The federal government is set to crack down on banks’ non-sufficient funds (NSF) fees, introducing new regulations that would cap charges and require full disclosure of revenues generated from them. Blacklock's Reporter says according to the Department of Finance, Canadians paid an estimated $480 million annually in NSF fees, with some charges as high as $48 per transaction.“The department estimates banks charged fees on a total of 15,800,000 NSF transactions in 2023 and that approximately 34% of Canadians incur an NSF fee in any given year,” wrote the Department of Finance in a Regulatory Impact Analysis Statement. It added that low-income Canadians, often without access to overdraft protection, bear the brunt of these fees, which can exacerbate financial hardship.The proposed amendments to the Financial Consumer Protection Framework Regulations would cap NSF fees at $10 per transaction and prohibit banks from charging these fees more than once within a 72-hour period or for overdrafts under $10. Additionally, banks would be required to alert customers when their account balance falls below zero, giving them three hours to transfer funds before a payment is declined.“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,” wrote the finance department.Currently, NSF fees range from $45 to $48 at Canada’s largest banks, significantly higher than the $15 charged by the federal government for dishonoured payments. Despite repeated requests, banks have not disclosed the exact amount they collect from NSF fees, prompting the new regulations.“Non-sufficient funds fees represent a source of financial hardship for consumers,” said the department. “There is very limited information published by banks pertaining to NSF fees beyond the amount of each fee, making it difficult for consumers, advocacy groups and policymakers to understand the impact of these fees on Canadians.”Banks’ service fees, including NSF charges, account for a significant portion of their revenue. In 2022, Canadian banks earned a combined $7 billion in service charges, with the six largest banks collecting $6.8 billion of that total. These earnings contributed to a net pre-tax income of $65.9 billion for all banks.“These fees disproportionately impact the financial well-being of low-income Canadians who do not have access to overdraft protection and can perpetuate debt cycles,” noted the finance department.The proposed amendments would also compel banks to disclose annually the number of NSF fees charged, the number of customers affected, and the total revenue generated from these charges. While the regulations remain proposals, they signal a significant shift toward increased transparency and consumer protection in Canada’s banking sector.
