will be talking about issues like this. We are very sensitive to seniors and to people with special interests. We take special care to understand.
The Chairman: You will have an opportunity to respond to us in writing. If other witnesses present evidence to which you do not have an opportunity to respond, please feel free to send us a letter to respond to any claims that you think are pertinent. We are trying to move these hearings along quickly. By the same token, we want to ensure that we have an open mind to listen to all sides of every question.
Ms. Peggy-Anne Brown, Chair of the Board of Directors, Ombudsman for Banking Services and Investments: Honourable senators, it is a pleasure to have an opportunity to appear once again before this committee. This is the third time that Mr. Lauber and have I done so. The first was during the committee's consideration of the McKay task force report, and later, during the implementation of that report. The committee's recommendations at that time contributed to the continuation of the independent ombudservice and the subsequent formation of the OmbudsNetwork.
OBSI is an independent organization that investigates consumer complaints against banks and investment firms. As we are funded by these organizations, OBSI must have a robust governance structure to safeguard the independence of our organization. The board of directors of OBSI is comprised of a majority of independent directors from very diverse backgrounds, drawn from across Canada.
There are also industry nominees on the board. Industry nominees contribute industry experience and provide us with communication links to industry members. The independent directors may not have worked for or otherwise have been significantly involved with an industry member for a minimum of five years prior to being appointed.
The independent directors control the key functions of the board of directors, such as the hiring of the ombudsman, the selection of independent directors to replace retiring directors, and the budget.
These provisions protect the independence of the OBSI and are enshrined in our bylaws. OBSI has made continuous improvements in our governance over the years, first, to strengthen the structure of independence, and, second, to address public perceptions.
Currently, the size of the board is being reduced for greater effectiveness while at the same time increasing the majority of independent directors to 70 per cent.
Mr. Lauber and our colleagues from the network recently met with the dispute resolution committee of the joint forum of market conduct regulators to discuss a number of controversial issues, topics such as oversight, whistle- blowing and information sharing. We are having similar discussions with the AMF — the new provincial market conduct regulator in Quebec.
OBSI must demonstrate best practices in its structures and operations in order to address the concerns of federal and provincial regulators, as well as the concerns of consumers and advocacy groups. As a result, OBSI has embarked on a four-year process to further refine our policies and procedures and to provide greater transparency to the regulators and to the public. We also hope this process will address some of the concerns that have been put forward by interest groups; Mr. Lauber has mentioned a number of those.
Last year, OBSI retained a consultant who had experience in complaint handling both within business and also in the regulatory environment. We asked him to conduct a review of OBSI's practices. Part of the reason for the consultant to come in at the time is that we received, with our extended mandate in 2002, rapid growth in the volume of complaints in 2003 and 2004. This created challenges for us, one of the challenges being the volume and the timeliness that we would complete our investigation. The consultant's review included looking at our business processes and investigation procedures and documentation. He also looked at reporting letters. Every customer that we investigate gets a written report. As well, he looked at an assessment of the fairness of the opinions we had given. The report, while recommending a number of process improvements for the long-term growth of our organization, was overall extremely complimentary — complimentary about the thoroughness of our investigations, the quality of our reporting to customers, our decision-making process, as well as the fairness of the decisions.
This year, we are working with a consultant to implement all of his recommendations to deliver improved service to the customer, while maintaining our reputation for competency, thoroughness and fairness. Next year, the International Standards Organization, the ISO, will be releasing a new standard as part of their business improvement series of standards. It is called the ISO 10003 and is entitled ``Customer Satisfaction: Guidelines for External Customer Dispute Resolution.'' It will be applicable to independent ombudservices. OBSI's board of directors has enthusiastically endorsed the ISO process, and we anticipate applying for certification as soon as possible.
Adopting the IOS standard has an advantage of adhering to an international standard rather than a standard developed by a related organization that is funded by industry, as is OBSI and CFSON. It is a question of perception, and we think this is an important question.
In 2007, we plan to implement a procedure for the periodic review of files by an independent third party, probably a professor from a major law school. The review would focus on procedural fairness and the fairness of recommendations. In Australia, for example, the ombudservice conduct a tri-annual review. That tri-annual review also includes public consultation, and a summary of their findings is made available to the public.
In this four-year process that I outlined, with each step we are preparing for the next step. We are quite excited about this.
I shall close my remarks by mentioning that OBSI will be hosting an international conference of financial service ombudsmen this September. Ombudsmen from the U.K., Ireland, Australia, New Zealand, South Africa, the U.S.A., as well as other countries, will participate, and the ISO10003 standards will be a focus of that conference.
We would be pleased to answer your questions.
Senator Harb: What is the relationship between your office and the Centre for Financial Services OmbudsNetwork?
Mr. Lauber: Operationally, it is a network. It is an association of four organizations. We work in cooperation. There is no reporting relationship among the organizations. I have no reporting relationship as ombudsman to the CFSON. My only reporting relationship is to my board of directors, and the same with all of the others within it. It is a cooperative network. That is probably the ideal name for it.
Senator Harb: What is the selection process? In the case of Mr. Gravelle and Ms. Labelle, she stressed the importance that she is independent. In terms of your situation, how are you and Ms. Brown selected? Who hired you?
Ms. Brown: As I mentioned to you, 70 per cent of our board is independents. We are responsible for hiring the ombudsman. We control the budget. To tell you something about the industry — and we are funded by industry exactly the same as CFSON. We have never had our budgets questioned by industry. This is important — the fact that part of our job as independents on the board of directors is to protect the independence of his office. Mr. Lauber mentioned that we cannot touch his recommendations, that they are final and there is no appeal. The only appeal to the board by a complainant is if someone feels that the process has been unfairly provided; however, as for the recommendations, no.
Senator Harb: You spoke a little bit about best practices, which is a terrific idea. To what extent do you do best practices sharing?
Mr. Lauber: In terms of best practices, we deal with that when it relates to complaint handling. That is an area in which we have some expertise. We do not pretend to have expertise in best practices in banking or investments. In the banking sector, we do meet with the internal ombudsmen. About 15 internal ombudsmen and I meet on a quarterly basis. We talk about issues in our offices, procedural issues, some conflict issues that we have from time to time. We talk about things like best practices and also where there is some thought of systemic problems of a nature, and so forth. We are not a standard setter; we are a dispute resolution body. That is our principal focus, but we do share our experiences.
Senator Harb: When a consumer launches a complaint, you have a timeline of up to about two years, correct? Is two years your maximum limit, or is it shorter? Perhaps you can also talk about the percentage of complaints that are resolved and how long it takes? Do you have any statistics to that effect?
Mr. Lauber: In the system in the banking sector and in the investment sector, it is the same thing. The customer must first take his or her complaint to the financial service provider and deal with that complaint process.
In the case of the banks where you have the internal bank ombudsman, it must go through that office and it then comes to us. It is only after it has gone through that process will we will consider it. Our basic operating standard on complaints is that 80 per cent of complaints are to be resolved within 90 days. We do some early resolutions in 10 or 20 days, but normally it is a very thorough investigation. Many hours go into it in many cases. The investment files can be quite thick. There are many people to interview in many cases. A resolution rate of 80 per cent within 90 days is the standard we work to. Due to the workload to which Ms. Brown referred, we fell below that standard last year, but in the banking sector we are now above that standard again.
Ms. Brown: When the Canadian banking ombudsman was originally initiated, it was for small business. Small business people told us that there were other ways they could get redress; they could go to the courts. They were looking for a free service and for timeliness. That is how we came up with something reasonable.
Two years ago, when we started to take on investments and securities, we accepted back-dated complaints. You all know what the market was like, and we were inundated. This is how we fell behind.
This was also part of the reason for the review with the consultant. We were looking for ways to meet our standard of timeliness when such things happen, because we know how important that is to the consumer.
Mr. Lauber: We have been talking about complaints, but at our level we are really talking about disputes, and we are dealing with them after the financial services provider has studied them very thoroughly, has formed an opinion on them and has decided that they are not prepared to settle. They are hardened positions by the time they get to us.
Senator Fitzpatrick: Thank you for being here. Your presentation has been very helpful. Just before you we heard from the OmbudsNetwork, which is an important referral service. They refer issues, complaints or problems to you, and you have to deal with them. Is that correct?
Mr. Lauber: That is correct.
Senator Fitzpatrick: I believe you said that the increase in complaints was 250 per cent.
Mr. Lauber: In the last two years; that is correct.
Senator Fitzpatrick: Can you give us a reason for that increase?
Mr. Lauber: It primarily had to do with the expansion or our mandate to include all the investment firms and more awareness of our role in the investment industry. For instance, in 2004, 57 per cent of the investigations that we did were related to the investment industry. We were dealing with the bank-owned investment firms prior to 2002, but that was not well known.
Complaints to the banks were up last year, but I cannot tell you why. They go in cycles without any particular rhyme or reason. Most of the complaints come up through the institutions to us. Very few of them come to us through the centre.
Senator Fitzpatrick: You said that approximately 50 per cent of the complaints were from the investment sector. I am sure there are a variety of complaints, but can you give us an idea of what typical complaints would be from the investment sector?
Mr. Lauber: Fifty per cent of investment complaints are related to suitability of investments, that is, the broker did not understand the client's financial position, the know-your-client form was not accurately filled out, the recommended investments were unsuitable and therefore the client lost money. It is interesting to note that we have never had a complaint about an unsuitable investment that increased in value. Most complaints are about suitability of investments, although there are some about discretionary trading and things of that sort.
Senator Fitzpatrick: You only get complaints from consumers. Do banks or investment firms ever come to you?
Mr. Lauber: No, we do not deal with the pro traders.
Senator Hervieux-Payette: I was at this table when we studied the MacKay report. I had some reservations about having your organization and a government organization, because that was before Bill C-8. Of course, you swore on your heart that you would do the entire job and we would not need the other organization.
In order that I can compare you with the network that the government has put in place, what is your cost per transaction?
How much does each member of your organization pay each year? Someone somewhere is paying for it, that is, the consumer.
What kind of service do you give to French-speaking clients and how many French-speaking directors from Quebec are on your board?
Mr. Lauber: We are funded by our members, the banks, the investment dealers and so forth. Bank financial groups, which includes banks, investment dealers and so forth, fund about 80 per cent of our total costs. We have a complicated formula for allocating our budget, but the large banks are paying between $250,000 and $350,000 a year toward support of this organization.
Senator Hervieux-Payette: Each bank?
Mr. Lauber: Each one of the big six banks.
Senator Hervieux-Payette: How many people do you have working for you?
Mr. Lauber: We currently have 20 people.
Senator Hervieux-Payette: Where are they?
Mr. Lauber: We have three in Montreal, one in Ottawa, one in Vancouver and 15 in Toronto.
Eight of the 20 people are bilingual and everyone who answers the telephone on a first call is bilingual. In fact, they are all francophones. Any time you call the 1-800 number, your call will be answered by a bilingual person. We have enough investigators to cover our French-speaking clients.
Senator Hervieux-Payette: And your directors?
Ms. Brown: Of ten directors, two are from Quebec and another three or four are bilingual.
Senator Hervieux-Payette: Are the directors paid?
Ms. Brown: Independent directors are paid directors, meaning there is an honorarium.
Senator Hervieux-Payette: They are not paid as much as directors on the boards of banks?
Ms. Brown: Not quite. Quite seriously, this is a service that independent directors provide because they are concerned about consumers.
The Chairman: She is making a principled point.
Mr. Lauber: Yes, I know.
Senator Hervieux-Payette: What about the cost per transaction?
I guess your budget is in the millions of dollars. Using the number of transactions done per year you can probably assess the cost per transaction.
Mr. Lauber: It depends on what you call a transaction, I guess. We could easily spend $6,000 or $8,000 or $10,000 on the investigation of a complicated investment file.
Senator Hervieux-Payette: Do you hire outside expertise?
Mr. Lauber: All the people dealing in the investment files have expertise in that industry, and they have all come from the industry, either from a regulator or a firm, and some have been both in the regulatory areas and with a firm in compliance areas. They all have basically compliance backgrounds. The banking people are more generalists. I am a chartered accountant myself. There are two other chartered accountants. We have three lawyers.
Senator Hervieux-Payette: Do you have people going to the centre and then going to your place and vice versa?
Mr. Lauber: No. People know that if you deal with Canadian Tire and you have a problem with a product you bought from Canadian Tire, you go to Canadian Tire and complain. It is just like somebody who has a problem with their broker or their bank. They go there and complain. Once they complain to these organizations, they are into the dispute resolution process in those organizations. They are given the information on the internal process in the bank or the investment firm, including the information that we exist and how to contact us and so forth.
The banks have brochures in every branch. You can to any bank and pick up a brochure any time you want. In the investment area, the bylaw of the IDA, for example, requires that the member firm send an IDA brochure to the customer on any written complaint that is received by the firm. That brochure sets out the regulatory process. It sets out the ombudsman process and gives other information. Therefore, anybody that writes to their broker will get that form, or anybody that opens a new account at an IDA member will get that form, and they will be aware of it. When you open your account at bank, your account agreement has the ombudsman information in it, both internal and external.
Senator Hervieux-Payette: My understanding is that you are the final appeal within the financial institution sectors.
What if people are not satisfied or think you are biased?
Do you sometimes have people who are not satisfied with the government organization and going to you because they have not been there before, or the other way around, going to you and then going to the other place after because they are not happy with your intervention?
Mr. Lauber: There is no government organization. If somebody is unhappy with our decision, they have given up no legal rights by participating in our process and they can carry on to the courts if they want. They can go to small claim court or other courts or do whatever they like. Once they have gone through our office, there is no further recourse within the industry processes to deal with their complaint.
Senator Hervieux-Payette: Did you say you have 100 per cent satisfaction?
Mr. Lauber: I did not say that. I said every recommendation where we have recommended redress be paid to a consumer, in every case, the firm has accepted our recommendation and made the payment.
Ms. Brown: We are talking about compliance with decisions.
Mr. Lauber: Our limit is $350,000, and we have been pretty close to that on some of our recommendations.
Ms. Brown: When you say satisfaction, it is not true that we have 100 per cent. After our process is completed, we send out a service satisfaction survey. To be very brief, those who we give money to are very satisfied, 100 per cent, with our services, and those we do not award money to are not satisfied with our service.
[Translation]
Senator Plamondon: How many people do business with the three financial sectors you represent?
According to your review of financial year 2003, on page 12, 3,020 people made use of your services and out of this number, there were 321 investigations. Following these investigations, 4 per cent, that would be approximately 12, did receive compensation.
Is it your view that, with exception of these 12 cases, all Canadian consumers doing business with these sectors that you represent were satisfied?
[English]
Mr. Lauber: Senator, there are about 34 million people in Canada, and 3,000 of them came to us. Many thousands came to the banks and brokers with their complaints and these complaints went through the process and were dealt with. We used to compile and distribute the information by the individual bank ombudsman offices and so forth, but I have never seen numbers on the total complaints to the banks. Obviously there are a fairly large number of them but they have large departments. They deal with the complaints. They resolve the complaints that should be resolved. They provide information to the other people on the complaint process. People have some unrealistic expectations when they complain, but as far as your 321, about 15 per cent of those 321 people received compensation.
[Translation]
Senator Plamondon: In the text it says approximately 4 per cent of the files.
[English]
Mr. Lauber: That was minor recommendations. If you look at the other information, generally speaking, in the last five years, the recommendation level has ranged between 15 per cent and 20 per cent.
[Translation]
Senator Plamondon: If it is 20 per cent of 321 people, it is not a large number. When we take a look at these figures, we get the impression that everyone who had dealings with the ombudsman of their bank was satisfied. I find that rather disturbing. And 20 per cent, approximately 60, received compensation; you made recommendations and everyone was satisfied.
Out of the thousands of people who complain, I am surprised at this figure.
[English]
Mr. Lauber: The issue is that by the time the complaint comes to us, let us speak in terms of the banks particularly, it has gone through a very rigorous process in the bank. People have had explanations. They have very often been given compensation and so forth. That is why we do not see that many places.
[Translation]
Senator Plamondon: But still there were 3,020 people who consulted you, after going through the entire process and you compensated 3 per cent of these 321 people?
[English]
Mr. Lauber: Well, 3,000 people come to us. If you look earlier in the package, of the 3,200 people in 2004, over 1,500 of those were referred back to the financial service provider, back to the bank or broker, because they had not gone through the process. Another 1,100 plus were given information and so forth. Neither one of those groups really belonged in our office. We were providing a service to direct them to the right place, similar to the service that CFSON provides, if you call them. Then another 41 were outside our mandate. We are really down to 428.
[Translation]
Senator Plamondon: Do the ombudsmen of the various banks that you meet every three months, as you mentioned, tell you that the proportions are the same? Do they give you these figures? What amount is settled at the bank level?
[English]
Mr. Lauber: We used to publish this information in our reports and I do not have it anymore, but each of the ombudsmen in the major banks publishes an annual report. It is available on their website, if you want to see that.
When I compiled their statistics, overall, the bank ombudsmen were resolving 50 per cent to 65 per cent of the complaints that came to the ombudsman office. At that point, they were receiving 2,000 to 2,500 complaints in their offices. I have not compiled those numbers for a couple of years.
[Translation]
Senator Plamondon: For all the banks?
[English]
Mr. Lauber: Yes, that includes the numbers for the bank ombudsman and for all banks. I have not composed them but it was in that 50 to 65 per cent we were dealing with. The tens of thousands of complaints that may have gone to the customer care area may have been resolved; I never seen numbers as to those, but obviously there is a large number. It also comes down to the definition of a complaint.
Senator Kelleher: What activities of your office do you feel are the most effective in carrying out your mandate?
Mr. Lauber: To maintain the high quality of investigation and dispute resolution and dealing with customers in a fair way and achieving resolution wherever possible is our principal mandate. That is what we do. That is why we exist. We are not a public relations organization. We are there to deal with customer complaints in a fair and open way and to recommend redress. That is really our only business.
Senator Kelleher: Do you feel the institutions for or with whom you operate adequately fund you?
Mr. Lauber: Yes I do.
Senator Kelleher: Is there an upper limit on the compensation that you can award?
Mr. Lauber: The limit is $350,000
Senator Kelleher: Have you ever hit that limit?
Mr. Lauber: Could be, we are very close right now. The largest one that we have finalized was about $280,000. That was before we had a limit. It was a small business situation with a guarantee. It was a very complicated situation.
In the investment complaints, there are many settlements that are $50,000, $75,000, and $125,000; they are becoming commonplace. I tallied up the ones we were working on that I had on my desk a couple of weeks ago and there were 18 files for $1.2 million.
Senator Kelleher: You have added more institutions, and I wonder have the number of complaints stabilized since then, or are they still increasing?
Mr. Lauber: They certainly spiked in the last part of 2003 and through 2004. We are still getting complaints that say, ``I bought Nortel on the advice of my broker in the fall of 2000.''
Probably more than one-half of our investment complaints still relate to the market crash between 2000 and the fall of 2002. They are still coming through the system, which is hard to believe.
Ms. Brown: Keep in mind that before they came to us, they did not have to place to take that complaint.
Mr. Lauber: We are legitimately an alternative to the courts. People did not have any choice. A column by Rob Carrick in The Globe and Mail the other day was referring to going to court with investment complaints. The reporter made the comment that you cannot justify going to court on an investment situation that is less than $100,000 in damages. That is probably a reasonable statement.
People without an ombudsman system have no recourse against a bank or an investment dealer unless it gets up into the hundreds of thousands of dollars and they have enough resources to pursue it. It is just impossible to justify it. That is where the ombudsman comes in. It is a vital service provided in there. Without it, these people could not pursue their legitimate complaints.
Ms. Brown: We started out dealing with small businesses. Small businesses could not afford the cost of the court and more importantly, the time and energy that it took to pursue something in the court.
Senator Kelleher: I remember your various appearances before us.
Mr. Lauber: I enjoy meeting with the senators.
[Translation]
Senator Massicotte: In the material you provided us with there is information about the make up of the board. That is excellent. It is the independent members who appoint other independent members to replace them. Is it correct that 75 or 80 per cent of the members of the board are independent?
Ms. Brown: Seventy per cent.
Senator Massicotte: If I give you the names of three people from senior management, can you give me a brief biography? Do they come from financial institutions? What is your background, Mr. Lauber?
[English]
Mr. Lauber: Do you mean the three senior directors?
Senator Massicotte: I am referring to the officers.
Mr. Lauber: I am a Chartered accountant as a partner of KPMG of Canada for 20 years. I had absolutely no background in financial services. I did an audit of a couple of stockbrokers but otherwise had no expertise.
My senior person on the investment side is a lawyer by background and he has been in the past involved with disciplinary areas of the Law Society of Upper Canada, and with the College of Physicians and Surgeons in the professional complaint area.
In Montreal, Brigitte Boutin is a lawyer and practised in Quebec City. She was with the Desjardins Group for a few years and then had a gap where she had her family and then joined us in Toronto and moved back to Montreal with her husband on a corporate transfer.
[Translation]
Senator Massicotte: In view of the fact that it is the financial institutions that subsidize all your financial requirements, can you be sure that the management of the organization is without prejudice and is not bias in favour of the banks?
[English]
Mr. Lauber: That is why we have the rigorous board of directors structure is to protect the office. We do not have anybody in our operation that has ever worked for a bank. The people on the investment side, yes, they have worked in firms. I think the particular requirements of the investment sector require people with that background. Every file, letter or report I sign off on and in the case of the investment ones, Howard, the investment person, he signs off on it as well. We do not have a significant amount of industry contact.
[Translation]
Senator Massicotte: The banks fund your budget. Is it the board of directors that determines the amount? Who is responsible for increasing it by 50 per cent? Do the banks have no choice when it comes to providing this funding?
[English]
Mr. Lauber: I am the ombudsman and chief executive. The process is as follows: I do an assessment of our business needs for the year. I prepare a budget. I bring that budget to the audit committee. We have a formal committee of independent directors, who approve the budget and they recommend it to the board of directors for approval. The independent directors, of course, constitute 70 per cent of the board. They have no choice but to fund. I would assume at that point if they turned it down, the board of directors should pack their bags and leave.
The Chairman: Going back to the question of the consumer having knowledge of your services, when somebody hits the process, for example, a complaint at a bank or an institution, they go through the process, and then they are obliged to put people on notice of your services; is that correct?
Mr. Lauber: That is correct.
The Chairman: In effect, a consumer who makes a complaint will receive knowledge of your services at the particular moment in time that it is appropriate.
Mr. Lauber: That is correct, and we are satisfied that happens.
The Chairman: How does that information come to you in terms of the nature of the complaint?
Mr. Lauber: When the internal ombudsmen deals with a complaint they always write to the client, it is always a written response. They will write, ``If you are not satisfied and you want to pursue your complaint, you should go to the ombudsman.'' They give our website or contact information in the letter. It is up to the consumer to pursue it and come to us. When it comes to us, the first thing we do is get a privacy release, and then we ask the bank for its files.
The Chairman: Do you feel that the consumer well served by this appeal process?
Mr. Lauber: I believe so, yes.
Ms. Brown: I would like to add that Mr. Lauber is not yet again writing another letter. They are already getting that file.
Mr. Lauber: The file comes over.
The Chairman: We are trying to protect the consumer and limit the amount.
When you look at the numbers in terms of your complaints, you have told us 57 per cent are the new additions, and we have heard evidence about that from investment dealers and so forth. I want to focus on the other 43 per cent on the banking side.
What percentage of complaints you have heard with respect to credit card interest. Is that an issue of some significance? I am trying to find that here in your numbers, and it does not really break out that way.
Mr. Lauber: Our mandate excludes fees, charges, other rate card items. We do not get into them. We would spend our life dealing with them.
The Chairman: The bank deals with those issues; is that correct?
Mr. Lauber: The banks, senators and various people like that deal with those things.
The Chairman: On the subject of the credit card, if somebody is concerned about the credit card interest charges and the banks deal with it by saying those are their standard fees, what happens then? Does it go to the courts?
Mr. Lauber: They could go to the courts.
The Chairman: What is the next process?
Mr. Lauber: We would refer them to the FCAC. The FCAC has a rather good website that has comparators on there, for example, the cheapest credit cards, bank accounts and so forth. We send people there to see if they can get a better deal. There is competition out there, and you have to shop around. There is little we can do for people who find themselves in that situation.
The Chairman: Let me move to another topic that is of concern to this committee, which is the availability of credit. Can you help a small business that is having trouble getting credit?
Mr. Lauber: Credit is a grey area. We cannot second-guess a lending institution or a bank on its credit decision as to whether to lend to somebody based on credit. What we can do is look at the process. We look at the reasons why the business has not received the loan. We check to see that the decision is properly processed. We check to see that the evaluation is in order. Did they collect the right information?
We have seen some situations where they blew it on the process. They did not get what they needed or they misinterpreted information and made an incorrect decision. We can deal with that. However, if they have the information, their process has been properly followed, and that loan does not meet the lending criteria of that bank, then we cannot second-guess that decision.
[Translation]
Senator Plamondon: I have always considered the banking staff involved in this process to be efficient. The bank does have the ability to process the complaint but the consumer is often at a loss. They do not know how to go about formulating the complaint. Consumers who turn to the Centre for the Financial Services Ombuds Network will receive advice on how to prepare their file and their complaint. We know that banks are familiar with this vocabulary and process but for consumers, this will often be the only complaint that they will lodge against a bank. Consumers do not know how to go about preparing their file.
[English]
Mr. Lauber: At our level it is an informal process. Even at the bank and customer care level, there is not a great deal of expertise required to make a complaint. All you need is a clear statement of what happened and why you think it should not have happened.
Certainly, if it comes to our office, if anybody has a problem articulating his or her problem, we work with that individual to do it and deal with language issues and so forth. It is not terribly complicated. Sometimes you hear stories about people not being all that well received.
Senator Plamondon: It is not when it comes to you. It comes to you after they have gone through the whole process. However, when they go through the first process, they sometimes feel alone.
Mr. Lauber: We do not have any control over that, so they will be coming later.
Senator Plamondon: I thought you would be talking about that within your quarterly meetings with the other ombudsmen.
Mr. Lauber: We do at that point, but we have little contact with what happens. We have a lot of contact and we hear stories. Customers talk to us about what happened in the ombudsman office but not too often about what happened in customer care and in the branches. There is no question that some people feel they were not well received or treated. They are big institutions, they have many people and they do not all deal with everybody properly.
The Chairman: Looking again at your data with respect to small and medium-sized businesses and credit, I notice that the largest complaint is insurance on loan products, which is something we have heard from other witnesses as well. It is sort of a hidden interest rate, if you will, insurance on loan products. Again, if that is a complaint, I take it that that is not something that you can deal with.
Mr. Lauber: We deal with insurance on loan products. What we get involved with there is mortgage or credit cards. Mortgages are most often where you get many of the issues. You will probably hear tomorrow from the life insurance people about pre-existing conditions on disability contracts or on travel insurance that we get.
We have a few cases where customers claim they bought insurance, and there is no record of it in the bank. The issue is that there was supposed to be insurance. It is more the administrative and claim side of these policies.
The Chairman: That is within your mandate to pursue as part of your appeal process; is that correct?
Mr. Lauber: Creditor insurance is a federally regulated product, as you know. It falls strictly within the banking side.
The Chairman: Do you have any recommendations on how we could recommend improvements to your agencies?
You have told us that you are satisfied with your funding.
Are there any improvements that you could recommend that we should consider in terms of our report?
Great institutions are always dissatisfied because they are living institutions; they are a living tree doctrine.
Can you give us some evergreen ideas about what you think can improve your process?
You have heard the concerns of senators here and I am sure the public as well, or are you a perfect institution?
Mr. Lauber: We would like to think so, but we do know that there are some people out there who would challenge that.
As Ms. Brown said, we have gone through a review of our processes. We have three years to go, including adopting an ISO standard and having independent reviews. Awareness is always an issue. We have dealt with that over the years. Creating greater awareness is an item that comes frequently to our board of directors. It will always be an issue. We have not done much on the subject of awareness in the last year. We were swamped and the last thing we needed, quite frankly, was more coming in. We did not have the time. However, that will start up again.
Awareness is a bit of a red herring in our office. The customer will complain to the institution. When they get to the institution, they will find their way to our office. Awareness is more a question of optics than real substance in my view. We will continue to promote our awareness.
The Chairman: You have already anticipated one of our thoughts, which is to have an internal review of your processes by an independent third party, you said probably a professor from a major law school, in the year 2007. Internal controls and reviews is the heart of the Sarbanes-Oxley recommendations.
Mr. Lauber, as a CA, would understand that and the concerns that auditing agencies, CEOs and CFOs would have on that.
What would be ``non-cost-effective,'' if I may use that terminology, of having an annual outside spot check review to satisfy you, because you are the agency involved, that you are effectively doing your work?
Mr. Lauber: We have effectively had that this year.
The Chairman: I will come to the three-year external review. I am talking about the internal audit review. Let us keep the two separate. We are talking about the internal pillar.
Mr. Lauber: We do have a normal ongoing financial audit.
The Chairman: I understand.
Mr. Lauber: We could consider doing that. The external review is something they do in Australia, as I noted. They do it on a tri-annual basis there. The important thing is to do it thoroughly periodically rather than superficially every year.
We are always reviewing our processes and challenging our processes and procedures. We do not have a significant turnover in people so we will not slip off the mark very quickly.
The Chairman: It is not meant in any way, shape or form to be critical. It is meant as an internal check and balance. The Sarbanes-Oxley recommendation is not meant to be critical; it is meant to sharpen internal audit procedures and internal control procedures. Would that be a difficulty?
I am not looking at a total internal audit review, but spot-checking, which is a halfway house but probably a cost- effective halfway house.
Ms. Brown: In part that is what we have had in the past year. Our understanding is that the ISO will come out and take a look, make recommendations, and we will have an opportunity to come up with suggestions. That is very attractive to us. That is another way of having an internal review. It will put in place mechanisms. Then we will have this third level. We would have no difficulty having it every year.
The Chairman: If there are further recommendations, please let us know. Thank you for your evidence.
The committee adjourned.