RBC Royal Bank recently signed a long-term deal with a Toronto-based business process outsourcing company to operate a centralized student loans centre for approximately 300,000 clients nationwide that make their payments through the bank.
“It’s
something we’ve looked at a couple of times in the past over the last few years to make sure we were servicing our clients properly and the most efficiently and effectively,” said Tom Lumsden, national manager, education financing at RBC.
RBC signed a contract with Resolve Corp. in April whereby the outsourcing firm will handle the administration and collection of payments for clients’ RBC government-sponsored student loans via its new student loans centre in Toronto. (The deal excludes the province of Quebec.) The terms of the deal were not disclosed. Resolve will also facilitate call-centre operations on behalf of the major financial institution.
To date, RBC has converted its site in Guelph, Ont., and will be converting its two other national sites in the next couple of months, completing the bulk of the project by the end of October. RBC last month notified its customers served by the Guelph site of the change in a letter signed by Lumsden. The letter also outlined new features including the ability to make more frequent payments (weekly or biweekly) towards an outstanding loan.
The deal affects approximately 200 full- and part-time employees, according to an RBC spokesperson. No further details were given as to how many jobs could potentially be affected by the transition. RBC is looking into transferring some of the employees to other areas of the company.
“It was a difficult decision for us because it did affect some of our employees,” said Lumsden. “We were upfront with them. We announced to them back in the fall that we’d be doing this.”
Aside from cost savings, changes to legislation that governs student loans over the last decade have made it difficult for the banks to get the system resources necessary to stay up to date, said David Frankum, vice-president of business development at Resolve, formerly known as BDP Business Data Services Ltd. — one of four business units within the business services division of FirstService Corp. that were merged under the Resolve brand back in May 2004.
“As time goes by, they lose the knowledge, people retire,” said Frankum. “Nobody’s going into the student loan business as an employee because there’s nowhere to go.”
Likewise, Jim Westcott, senior analyst, Canadian outsourcing services at IDC Canada said administering student loans isn’t as profitable a business as other areas like retail banking, capital markets and mutual funds, for example.
“Dealing with the processing and the administration around maintaining a system on the part of the government doesn’t make a lot of financial sense for them to do so,” said Westcott.
Since its inception in 1964, the Canada Student Loans Program (CSLP) has been managed by the federal government and administered by the financial institutions. Recent legislative changes, however, have changed the relationship between the government and the institutions.
Financial institutions have not been responsible for issuing Canada Student Loans since the Canada Student Financial Assistance Act was amended in 2000 to allow for directly financed loans through the federal government. (RBC, however, still grants student loans in Nova Scotia and Quebec as it is still under contract with these provinces.) Prior to the amendment, the Act, which was passed in 1994, was used to administer the risk-shared loan agreement between the federal government and several financial institutions. Under that agreement, the institution would have assumed responsibility for the risk of defaulted loans in return for a fixed payment from the government.
All Canada Student Loans issued on or after August 1, 2000 are now managed by The National Student Loans Service Centre (NSLSC), which is divided into two divisions – one to manage loans for students attending public institutions and the other to administer loans for students attending private institutions. The divisions are outsourced to federally-approved service providers with Resolve providing outsourcing services to the latter division. More recently, banks have also turned to outsourcing companies to manage their student loan business. Resolve also does BPO work for British Columbia, TD-Canada Trust and Scotia Bank.
Mark O’Meara, student loan activist and creator of Web site CanadaStudentDebt.ca, however, said a 1997 Human Resources and Skills Development Canada (HRSDC) study revealed that 35 per cent of bank clients who were defaulted to a third-party provider were shocked to discover this fact.
“That’s been a major problem with outsourcing,” said O’Meara. “The contract that HRSDC wrote with the banks did not provide any mechanism for resolving complaints or errors. It also did not provide any incentive for the banks to work for the students.”
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