Thank you, Mr. Chair and finance committee members, for the kind invitation to appear before you today. We greatly appreciate the opportunity to speak with you about some of the issues facing Canadians at a critical time for the financial consumer protection framework of the country.
The discussions around Bill S-5 offer an opportunity to address an existing problem.
Before getting to that, I'd first like to offer my congratulations to you, Mr. Chair, for the personal emphasis that you've placed on financial literacy. The financial literacy of Canadians is something that's very near and dear to my heart and I'm sure to all members here as well, so congratulations to you on that.
For 16 years now, the Ombudsman for Banking Services and Investments has been offering consumers of financial services and products a national independent service for conflict resolution in the interest of finding fair and impartial solutions to their complaints. We are an important actor within the protection framework offered to Canadian consumers in the area of finance.
In fact, outside of the courts, OBSI is the only organization which provides financial compensation to consumers who have been wronged by their bank. We also play a role in the area of prevention, by allowing financial services firms to fix problems at a lesser cost, since we detect these before they head to court.
Further, OBSI can provide regulatory bodies with relevant information in their decision-making process. But now all of this is being put into doubt.
To give you a sense of the constituency we serve, 75% of OBSI complainants are 50 years of age or older, meaning they're at or approaching the end of their earning years. An outright majority, or 53%, of these people are seniors. For many of these individuals, the financial harm they suffer when a bank or investment firm makes a mistake is magnified by having fewer years to make up the losses and fewer income or job opportunities. Based on medical research, we also know that financial shocks late in life can actually shorten seniors' life spans, some estimates say by five years on average.
So 16 years ago, the banking sector first proposed an independent ombudsman as an alternative to the imminent imposition of a federal statutory agency to settle bank disputes. This was set up as a voluntary system, with appropriate safeguards for independence, which was permitted by government on the condition that all banks participate. In 2002, the aftermath of the collapse of technology stocks saw our mandate expanded to include the investment sector, where participation is currently mostly mandatory through self-regulatory agency rules. This is a point I'll come back to.
OBSI was not created as a simple private supplier contracted by each participating bank; we were created to have a much broader public interest and public policy function, balancing the needs of all stakeholders. It's a role we take very seriously.
It now seems that a vocal minority of banks have forgotten the genesis of this industry-created solution. Three years ago, the Royal Bank of Canada left OBSI for banking complaints at the height of the worldwide economic and market meltdown, when government and Parliament were rather busy dealing with bigger matters. TD followed this past October. Both banks now want the government or Parliament to lock in their own chosen private providers of dispute resolution to resolve complaints with their customers. It's difficult to see how this is anything but a giant step backward for consumer protection in Canada.
The immediate turmoil caused by TD's sudden recent departure is now behind us, but it has raised a fundamental question for parliamentarians and regulators to answer. Should banks be permitted to choose their own provider of dispute resolution, in essence to hire and pay for the organization that will judge and rule on their market conduct? I ask you this. If the banks were given the choice of being regulated by the Department of Finance, or some private for-profit body of their own choosing, whom do you think they would choose?
The independent investigation of consumer complaints cannot be credibly handled by a private for-profit supplier chosen and paid for by the bank. A service hired by the bank and that consequently has the bank as a client creates the perception, if not the reality, of a loss of that critical independence on which we function. The service will know whom it is they need to please in order to keep the business, and it's not the individual making the complaint. It's a clear conflict of interest.
We are firmly of the view that the dispute resolution process that consumers access needs to be credible, independent, impartial, and not beholden to any one stakeholder group. Allowing banks to choose a dispute resolution provider gives all the power to the financial institution and none to the consumer. Canadian consumer groups are unanimous in opposition to this, as are leading international organizations such as the World Bank.
To conclude, it is clear that the only system that can function in the public and consumer interest is one where OBSI is the sole approved dispute resolution service for banking consumers, and we would ask for your support in this regard.
Thank you very much. I would be very happy to answer any questions you may have.
Thank you, Mr. Chairman.
