Canadian Seniors and Their Financial Service Providers Tales from the Confidential Files of OBSI

1. Canadian Seniors and TheirFinancial Service ProvidersTales from the Confidential Files of OBSI NICE Knowledge Exchange Hart House, University of Toronto Toronto, May 24, 2012 Douglas Melville Ombudsman and Chief Executive Officer

2. Canadian Seniors and TheirFinancial Service Providers Who we are at OBSI • 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)

3. Canadian Seniors and TheirFinancial Service Providers What we do 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

4. Canadian Seniors and TheirFinancial Service Providers Banking Issues Affecting Canadian Seniors • 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)

5. Canadian Seniors and TheirFinancial Service Providers Banking Issues Affecting Canadian Seniors (cont'd) • 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

6. Canadian Seniors and TheirFinancial Service Providers Investment Issues Affecting Canadian Seniors • Unsuitable investment recommendations (risk, deferred service charges) • Unauthorized transactions • Transaction errors • Powers of attorney • Investment scams, ponzi schemes

7. Canadian Seniors and TheirFinancial Service Providers Case Studies – Seniors’ Banking Issues • 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

8. Canadian Seniors and TheirFinancial Service Providers Case Study # 1 Policy Failure? • 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

9. Canadian Seniors and TheirFinancial Service Providers 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

10. Canadian Seniors and TheirFinancial Service Providers Case Study #2 Power of Attorney • 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%)

11. Canadian Seniors and TheirFinancial Service Providers Case Study # 2 Power of Attorney (cont.) OBSI’s Key Conclusions: • 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

12. Canadian Seniors and TheirFinancial Service Providers Case Study # 3 Co-client • 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

13. Canadian Seniors and TheirFinancial Service Providers Case Study # 3 Co-client (cont’d) OBSI’s Key Conclusions: • 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

14. Canadian Seniors and TheirFinancial Service Providers Case Study # 4 Leveraged Investment Strategy • 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

15. Canadian Seniors and TheirFinancial Service Providers Case Study # 4 Leveraged Investment Strategy (cont’d) OBSI’s Key Conclusions: • 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

16. Canadian Seniors and TheirFinancial Service Providers Case Study # 4 Leveraged Investment Strategy (cont’d) OBSI’s Key Conclusions: • 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

17. Canadian Seniors and TheirFinancial Service Providers Case Study #5 (Last One) – Negligent PIN Selection? • 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

18. Canadian Seniors and TheirFinancial Service Providers Case Study #5 – Negligent PIN Selection? • 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...

19. Canadian Seniors and TheirFinancial Service Providers Case Study #5 – Negligent PIN Selection? • 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

20. Canadian Seniors and TheirFinancial Service Providers Case Study #5 – Negligent PIN Selection? • 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

21. Canadian Seniors and TheirFinancial Service Providers What Can We Do? • Consumer education and efforts to improve overall financial literacy • Better disclosure, easily understood by the client (“plain language”) where possible • Clarity around powers of attorney • Having all market players captured by laws, regulations and participating in a dispute resolution service • Having 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

22. FURTHER INFORMATIONOmbudsman for Banking Servicesand Investments (OBSI)www.obsi.caPlease refer individuals or small businesseswith complaints to:1-888-451-4519orombudsman@obsi.ca