The federal Finance Department says it will be putting a cap on how much banks can charge in non-sufficient funds (NSF) fees, saying the charges “represent a source of financial hardship for consumers.”
NSF charges are incurred when there is not enough money in an individual’s bank account to cover a pre-authorized payment or cheque.
“These fees disproportionately harm low-income Canadians and contribute to cycles of debt,” the announcement says.
The regulations will see a cap on NSF charges of $10. Currently, most banks charge between $45 and $48, according to the notice.
The notice said the fees are applied to Canadians’ accounts regardless of how much the shortfall is. They can also be charged in rapid succession if there are multiple declined payments.
Banks will also be required to send electronic messages to customers warning them of a pending NSF fee.
“If the person makes a deposit or transfer sufficient to cover the account shortfall within a minimum of three hours from receiving the alert, then the bank would not be permitted to impose an NSF fee,” the notice said.
A grace period of longer than three hours is permitted, but banks cannot provide less.
It is estimated that 34 percent of Canadians incur NSF fees each year, and in 2023, banks charged fees on an estimated 15.8 million NSF transactions.
The notice said the goal of the regulations was to ease the burden on lower-income Canadians.
“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 by reducing the amount of available funds with which a consumer could pay their bills.” the department said.
Banks will be prohibited from recharging NSF fees from the same customer within 72 hours.
Changes will also require banks to disclose information on NSF fees, including how much money they make in a year from the fees and how many customers are charged.
The regulations follow several consultation sessions with customer advocacy groups and banks.
The department noted that many banks already have flexibility for customers in connection to NSF charges.
“Some large banks offer a grace period, which allows a customer to have an NSF fee reversed or waived if they can supplement an account to reverse a declined payment,” the notice said.
Other banks may opt to waive NSF fees for customers on a case-by-case basis, it said.
The department noted that banks also offer overdraft protection to customers; however, it can come with a fee and not all customers qualify for the credit product. Interest may also be charged on the overdrawn amount, the notice said.
A 30-day consultation period ends on Dec. 16. The $10 cap on NSF fees will come into effect a month after the proposed regulations are registered. The other changes will come into effect six months after the registration.
