Monday, April 3, 2017

Phase 2 of the Banking Upselling Scandal

                                                                                                       April 4, 2017

By now we've all read about the scandal involving upselling by Canadian banks especially TD Bank. It is truly disturbing that such a horrible client- abusing culture has been allowed to develop in front of the eyes of Federal regulator, the Financial Consumer Agency of Canada (FCAC)

Back in Oct. 2016 FCAC told us that for the most part, financial services institutions are behaving themselves in how they treat their clients, according to its 2015-16 Annual report. The FCAC's report indicated that the agency has observed, "strong market conduct" among federally regulated financial services firms, such as banks and insurers. Specifically, the FCAC's uncovered "no major or systemic concerns."  During that fiscal year, the FCAC investigated 708 potential breaches of federal legislation, regulations, voluntary codes of conduct and public commitments, the report states, noting that any compliance issues that were uncovered, "were addressed in a timely and effective manner." In 2015-2016 no fines were imposed . Well, here we are a few months later with a huge banking misconduct scandal on our hands.


The reaction of the FCAC to the scandal has demonstrated no sense of urgency to investigate and protect financial consumers. Asked to comment on the CBC’s GoPublic reporting, the FCAC’s deputy commissioner Brigitte Goulard appeared on TV to say that the agency had been interested in looking at these sales practices “for a while” but had decided it was going to launch a special investigation in April. A report can be expected by the end of the year, but how deep will it go? 

Asked by Radio Canada what would happen if a bank is found guilty of illegal actions in its sales practices, Goulard warned that her agency could impose a fine of up to $500,000. In 2015-16, Toronto-Dominion Bank CEO Bharat Masrani was paid $9.38 million in his first year as top executive so a fine of $500K would equal only a few weeks compensation or a minute fraction of TD’s quarterly profit. Not exactly a huge deterrent for a bank like TD. And she added, “If it’s a serious violation, we could name the institution.”. This is neither the transparency Canadians deserve nor the financial consumer protection they need.

In a statement, FCAC commissioner Lucie Tedesco expressed concern with recent allegations related to the sale of products and services by financial institutions to consumers without properly obtaining their prior express consent. “The law requires that, in order to provide consumers with new or expanded products or increase their credit limits, financial institutions obtain their customers’ prior consent and disclose key information about the costs and charges of the products they are purchasing,” she said. The real issue is not consent /cost disclosure but rather an unbridled sales culture where client needs are subordinated to sales quotas placed on employees under threat of termination. Clients provide personal and confidential information that is harvested to upsell them based on quotas rather than need. That is exactly the opposite of the type of trust relationship that should exist between a bank and its clients.

Contrast this with the U.S. Consumer Financial Protection Bureau .Its motto We’re on your side is right there on the first page of their website. ”We are the Consumer Financial Protection Bureau, a U.S. government agency that makes sure banks, lenders, and other financial companies treat you fairly.”  The site makes it easy to submit complaints, includes a searchable database of public complaints against companies and invites whistleblowers from within the industry to spill the beans.

In  September 2016 , the Bureau announced that Wells Fargo had been slapped with fines totalling US$185-million after an investigation found that bank staff had opened more than two million fake chequing, credit card and other accounts for unknowing customers as part of a company-wide effort to meet sales targets. The announcement set off a series of investigations into Wells Fargo, including a congressional hearing .The bank’s CEO, John Strumpf was forced out a short time later. In January, 2017, it ordered subsidiaries of Citibank to pay US$28.8-million for failing to provide borrowers with adequate options and giving them a bureaucratic runaround as they attempted to avoid foreclosure on their homes. These actions send a strong message to the banks.

Phase 2 of the scandal will unfold when abused clients file their complaints with the bank. They will likely end up with the bank’s “ombudsman” which in reality is neither independent nor a true Ombudsman. You likely won't be warned that, unlike OBSI, your complaint will not stop the statute of limitations time clock. If you don't accept their response , you'll be referred to their own fully paid for " independent' for -profit firm ,ADR Chambers banking  ombudsman ( ADRBO) which clearly is not independent of the bank ( applies only to TD and RBC) and is not a true Ombudsman. See this report from the Consumers Council of Canada of what they think of this type of conflicted dispute resolution service. Canada's banking dispute resolution system

Will the FCAC come down hard on the banks involved? Will abused clients obtain restitution or have improper contracts unwound? Or will employees who behaved badly or broke the law under intense pressure be turned into scapegoats for management actions?

With an increasing number of vulnerable consumers and more complex banking products/services, the need has never been greater for robust consumer protection. A Financial Consumer Code is required. Kenmar support such a code and a strong enforcement agency (FCAC) to make it real. OBSI should be the sole Ombudsman for ALL banks and internal bank “ombudsman " abolished as has occurred in the UK. For- profit Ombudsman services should be prohibited .

We call on the Government of Canada to use this scandal as an opportunity to introduce a robust Financial Consumer Code, give the FCAC the mandate and resources to act as a consumer's advocate for Canadian financial consumers and make OBSI the sole Ombuds service for all Canadian banks under Federal jurisdiction. Such actions are well past due.

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