[Recorded by Electronic Apparatus]
Tuesday, October 31, 1995
.0925 
[English]
The Chairman: Order. We are up and running.
Are you reading us over there, Mr. Shurman?
Mr. Laurence Shurman (Banking Ombudsman, United Kingdom): I hear you well. Can you hear me?
The Chairman: Indeed.
My name is John Godfrey. I am chairman of the committee. It's a bit like the early church; when two or three are gathered together we may begin our deliberations.
My colleagues from the Liberal Party have been caucusing this morning, as you might gather, and are pulling themselves here. As usual, they have probably forgotten which room the meeting is being held in, so there will be a certain amount of sorting out.
.0930
We might at least have an initial chat to make sure everything is up and running. I gather you are getting the audio signal from your television and not from an earpiece. I'm also told that with good luck, if there are French-speaking interventions, you'll get them in English through the television as well, so you will be getting a continuous English feed. Of course, if you prefer French, you can tell us. We could probably accommodate that.
Mr. Shurman: It would be helpful to have it in English. My French is a little rudimentary. But I'll do my best.
The Chairman: Just by way of an informal beginning, you might just tell us how many people are in your ombudsman's office. How big an operation do you actually run?
Mr. Shurman: At the moment we have about 40 staff members, all told. Some of them are part time, but they are mainly full time. About half of them are qualified lawyers.
The Chairman: What's their background, generally? Have they been in the banking business? Where did these 40 people come from?
Mr. Shurman: They are, in quite a number of cases, people like myself who have come from elsewhere, and this is their second or alternative career. I was a practising lawyer in private practice for over 30 years before taking up this post, but not a banking lawyer. I think that's rather important.
We do have one or two people with banking backgrounds in the office, but in order to maintain the perception of independence we thought it best to keep that number quite low.
On my staff I do have one actual banker who is called the resident banking advisor. He comes on secondment each year for a year from one of the main banks, currently from Lloyds Bank. He comes to us as someone with up-to-the-minute expertise, both technically and as regards bank practice. He has no part whatsoever in the decision-making process, but he is an expert resource we can use without going outside.
The Chairman: Do you then have the ability on an as-needed basis to get some technical help from the banks? How do you actually get help on technical issues? I dare say there are many.
Mr. Shurman: There aren't as many as you might imagine. Because we are a specialized tribunal, we ourselves now have a lot more expertise than, for instance, a court might have, because we deal with banking cases all the time. So we have quite a lot of expertise.
There are occasions when we go outside and will use an expert. For example, we occasionally use someone with forensic skills in relation to alleged forged signatures. We don't purport to have that expertise. Likewise, in the area of electronic technology we occasionally need to go outside.
The Chairman: Thank you.
I think we now have enough colleagues to begin in a somewhat more formal way. We have been given some background information, but I suspect not all of us are operating from the same base of information.
Personally, as I've just become chairman of this committee, I would find it very helpful if in the beginning, in a somewhat more formal way, you gave us a brief history of the office you occupy. What caused it to be created in the first place? How long have you been there? Are you the first banking ombudsman? Perhaps you could just take us from the beginning, if you wouldn't mind.
Mr. Shurman: I'll just take five or ten minutes to give you the background.
The Chairman: That would be perfect.
Mr. Shurman: I should begin by saying that in light of a recent little happening we had over here, you haven't verified that I am the true ombudsman.
Some hon. members: Oh, oh.
The Chairman: We have a picture of you here. We also know you're not the Queen.
Some hon. members: Oh, oh.
The Chairman: We're pretty quick over here.
.0935
Mr. Shurman: Excellent.
First of all, this office has been up and running for just about ten years. It opened for business on January 1, 1986. I did have a predecessor during the first three years. I have been in the post for almost seven years.
The background to the scheme is this. There was a general dissatisfaction with the possibilities for redressing complaints and disputes between members of the public, individuals and small businesses on the one hand and banks on the other. There was a disparity of bargaining power between the small individual organization and the large one.
The courts, of course, do afford the possibility of redress but they are adversarial, they're slow, they're legalistic, and above all they are expensive. It was the need to adjust that inequality of bargaining power that led to the setting up of the banking ombudsman scheme. It now covers something over 99% of the banked retail population of the U.K. - individuals and small businesses who receive retail banking services.
The scheme functions on an inquisitorial basis. It functions informally. Neither party needs to be represented by a lawyer, though each can be if wished. We are, as I was saying before, a specialized tribunal. As a result, we have perhaps a better idea than the court would have as to what questions need to be asked of both parties, and perhaps even more importantly, of how to evaluate the answers we do receive. We aim, again unlike a court, to be conciliatory, to promote a fair settlement if that can be done. We will do that on a proactive basis whenever possible.
In the last analysis, if our investigation is adverse to the bank, the ombudsman does have real teeth. I have the power to award compensation of up to £100,000 against a member bank, and my decision is binding on the member bank. If the complainant doesn't like my decision, he or she is at perfect liberty to go through the courts in the usual way, but the bank doesn't have that option. Very rarely does an individual take that option because, having had a full investigation and an adverse decision, when it comes down to it very few people want to go through the same process again with the likelihood of the same result, this time having to pay for it.
I think it is important to stress that the scheme proceeds on a somewhat wider basis than a court would. I have to make decisions having regard to what is fair in all the circumstances. That means taking account, of course, principles of law. It means taking account of our Code of Banking Practice - and I will come back to that later - a body that all the banks have subscribed to.
The ombudsman also has regard to any maladministration or inequitable treatment. If he finds there has been maladministration or inequitable treatment, it can be deemed to be a breach of duty.
Furthermore, the ombudsman is entitled to award damages, or compensation, for what is called inconvenience - although a better word might be ``hassle'' - in a way that the courts can't always do.
Perhaps the most important aspect of the scheme is that it is totally and entirely free to the complainant. There are no fees, and with no lawyers being required to be instructed, no legal charges either, win or lose.
.0940
I think I ought to touch on the tripartite structure of the scheme. First of all, the banks themselves fund the scheme because somebody has to pay for it. My budget currently is about £2 million a year. The banks raise that funding amongst themselves and it comes to a company; the scheme is incorporated as a private company limited by guarantee. The company has a board, and ten of the banks provide the board members. The banks, through the board members, also have the final say-so in the terms of reference that determine the width of the ombudsman's jurisdiction.
In order to rebut what would otherwise be the presumption that he who pays the piper calls the tune, there is interposed between the ombudsman and the banks a council. The council has eight members, of whom five, including the chairman, are independent. I think we can say that the five independent members are what we call here ``drawn from the great and the good''. They are very distinguished public figures, and some of them are quite specifically consumer figures who are all very well known. There are also three bank appointees on the council.
The function of the council is to safeguard the independence of the ombudsman, and that of course includes procuring for the ombudsman the funds that he needs in order to run an effective operation. The council appoints the ombudsman and the ombudsman reports in general terms to the council. The council has no part whatsoever in any individual decisions made by the ombudsman. That is entirely the responsibility of the ombudsman - myself.
I have a deputy and an assistant ombudsman because I obviously can't look at every case. I also have a staff of some forty people to help me.
Last year - the year ending September 30, 1994 - we received about 18,500 telephone complaints and enquiries and about 9,000 preliminary complaints, about 900 of which were fully investigated. I mention that because the importance of an ombudsman's scheme is, to a very large extent, the fact that it is there. Just as a policeman on the highway has a remarkable effect in slowing down the speed of the traffic, an ombudsman in place has a remarkable effect, first, in preventing things going wrong; and second, in encouraging them to be put right if they do go wrong.
In order to achieve that, when a complaint comes to this office we explain to the complainant that they must first exhaust the bank's own internal complaints procedure. They haven't done that yet in nine cases out of ten, so we send them back to the bank. If the complaints come to us as a preliminary complaint in writing, we tell them to go back to the bank and exhaust the bank's complaints procedure at the senior level, and we tell them who they have to go to at head office or regional office. At the same time, we write to the bank and say that we've received this complaint from whomever. We send them a copy, telling them that they now have six weeks in which to either resolve this complaint or deadlock it. As a matter of fact, ten days ago I reduced that six-week time framework to four weeks.
This all has a magical effect. The great majority of complaints that come to us and are sent back on that basis to be resolved or deadlocked within that timeframe are resolved within that timeframe. A small proportion go forward for investigation. Last year the exact figure was 883.
.0945
When we investigate, it's a very full investigation. It's done primarily on paperwork. There are lots of questions to both sides, to-ing and fro-ing, until eventually a decision is made.
Of the complaints, about 20% are business complaints, about 80% are personal. Because the business complaints tend to be more complex, they probably take up about 40% of our time.
Of complaints, the biggest proportion relate to lending and mortgages combined, last year about 20%. The next most frequent type of complaint investigated was those relating to cash machines, which last year were 16%. But because of our Code of Banking Practice, that's fast reducing. I'm not giving away any secrets when I say the figures soon to be published will show a much smaller proportion than that.
It's also worth mentioning that this scheme now effectively has carbon copies in Australia, New Zealand, and Ireland, as well as comparable schemes in quite a number of other countries around the world, many drawing on our experience. It's also worth mentioning that in the U.K. we have altogether nineteen ombudsman schemes; and in that figure I include both public and private sector schemes. I regard this scheme as a private sector scheme.
We have found it very useful. There's been a lot of common ground. We work together. We now have something called the British and Irish Ombudsman Association, of which in fact I have the honour to be chairman. The importance of that organization is that we promulgate standards for recognition of a valid ombudsman scheme; standards that include, of course, independence, effectiveness, and so forth.
In the U.K., although ombudsmen are not the answer to every problem of dispute between the consumer or small business, broadly looked at, and the large organization, the ombudsman is now seen in all the different sectors - banking, insurance, and so forth - as being an important part of the answer, which gets away from the unsatisfactory situation that, certainly in this country, we have in the court system.
The Chairman: Thank you very much. I must say that was a most illuminating discussion about your office and its history. I suspect it's answered a number of questions people may have.
Our method of proceeding here, Mr. Shurman, is to begin with the opposition side. Normally we have two opposition parties, the official opposition, which I do not see today...and then the third party, the Reform Party. Our general way of proceeding is to allow the first questioner to go for as long as ten minutes, either individually or shared with a colleague. Then we move to the government side for another ten minutes. Then we go backwards and forwards. But this is perhaps a time to be a little informal. If people wish to follow up on a line of questioning, and providing they're not throwing anybody off, I'll try to be creative so that we're not being too rigid in our rules.
With that in mind, I now turn to Mr. Schmidt, who is with the Reform Party of Canada.
Mr. Schmidt (Okanagan Centre): Good morning, sir.
Mr. Shurman: I'm just asking the assistant here if he can close the curtain. The sun is rather dazzling me.
Mr. Schmidt: That's just fine. The sun is dazzling us here, too, because Canada is together this morning. I think it's wonderful.
.0950
I really want to thank you for both the time you have taken to tell us what your operation is and the brief summary. I thought it was an excellent summary, and you anticipated a number of questions I was going to address to you. I'd like to get into some of the actual operation of your office now, if I might.
In the business of determining what is a mature complaint, what guidelines do you use other than them going back to their bank and looking at their procedure? I suspect you must have some other criteria for what determines whether or not a particular complaint is mature and whether to launch further investigation.
Mr. Shurman: What we call a mature complaint is one that is eligible under the terms of reference: first, that it's against a bank or it's about a banking service; and second, where the bank's own internal complaints procedure has been exhausted.
For each bank, we hold a list of deadlocked signatories. The list can range from one to ten people for each bank, and that deadlock must have been reached. However, because it has happened occasionally that a bank has refused to issue a deadlock letter, I will sometimes, if someone has been messed around, to put it bluntly, treat that as being deadlocked and just get on with it.
It really means it is ready for full investigation, and at that point we call for the bank's full papers. It's an important aspect of the scheme that I am entitled to require the full papers that the bank holds, and...[Technical Difficulty - Editor]...in each case, which papers I expect to receive and have all the files of the bank, statements from any relevant bank employees, and so forth.
Mr. Schmidt: Can you subpoena these from the banks? Are they obligated to...?
Mr. Shurman: That is a condition of membership of the scheme. The terms of reference empower me to require - it's mandatory - the bank to make papers available.
The bank does have the right, if it wants, to stipulate that some of the papers are received by me in confidence. I think that is reasonable if in fact it's a matter of security where the information, if disclosed outside confidence, might be of value to criminals and certain fraudsters. But in general, I say to the bank, well, if you put a confidentiality restriction on that evidence, then I may attach little if any importance to it. That will usually be to the bank's own disadvantage, so we receive as little information as possible in confidence.
Mr. Schmidt: That's fine. Thank you.
I have another question. You have two kinds of people in your office who assist you with investigating the complaints, so I would like to ask you how you decide who is going to help you with a particular complaint. Does it usually go into the legal department or to the business side of things, or do they work together in resolving the complaint?
Mr. Shurman: Basically, leaving aside the back-up staff, my office is divided into a team of people who handle the screening process, which is dealing with the telephone complaints. Increasingly, people will telephone rather than write, and often in a 20-minute telephone conversation we can get something resolved.
All but one of the people who deal with the telephones and the initial complaints, the screening process, are non-legally qualified. Some of them have some former banking experience. When we go into full investigation, all but two of them are lawyers.
The reason I think it is appropriate to have lawyers in a banking ombudsman scheme carrying out the full investigation in virtually all instances is that although the bank may not instruct outside lawyers, it will very frequently be using its own in-house legal department. Part of this business of adjusting the inequality of bargaining power is that we ask of the bank - and that means being able to ask as lawyers - the questions that the complainant is not able to ask. If necessary we can, as it were, outgun the bank's own legal department.
.0955
Mr. Schmidt: How often do you succeed?
Mr. Shurman: Answering a slightly different question, in terms of outcomes of cases we have fully investigated, last year 44.3% of the decisions were adverse to the bank. That's actually quite high if you think about it, because in the initial screening process, the bank will have settled a great number of cases. All the obvious cases would normally get settled, excepting sometimes where there's a dispute about a quantum amount. I thought 44.3% was quite a good figure.
The actual awards last year ranged from £5 minimum to £70,000 maximum. We didn't actually hit £100,000. The average amount awarded last year was £1,452.
Mr. Schmidt: That's very meaningful. I find that fascinating.
I'd like to ask you, Mr. Shurman, if you could give us some examples of the kinds of complaints you deal with - an actual case, not with names or anything like that. Just exactly what was the nature of the complaint, how did it start and how was it resolved? It would be very useful to have a case study.
The Chairman: We'd like to hear about the £70,000.
Mr. Shurman: The cases range across the whole gamut of banking -
Mr. Schmidt: Give us the £70,000 one.
Mr. Shurman: I don't know whether you have received a copy of my last annual report, which has about twenty case studies. I'm looking at one that I just opened the page at. It involves a market trader who took his takings in cash. He came to the bank to pay in his cash. He had a bag of cash and he wanted to hand it over to the cashier.
Literally when he was just starting to hand it over but before he'd done so, a robber appeared in the bank, pointed a gun at him and made off with the money. It was a really dramatic film episode.
Under the law of the U.K., in England, Wales and Scotland, the bank is not legally liable where the money is still in the possession of the customer in those circumstances. He hadn't physically handed the money over the counter into the possession of the cashier, so strictly speaking, at law, the bank was not liable.
However, I took a slightly different view of that. In my investigation it quickly appeared that first of all the video camera had not been switched on within the banking hall, so any chance of their catching and identifying the robber, who was not masked, was lost or at any rate minimized because there was no video. I also pointed out that the whole setup was not a particularly healthy one from the banking point of view.
Cutting a long story short, in that case, by proceeding proactively, I persuaded the bank to pay a part of the amount in question by way of reimbursement. It was £3,000 of the £9,000-odd that had been lost. That was one case.
.1000
Other cases are very different. Sometimes they are not one-off cases, which that was, but rather yardstick cases. For example, we've had a series of cases in the U.K. that have been cases where there's been what I call an old-style deposit account. Some customers have their money in what we'll call the high-interest deposit account. The bank, in order to gain market share, launches what it calls a new product; a new account. Let's call it the diamond account.
The diamond account starts off with offering just fractionally more interest than the high-interest account. Those customers of the bank who are wide awake transfer their money from the high-interest account into the diamond account. But basically what it's there for is to gain outside share from other competitive banks.
Now the marketing people within the bank notice a lot of people were not wide awake and did not change to the diamond account. So they say, well, why don't we just ratchet down the high-interest account and see what happens? A few more people wake up and move across or go elsewhere. Most people remain asleep.
Gradually what happens is the rate of interest, which was respectable for the high-interest account, the old account, which the bank's no longer promoting, gets wound down to a purely nominal rate of interest. Many of the people with their savings in that account are elderly people, or people who are not very bright, and they are very dependent on the income they are getting from that account. They could have been doing a great deal better in the comparable new account - that's the important point; the new account's comparable.
I have been able to promote better standards of practice so that is no longer good banking practice, though it's not illegal and there would be no recourse at court. It is now accepted that good banking practice, as a result of a number of decisions I've made, is, first of all, that at the very least, in 1995, a bank must write an individual personal letter, not a piece of junk mail, to its customer and say, you would be much better off transferring your money from the high-interest account to the diamond account.
Better still, I've encouraged banks, and quite a lot have done it, simply to move the money to the diamond account, because nobody's going to object to getting more interest in the identical account.
Because I've decided a few cases around that point, it's no longer necessary for me to be deciding them, because immediately - and some still come through - the bank settles it.
I should say I haven't always given the full amount of the difference between the two accounts to the complainant. I've sometimes said, well, you the customer should have been more vigilant than you were. I might split the difference, for instance, between the bank and the complainant.
It's a good example, I think, of the way in which, through this scheme, we've not only been able to help individual cases but we've been able to help banks to improve their own standards of practice. After all, all bankers say, and I accept that they mean it, they are in fact competing to provide higher standards of practice.
The Chairman: We'll have to move along now. I think those are remarkably interesting cases. I love the bank robber case. You do have splendid cases in Britain just generally. We've all watched Masterpiece Theatre to learn more about them.
I should tell my colleagues we also have at least one edition of the good banking code, which you showed us - isn't this wonderful, with television - and copies of the annual report, with some of the cases to which you alluded.
Alex.
Mr. Shepherd (Durham): My riding is called Durham, so we have an affiliation with the United Kingdom.
You've mentioned the inequity of bargaining power. For a lot of our small businesses here in Canada, that hits a very resilient point. I wonder what your orientation is to securitization of loans. A lot of small businesses here complain that the extent of securitization of their loans is excessive. In other words, if somebody is going to buy a piece of equipment and possibly it's £50,000, the financial institutions are looking for just about everything this person has in the way of securitization.
.1005
Is that an area you get involved with when you talk about the inequity of bargaining power?
Mr. Shurman: It's not an area we tend to get into. When you say ``securitization'', do you mean selling the mortgage, the loan, on to somebody else, or do you mean taking excessive security to secure the loan from the borrower?
Mr. Shepherd: I'm talking about what I would call excessive security, I guess, in two forms: one in the area of specific security, where it's mortgages or whatever; and common in our banking practices, unlimited personal guarantees. There's a major concern about whether we should limit guarantees.
Mr. Shurman: Let me answer that in part. First of all, I want to make it clear that it is not part of my job to second-guess a bank on commercial decisions in lending. I think that is right, and I'm quite happy and relaxed about it. I'm not a bank regulator. It might be for government, but it's not for me to decide the terms on which banks do business.
However, if a bank is offering lending to the public at large, or to small business in particular, it must do so in a fair and proper manner. So although I will not interfere with a commercial decision on lending, if there is any element of maladministration or discrimination in that, that's a different matter, and I can interfere, and will. To take some obvious examples, if the reason why a lending proposition is being refused is on grounds of race, gender, or something of that sort, I can interfere immediately. But if it's purely commercial, I can't, and won't.
I will interfere again if, for argument's sake - and this happens a lot - someone speaks to the bank manager at the golf club and he's given to understand there'll be no difficulty about getting some funding for a small business. He goes along to the bank and things progress and he's told, ``Fine, I've given it the okay, it's just a matter of rubber-stamping at head office''. The businessman then goes ahead in reliance on that and incurs expenditures. Then weeks or even months down the road, when the formal decision has finally come through, he's told it's not going to be available after all.
I would regard that as maladministration. He's been led along the way. He's been led to rely on something, albeit it was technically subject to formal approval. So I would probably give compensation.
About the other point you raised, on guarantees, that has been a very hot potato in this country. I believe practice has greatly improved. I have always been totally opposed to unlimited guarantees. Most U.K. banks no longer take unlimited guarantees, which I think is wise from their point of view, as well as more socially acceptable. I'm talking here, though, I should say, about unlimited guarantees from people who do not actually have an interest in the business.
Let's take the specific case of husband and wife. It's the husband's business, and the wife has a nominal one or two shares. She's a nominal director. She has no part in the business. I think it's quite wrong that an unlimited guarantee should be taken from the spouse in those circumstances. She may have been asked - and we've had cases like this - initially, ``Well, are you happy to guarantee your husband's loan for £20,000?''. That's what is lent, and five years later it turns out that the amount has been increased to £95,000, the business has gone bankrupt, the marriage is on the rocks, and the only asset is the family home, which is the wife's one asset and is in hock to the bank.
.1010
I'm totally against that situation. Here that's largely being dealt with because unlimited guarantees aren't normally taken and we do also have some protection for spouses in those circumstances.
Mr. Shepherd: So what inspired the banking community to do away with unlimited guarantees? Is that a legislative process?
Mr. Shurman: No, it has not been legislated, but as a matter of good practice most of the major U.K. banks no longer take unlimited guarantees from those who do not have a substantial interest in the business.
Mr. Shepherd: Thank you.
The Chairman: I'll count on my colleagues to let me know if they wish to ask a question. I have a couple that I think I'd like some help with.
The first is on the division between the individual complainant and the small business complainant. I'm so recently on this committee that I'm not certain whether there was a sense, when the first discussions on the subject of the ombudsman were held, that we would be limiting ourselves by what we meant by the term to an ombudsman for the small business sector, or whether we also understood that we might be dealing with complaints generally from individuals, that 80% market that you have.
Perhaps my colleagues will help me on this question.
Do you find that in addition to the fact that 20% of the cases that are commercial or dealing with small business take up 40% of the time, they almost constitute a separate business within your business? That is to say, do you find that you can almost divide the people who deal with these complaints down that line between the small business on the one hand and the personal on the other?
Mr. Shurman: No, I don't. I find the tendency is increasingly the other way. Typically a small business complaint will involve a mixed bag of personal and business accounts. Usually there are some individuals involved. They have their personal account and they have their business account or accounts, and they probably have security given both on the business and on their home. So the whole thing has to be looked at together.
I don't find any artificial divide at all. I find increasingly that you have people who are running small enterprises from home, working part time in one thing, running a business, and so forth. I think this is typical of the way things are moving. We don't find any great difference.
Since the beginning, the scheme has dealt with individuals; individuals and partnerships have been included from the beginning. Of course, a partnership could be a very large business. The cut-off is the jurisdiction of £100,000. So for example, a leading law firm wouldn't normally bring its complaint against a bank, if it had one, to me, because the amount in dispute would probably be a lot more than £100,000.
There was an artificial divide between partnerships and those small businesses that were incorporated originally. Someone might have incorporated in the U.K. because their accountant advised them to for tax reasons. The same business might have been carried on equally well under their personal names.
It was in fact as a result of government pressure that the scheme was altered to bring in small companies. A small company is defined as one with an annual turnover of not more than £1 million per annum. That's fairly small, but it brings in the small shop or corner business that has been incorporated.
.1015
The Chairman: Another question that occurred to me was that in this country we now have seen, I think largely as a result of the work done on the committee before I got here, if not a rush on the part of the banks to the establishment an ``ombudsman's office'' within their own structures, then at least a fairly brisk saunter. We have a feeling that by the time we meet with the banks next week perhaps all of the major banks will have somebody who is formally called an ombudsman.
Within the structure of the banks or the members who support you, so to speak, first of all, is that what those persons are called where complaints are initially dealt with? If that is the case, are they allowed to use this term lightly or do they also have to adhere to the kind of ground rules of the association that you had and that you referred to? In other words, are people allowed to appropriate the term?
Mr. Shurman: Let me answer that. The wisest people are the people in New Zealand. In New Zealand, nobody can use the term ``ombudsman'', apart from the parliamentary ombudsman or those who have it sanctioned. In New Zealand there are only three people who are called ombudsmen - the parliamentary ombudsman, the banking ombudsman, and now the insurance ombudsman. I think that's preferable.
In the U.K., the term ``ombudsman'' does not have statutory protection. One of the reasons for setting up the association was to identify those who were independent and satisfied the other criteria and no in-house, in-company ombudsman - if so called - would satisfy the criteria for that very reason. Indeed, some newspapers in the U.K. have set up so-called ombudsmen who really were properly called something like ``reader's friend'', likewise for some local authorities.
I'm pleased to say that in the U.K. no bank has anybody called ombudsman, and I think I would be able to put quite a lot of pressure on them to prevent that happening if anyone wished to. However, what each bank does have is its own internal complaints procedure, as it were, usually headed by someone called the ``manager of customer services'' - it's usually a title like that - and the head of customer services will usually be a person who can issue a deadlock letter. But I think it is absolutely essential for public confidence to be perceived as and to actually be independent.
However good the bank's own internal complaints procedure may be, it is not independent. It's valuable to banks themselves to have an outside person scrutinizing what they're doing because a bank, through its experience of the ombudsman, has a wonderful opportunity of finding out where things are going wrong.
And although, particularly in the early days of the ombudsman scheme, banks don't enjoy being criticized by an ombudsman and can be quite resistant, after a while they become used to it and see it, as most of our banks now do, as a learning experience. They're actually finding out where things are going wrong, because it's very easy in an internal system for people to be whitewashing or ignoring things that ought not to be whitewashed and ignored, and that demands outside scrutiny. I think the public perceives that need for outside scrutiny, which is what an ombudsman scheme can do.
The Chairman: Did you find - and of course this pre-dated your administration - when the scheme was initially set up in its tripartite nature that until some tough decisions were made, there was some suspicion, some initial skepticism, on the part of the public about a scheme funded by the banks, despite the presence of the council, which I understand to be the crucial mechanism guaranteeing independence, that was only allayed after a few tough decisions?
Mr. Shurman: I think there was some skepticism. We weren't the first private sector ombudsman scheme. The very first one was the insurance ombudsman, which broke the ground. We were the first banking scheme of this sort in the world.
.1020
Interestingly, a recent survey, the Mori poll, showed that just under 50% of the population were aware of the banking ombudsman scheme after ten years. That was exactly the same as the number who were aware of the parliamentary ombudsman, which I thought was very encouraging. That doesn't necessarily mean total confidence, which is a question that is impossible to verify because those who have been successful will say it is a wonderful scheme, while some of those who have been unsuccessful will say it is funded by the banks and that even though there is that counsel there, it is biased. But that's quite rare.
We quite often get letters from people thanking us for our thorough investigation. In being adverse to us, they tell us we were quite wrong in our decision but they thank us for looking at it in such detail and so thoroughly. Again, this is part of what an ombudsman scheme should be about: to give confidence in the system and to subject to scrutiny.
The Chairman: My last question, before returning to Mr. Schmidt and to my colleagues, is this. Despite the fact that the mechanism within the banks doesn't carry the title ``ombudsman'', but perhaps ``manager of customer relations'', do you find that informally, formally or through your decision, you work with each of those mechanisms, which must vary from bank to bank, to improve the standard? Or do you point out to them, either publicly or privately, that they may think they have an appeal procedure here, but that it is really ridiculous and that they actually do not? How does that relationship work, and has it evolved since the creation of the office?
Mr. Shurman: First of all, I can't get involved in advising each and every bank about its procedures because they all have different procedures. But what I have sought to do is to crank things up in terms of ensuring that things go through with a smaller number of levels of complaint.
There was one leading bank that, until fairly recently, had four different levels of complaints. Clearly, whether that was consciously or unconsciously intended, for any ordinary person, individual or business, to have to go through four levels of complaint...calculated to encourage them to just give up. So I have said to most banks that what I want to see are two levels of complaint, ideally. That's what most of them now have.
As I think I was mentioning earlier on, in the first instance, there were no time limits at all when I took over. I imposed a six-week timeframe for resolving or deadlocking in order to bring the thing to a head, to concentrate it on everyone's minds. I've just cranked that up to four weeks. This is all part of tightening it up, and the Code of Banking Practice here is also part of it.
The most important thing in that code is principle 2.1(b), which says that banks ``will act fairly and reasonably in all their dealings with their customers.'' Now, that goes far beyond the transparency and openness that is in the little document I have from Canada, A Model Code of Conduct for Bank Relations with Small and Medium-Sized Business. It means that it goes to substance, but it also goes to procedure because it requires that the procedure should be fair and indeed expeditious. That is specifically covered in principle 7.1, which handles customers' complaints, that banks will handle complaints ``fairly and expeditiously''. That is very important.
When a bank fails to adhere to this, I have on occasion given someone compensation even though they failed on the merits, on the substantial part of their complaint.
The Chairman: Thank you very much.
Mr. Schmidt.
Mr. Schmidt: Thank you, Mr. Chairman.
I would like to come back to the actual administration of the ombudsman's office, particularly the relationship between the corporation - the board, if you like - and the council itself; the difference between them and the relationship between them.
.1025
Could you briefly indicate the persons who are chosen as representatives, members or directors of this board and the people who are chosen for the council? Is there any overlap in the directorships between those two bodies?
Mr. Shurman: Yes, there is. Two of the three banking members of the council are also members of the board. It's a debatable point as to whether or not they should be. The advantage of it is it ensures a channel of communication between the two bodies. You could argue that it would be better not to have two hats to wear.
The important thing, of course, is that those two are part of a minority of three. The people, in practice, who tend to be appointed are very responsible senior people and I certainly don't have any course to complain about them.
As for the council itself, perhaps it might be useful for me to run through where the five independent people are drawn from.
The present chairman, Sir David Calcutt, Q.C., is a very distinguished lawyer who, among other things, was responsible for two reports on the press, our press complaints commissions and so forth. He is also chairman of the stock exchange takeover panel. He is a very distinguished person in public life.
Sir Alastair Burnet, one of the members of the council, is a very distinguished former journalist. He was editor of The Economist newspaper at one point and lately, the presenter of The News at Ten. It's one of the leading news broadcasts on television programs.
Marie Patterson, among other things, was chairman of the Trades Union Congress.
Richard Thomas was first the director of consumer affairs at the National Consumer Council. Later he was the director of consumer affairs at the Office of Fair Trading.
Dame Rachel Waterhouse, who's listed on the report you may have there, was chairman of the Consumers' Association. The two main consumer bodies in the U.K. are the Consumers' Association and the National Consumer Council. She has actually been superseded now - she has retired - by Ann Scully, who is vice-chairman of the National Consumer Council.
So we have a pretty strong body of people there. The very fact that there is that strength and that the banks themselves actually support the scheme means that the question of independence is not really challenged.
Mr. Schmidt: Who goes about appointing these people?
Mr. Shurman: They are appointed by the council itself, other than the chairman who's appointed by the board with the approval of the council.
The board does have the right to approve - I suppose to veto, if you like - appointments to the council. I would say it is highly improbable that they would ever seek to do other than approve anyone who was nominated. What has now been essentially established is that the members of the council could be drawn from these constituencies, and as you see, those seem to be the media, the union and the consumer organizations.
Mr. Schmidt: How is the board appointed?
Mr. Shurman: It's appointed by the banks. It's primarily dominated by the large banks, but with some people drawn from the smaller banks.
.1030
Mr. Schmidt: Is the legislation that governs this whole thing the national legislation that determines the office of the ombudsman and also these boards and councils?
Mr. Shurman: No, at the moment the scheme is a voluntary scheme. It's not a statutory scheme.
There has been a suggestion from the Labour Party that the scheme should be put upon a statutory basis. My position on that is that I actually prefer the voluntary scheme. The reason is that under a voluntary scheme my awards are binding on banks and for practical purposes there isn't really a right of appeal. I think that's important, because if there were an easily exercisable right of appeal that would tend to weight the scales back towards the big battalions able to make those appeals.
You could argue it. I don't think there would be a great deal of difference if the scheme were statutory. It would be more or less the same as the existing scheme.
Mr. Schmidt: Is there any difficulty with the enforcement of the damages you might assess?
Mr. Shurman: There hasn't been any difficulty, because it's a condition of membership of the scheme that the bank adheres to my decisions. The effects of not adhering would be that the bank would cease to be a member of the scheme. That would have such devastating publicity effects that I don't think any bank could contemplate it.
I could say for banks there is one very small escape route, as it were, to this bindingness of decisions, and it's not something I'm in the least bit unhappy about. We have what's called ``the test-case provision''. If a bank is dissatisfied with my decision and believes what is involved is an issue of novel importance, a new wide-ranging issue of law - something of that sort - it can ask me if the case can be made into a test case. If I consider that request to be reasonable, I will then allow the case to become a test case, subject to one important proviso. That proviso is that the bank will be responsible for all legal costs, win or lose, of both itself and the complainant. The case then goes to the high court to be resolved as a test case.
If I tell you that in ten years of operation we've just hit the first test case, it shows it's not a frequent escape route. But I feel quite relaxed about it, because ombudsmen are no more infallible than anybody else. In the particular case that has been taken as a test case it's a very technical legal issue and I await with interest what the court will determine.
I should make another point, which I haven't covered yet. It might be of interest to you in Canada. It's that I do cover both Scotland and Northern Ireland as well as England and Wales. I mention that because Scotland does have a separate legal jurisdiction, as does Northern Ireland, and the law is actually slightly different. That might be relevant in looking at a federal situation in Canada.
The Chairman: Not yet.
I'm interested in the fact that on the one hand you have a second version of a code of practice to be observed. It's by banks and building societies and so on. But on the other hand I gather you haven't yet been able to put into that a code of practice with specific reference to small and medium-sized businesses. On the other hand, we - and I believe you referred to this earlier; and by ``we'' I mean the Canadian Bankers Association, I don't mean we the committee - have come up with a model code of conduct for bank relations with small and medium-sized businesses.
I guess my interrelated questions go like this. First, why is it that you don't have the small business section built into the book yet? Second, I assume you have a draft or some notion of what ought to be contained therein. Perhaps there's another jurisdiction, the admirable New Zealand or somewhere else, that has done this already.
.1035
Third, with whatever your platonic ideal would be for us for including that in your own code, how do you view the model you've received of ours? It's a bit paradoxical, since you haven't done it yet, but you see what I'm trying to get at here.
Mr. Shurman: Yes, I do.
First of all, let me take you back to what my own terms of reference say. My terms of reference say that I make determinations in accordance with what is, in my opinion, fair in all the circumstances. I have regard to principles of law and any relevant code of good banking practice, and I can also look at maladministration and inequitable treatment.
Although this document does not actually cover small businesses as such, first of all, most banks have a code for their small business customers that does in fact embody virtually all of this. That's the first thing. So if I'm looking at a small business complaint, I can look at the bank's code and see whether it has adhered to its own code.
Second, although that does not apply, strictly speaking, to small businesses, when I'm deciding what is fair in all the circumstances, if I have this for individuals for personal banking, I will always regard that as the minimum for a small business situation as well, whether it's been extended to that or not. It would be inconceivable that any bank could say ``Ah, we have a lower standard of banking practice for small businesses than we have for personal customers''. Any bank that said that would be shooting itself right in the foot. So it's not an issue that comes up. It would just be better, clearly, if that document did have in it reference to small businesses.
I did lobby for that when the code was revised from the first edition to the second edition. I had a very long string of suggested amendments. Quite a lot of them were adopted. That particular one was not accepted. As I say, in practice, it doesn't make any difference.
Therefore, when turning to the code you have here, I don't think it goes as far as I would wish a code to go. I don't think it goes as far as our code here goes, because it seems to me the emphasis is more on openness, transparency and so forth. It doesn't have, I don't think, a broad-brush requirement to act fairly and reasonably in all dealings with the small business customer.
I should say that in the U.K. we are also now subject, as far as personal customers are concerned, to the unfair terms and consumer contracts regulations under the European directive to that effect. That also is having the further knock-on effect of striking out unfair terms in consumer contracts, which is likely to extend to unfair terms in quite a lot of what might technically be standard business contracts.
The Chairman: Thank you very much. I think that is helpful, and may even be helpful to the Canadian Bankers Association, which is sitting here taking note of what's happening. They may wish to consider the critique you've made of what is a very good beginning for them in their model code.
I now look around the room to see whether there are other questions or interventions.
Mr. Shepherd: Maybe I could just ask a general question, because I know you're interested in the whole concept of ombudsmen. I have some private members' bills here that deal with the aspect of an ombudsman in the area of taxation, and that presumably would be equivalent to your parliamentary ombudsman.
.1040
Our deputy minister of revenue has said there's no need for that, simply because we have members of Parliament who can act as ombudsmen. I just wonder what your comments on that would be.
Mr. Shurman: Well, I have a few comments on that. First, in the U.K. we have someone called the revenue adjudicator, who's a bit like an ombudsman. She's a very able lady and has done extremely good work in the relatively short time she's been in the post.
What she does is subject, as you suggest, to the parliamentary ombudsman, but you could say she's very close to being an ombudsman. You could also argue she's part of the internal complaints procedure of Revenue.
With regard to the other point about needing or not needing ombudsmen because you have members of Parliament, I think members of Parliament do fulfil a vital role in relation to complaints across the whole field of things their constituents meet up with. However, I don't think it's necessary to say that everything has to go through a member of Parliament. It's rather the other way. If a member of Parliament can refer a complaint to an ombudsman, that's advantageous to everyone.
I would say I get about one complaint a day referred to me by a member of Parliament. I find this extremely useful and I think members of Parliament do as well. I've spoken to quite a number of them on different occasions. I know sometimes a member of Parliament may think he would like to deal with the issue without bringing anyone else in, but I don't think that's the general view.
I'm always very happy if a member of Parliament refers something to me to conduct through the member of Parliament or, if it has to be investigated, usually the member of Parliament drops out and I just tell him at the end of it what has happened.
The Chairman: Thank you.
Mr. Mitchell.
Mr. Mitchell (Parry Sound - Muskoka): I have just one quick question. What is the average amount of time it takes to process a complaint from when it's considered to be deadlocked to when you've come up with some sort of resolution?
Mr. Shurman: Last year in 72% of the cases we reached the final decision in 170 days. That was the period of full investigation.
Because we have a two-stage procedure and because 28% of the cases do go on to this further stage, the overall average was just over 230 days. That is longer than I would wish, but you have to take that in context. I referred before to what we actually receive and investigate as being the tip of the iceberg. The important thing is to look at the 170 days for 72% of the cases, and the 230 days overall for cases fully investigated, in the context of the vast majority of cases that come to us that will now be dealt with in four weeks. In doing that, we are always very proactive.
Let me give you an example. It's always best to give tangible examples.
Someone writes in and clearly has the wrong idea of the compensation to which he or she is entitled, possibly from watching too many American television series. Let's say the person thinks he or she should get £10,000 for something that has gone wrong, which we don't think is a huge consequence, but clearly the bank was at fault. The bank has offered, say, £100. We take a quick preliminary look at it without any need for full investigation. We have the measure of it. We form the view that it's probably worth £350. We ring up both the parties, and in the great majority of cases, get it agreed to at £350 and that's the end of it.
So you have to look at those scenarios as well as the ones where we really have to grind through the whole thing, get all the statements and papers, put all the questions and so forth.
.1045
But it is important that we produce a very high-quality decision in those cases that are going to be fully investigated. I think our credibility depends on the decision being won standing up to scrutiny, not the least for the banks themselves, and especially when some of them are milestone, yardstick cases that are going to be the basis on which hundreds or even thousands of other cases get settled.
Mr. Mitchell: It would be fair to say, then, that those cases that are taking a long time are cases that, if your office did not exist - comparing it to the Canadian model - the banks would have refused to deal with. It is not the issue that having an ombudsman makes the case take longer. The fact that your office exists means the case is being dealt with. Otherwise, it wouldn't be dealt with at all.
Mr. Shurman: That is probably correct. In most cases, yes, for practical purposes.
I should say in terms of the length of time taken that we drive the banks in managing the case, because after all, a bank has a back office. It has the facilities and so forth. So we tell the bank that we want the response to whatever it is within 14 days or 21 days or whatever.
We don't make the same demands of the complainants because complainants do not have back office facilities. They may be working away from home and all the rest of it. I am actually beginning to tighten up a bit on complainants as well.
It's a question of balance and I think if you're dealing with complicated issues and you want to do them to a very high standard, allowing both parties to have a full say and to go back so that each party sees all of the papers of the other side, which is another point I haven't brought out yet....
Sometimes I'll be sending the complainant a very thick wodge of papers that I've obtained from the bank. You can't expect someone who may not be very literate to absorb a huge wodge of papers in five minutes when he's working a 12-hour day or whatever. You have to give him some time. You have to explain things and go to and fro several times.
It does take time to produce a high quality and acceptable decision. Although I keep saying my target is to reduce the time from 230 days to 180 days, I have begun to realize that is going to be very difficult to achieve if I want to maintain the quality. And I think that is more important than sheer speed.
Mr. Mitchell: Thank you very much.
The Chairman: If there's a case where time is of the essence, where the issue is personal bankruptcy or where a company is about to go down, do you have a fast track?
Mr. Shurman: Yes. All the banks are aware of the fact that if the case is one - and this happens particularly, I have to say, in small business situations - where the complainant is bringing a complaint primarily to stave off the inevitable, I will fast-track it.
There is another thing I will do. It happens, not infrequently, that in the course of the business relationship the bank has done something that is wrong and there is, on the face of it, a valid complaint. However, in looking at the overall situation, it may be quite clear that the amount of compensation to which the complainant will be entitled can never match the amount of the indebtedness.
Let us suppose that someone owes the bank £70,000 and the bank is pressing to foreclose or whatever. The complainant's brought a complaint about something the bank did wrong. We take an initial look at it and say to the bank and to the complainant that at the very best this complaint is worth £10,000. We then say we are proposing that it should be dealt with upon the basis that you, the bank, will be entitled to go ahead and enforce your main security to recoup the indebtedness, but you must not enforce beyond £60,000 of the £70,000 outstanding, leaving £10,000 still in issue pending my decision. That has happened on a number of occasions.
.1050
So we always try to be flexible, because fairness is a two-way road on this. You have to be fair to banks as well as to individuals, because otherwise you're loading the system unfairly and at the end of the day you may be favouring unmeritorious customers at the ultimate cost of good customers who've never complained to start with.
The Chairman: Thank you very much.
Thank you, first of all, Mr. Shurman, for bearing with us while we were a little late in pulling ourselves together this morning. Thank you as well for giving us a very clear and lucid account of your office. I think it will give all of us food for thought as we look ahead.
This committee has made no final determination of its view of whether Canada needs a person like you. I think we do need a person like you, but that's going to be for the committee to decide.
I must say I found the examples very helpful and the institutional history you brought to it very instructive. The fact that there are other jurisdictions than your own, which have examples that we might also wish to contemplate, is also helpful. I hope that if in the future we decide to investigate the establishment of such an office in Canada more thoroughly, we can count on you and your office and your experience to guide us.
Mr. Shurman: I'd certainly be very happy to do that, and I will ensure that I send you some copies of my forthcoming annual report, which literally went to the printer's yesterday and will be published at the beginning of December.
The Chairman: Thank you for bearing with us and for taking part in this video conference. I'm glad that we didn't have to displace you physically and that you'll be able to get back to work and indeed to the sunshine, which we see is still there.
Mr. Shurman: Yes, indeed. Thank you, and goodbye.
The Chairman: We are adjourned.