The federal cabinet has imposed a $10 cap on non-sufficient funds (NSF) fees, effective immediately, a move expected to save Canadians millions.
However, the Department of Finance warned that banks may offset these losses by raising other service charges.
“Due to a loss in NSF fee revenue, banks may raise fees in other areas such as account maintenance fees,” the department stated in a legal notice.
“The extent that they do so would reduce the estimated benefits to consumers.”
Blacklock's Reporter says NSF fees, which currently range from $45 to $48, generate significant revenue. The finance department estimated the cap would save consumers $573.2 million annually, particularly benefiting low-income Canadians who lack overdraft protection.
“The finance department estimates banks charged fees on a total of 15,800,000 NSF transactions in 2023,” the department reported. “Approximately 34% of Canadians incur an NSF fee in a given year.”
Federal regulators found that Canadian banks collect about $7 billion annually in service charges on retail and commercial deposit accounts. The sector’s total net income before taxes stood at $65.9 billion.
New regulations also prohibit banks from charging the same customer more than $10 in NSF fees over two business days, allowing time to cover payments.
“These fees are often applied regardless of the size of the account shortfall and can be charged in rapid succession as a result of multiple declined payments,” stated a Regulatory Impact Analysis.
Additional rules limit NSF fees on transactions under ten dollars, acknowledging the financial burden these charges place on consumers.
“Non-sufficient funds fees represent a source of financial hardship,” the department wrote. “These fees disproportionately harm low-income Canadians and contribute to cycles of debt.”
The finance department previously criticized banks for refusing to disclose exact figures on NSF fee revenues.
“The department was unable to gather cost data related to current NSF fees directly from the affected banks,” it stated. Instead, estimates were based on U.S. banking disclosures.
