Canadian Seniors and Their Financial Service Providers Tales from the Confidential Files of OBSI NICE Knowledge Exchange Hart House, University of Toronto.

Canadian Seniors and TheirCanadian Seniors and TheirFinancial Service ProvidersFinancial Service Providers

Tales from the Confidential Files of OBSITales from the Confidential Files of OBSI

NICE Knowledge ExchangeNICE Knowledge Exchange

Hart House, University of TorontoHart House, University of Toronto

Toronto, May 24, 2012Toronto, May 24, 2012

Douglas MelvilleOmbudsman and Chief Executive Officer


An independent national dispute resolution service

An alternative to the legal system for banking services and investment firms’ customers with an unresolved complaint

Started in 1996 covering major chartered banks; in 2002 became the Ombudsman for Banking Services and Investments when the mandate expanded to all members of the:

Investment Dealers Association (IDA), now IIROC

Mutual Fund Dealers Association (MFDA)

Investment Funds Institute of Canada (IFIC)

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Who we are at OBSI


Informal, confidential and independent review of complaints not resolved to the satisfaction of consumer

We look primarily at cases of direct financial loss as a result of error, misleading information or bad advice

Review industry standards, firm policies, regulations, laws … and decide what would be “fair under the circumstances”

Goal is to make the client “whole” where maladministration is found to have occurred

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What we do at OBSI


Liability for unauthorized debit, credit card, on-line transactions, and wires (fraud)

Credit Offers (cards and lines of credit) for those with no/limited income and/or credit history

Home equity credit deals (eats into equity, cash flow hit to make payments)

Reverse mortgages (cost, fees, restrictions)

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Banking Issues Affecting Canadian Seniors


Joint accounts

Powers of attorney

Scams

Lack of regulatory clarity in consumer protection:

No banker duty of care

No fair dealing regime as in the UK

Banking Issues Affecting Canadian Seniors (cont'd)

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Unsuitable investment recommendations (risk, deferred service charges)

Unauthorized transactions

Transaction errors

Powers of attorney

Investment scams, ponzi schemes

Investment Issues Affecting Canadian Seniors

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Cases illustrate a variety of issues and challenges seniors face in today’s financial services market

We know that a great many complaints never find their way to our office and remain unresolved causing tragic loss and hardship for seniors

Research shows that seniors suffering financial crises have a significantly elevated rate of death within a short period

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Case Studies – Seniors’ Banking Issues


An elderly client with mobility impairments and diagnosed with dementia applies for a secured line of credit at a bank accompanied by her grandson

The loan is granted even though the client has a limited, fixed income and does not seem to have the ability to repay the loan

The client is not asked to seek independent legal advice nor is she spoken to privately without her grandson present

The client is not asked why she needs the loan; the loan is secured by her house

Part of the proceeds from the loan are paid out to the woman’s grandson and the grandson later makes withdrawals on behalf of his grandmother. The bank does not inquire into the situation

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Case Study # 1 Policy Failure?


OBSI’s Key Conclusions:

Question of insufficient cash flow to service the loan is outside of OBSI’s mandate to review (bank’s credit decision)

There is no evidence that client was coerced or pressured into applying for the Line of Credit (LOC)

There is no evidence that grandson and bank’s loan officer conspired to place the LOC in client’s name for grandson’s benefit

Grandson informed the bank that he intends to repay the LOC balance

No applicable bank policy or requirement for independent legal advice; No failure of bank loan process

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Case Study # 1 Policy Failure?


A client held a continuing Power of Attorney for his dying father

As his father’s health was deteriorating he needed to pay bills on his father’s behalf

He asked his father’s bank to allow him to write cheques on his father’s account or transfer funds from his father’s account to another account to be held jointly by him and his father; the bank refused

Also claimed bank paid bills without authorization

Bank’s refusal to allow client to withdraw funds while his father was alive cost the estate $2,025 in probate fees ($135,000 x 1.5%)

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Case Study #2 Power of Attorney



Power of Attorney held by the client was limited to looking after his father’s legal obligations such as day-to-day expenses; tax planning was not considered looking after his legal obligations

There was also no evidence the bank paid bills without permission from power of attorney or executors as claimed

Payments made by the bank was supported by information provided to the bank by the client or the lawyers for the estate

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Case Study # 2 Power of Attorney (cont.)


An elderly woman added her daughter as a co-client on her account

The day of the elderly woman’s death, the son of the deceased transferred $178,511.86 to his own account; elderly women’s son had been added as a co-client a few weeks after his sister

The sum of the transferred funds was returned to the estate after a year pursuant to a court order

Deceased woman’s daughter questioned how the bank had added her brother as a co-client without all the account holders’ consent, how he was allowed to make such a transfer

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Case Study # 3 Co-client



No evidence to support the claim that the elderly woman did not authorize her son to be added as a co-client; there were witnesses to a meeting held in-branch

Bank’s branch personnel did not strictly follow established bank procedures when their client added each of her children as co-clients to her accounts. This did not cause any loss as OBSI concluded that the elderly woman intended to add both of her children as co-clients

No question of her mental capacity prompting requirement for ILA

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Case Study # 3 Co-client (cont’d)


Client wanted to supplement her employment income to help pay off her mortgage faster

Client received several documents about borrowing to invest in an alternative investment including illustrations projecting investment returns at various loan rates

There was no illustration which showed the investment distribution as less than the loan interest rate and no information that described the cash flow from the investment as variable or potentially unreliable.

There was also no illustration to show the potential for a loss if the leveraged investment was sold for less than the outstanding loan balance

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Case Study # 4 Leveraged Investment Strategy



Information client received about borrowing to invest in alternate investments did not identify investment’s risks and did not illustrate the potential for losses if the cash flow from the investment fell short of the required loan payment

Client did not receive the investment’s information statement until months after her investments were made and could not have independently determined its risks

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Case Study # 4 Leveraged Investment Strategy (cont’d)



The leveraging strategy was not suitable for the client and was not in line with her objective to generate income to pay off her mortgage

Loan not unsuitable, the leveraged investment strategy was

OBSI recommended that client’s financial situation should be restored as though the leveraging strategy was never implemented

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Case Study # 4 Leveraged Investment Strategy (cont’d)


Bank customer met a woman at a bar

After several hours of drinking and conversation, he headed home with her

Discovered his wallet was missing the next morning, checked at the bar, then notified his bank

Thief had made point of sale purchases of $2,000 and $1,400 in cash advances on the Visa account overnight; ABM withdrawals from several accounts at different banks

Case Study #5 (Last One) – Negligent PIN Selection?

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Client claimed he was not responsible for all the losses

Client had used the same PIN on all 8 cards in wallet

Crook tried various PINs; hit the right combination after 6 tries; discovered PIN to withdraw cash from the other cards

Should the customer have been reimbursed for the amounts taken? Show of hands please....

Does your answer change when you learn that...

Case Study #5 – Negligent PIN Selection?

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The woman was a prostitute

The man had been drinking heavily

The woman was also a professional thief with prior convictions; she was convicted but the money was gone

The man had used the same PIN on all his cards and chose an easy one to remember...1-2-3-4


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The man did not read or understand English or French

The man was 71 years old

The man had used the same easily remembered PIN for all his cards because, unlike his libido, his cognitive abilities were failing

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Consumer education and efforts to improve overall financial literacyBetter disclosure, easily understood by the client (“plain language”) where possibleClarity around powers of attorneyHaving all market players captured by laws, regulations and participating in a dispute resolution serviceHaving all customers better informed/aware of the dispute resolution process available to them in the firms and, if unresolved, with an independent third party service like OBSI

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What Can We Do?

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FURTHER INFORMATION

Ombudsman for Banking Servicesand Investments (OBSI)

www.obsi.ca

Please refer individuals or small businesses

with complaints to:

1-888-451-4519or

[email protected]

Canadian Seniors and Their Financial Service Providers Tales from the Confidential Files of OBSI NICE Knowledge Exchange Hart House, University of Toronto.

Documents

canadian seniors contd

challenges seniors face

obsirunning index

canadian seniorsrunning

banking services

credit card

lines of credit

variety of issues