Canada Gazette, Part I, Volume 158, Number 46: Regulations Amending the Financial Consumer Protection Framework Regulations

November 16, 2024

Statutory authority
Bank Act

Sponsoring department
Department of Finance

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues

Non-sufficient funds (NSF) fees are charged by banks when there are insufficient funds in a bank account to cover a cheque or pre-authorized debit (PAD) and the consumer does not have overdraft protection. They typically range from $45 to $48 and represent a source of financial hardship for consumers. 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.

These fees are often applied regardless of the size of the account shortfall, can be charged in rapid succession as a result of multiple declined payments, and for many consumers, there is no notification or alert that a payment they are making will be declined. There is also 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.

Amendments to the Financial Consumer Protection Framework Regulations are needed to limit the amount of NSF fees, restrict the circumstances in which NSF fees may be imposed, and require public reporting to improve public understanding of NSF fees.

Background

NSF fees are charged by banks to incentivize financial consumers to maintain sufficient funds to cover payments coming out of their accounts, and to provide a revenue stream for banks. NSF fees also help to offset the costs to banks resulting from missed payments, which stem mainly from communication costs with consumers and merchants.

It is common practice for banks to charge NSF fees on every non-instantaneously processed payment returned due to insufficient funds in the account of a customer, including pre-authorized debits and cheques. This also occurs when multiple payments are returned in a short period of time, when the same payment is re-presented a second time by a merchant, or when the amount of the account shortfall is very small. NSF fees are not charged on instantaneous transactions such as e-transfers.

Merchants or other fund recipients may also charge consumers a dishonoured cheque or deposit fee in addition to the NSF fee charged by a bank. The federal government charges a similar fee under the Interest and Administrative Charges Regulations. Dishonoured payment fees charged by merchants tend to be in the range of $20 to $40; Government administrative charges are $15, or $25 in cases where the amount would need to be sent to a third party by the Government once paid. Merchant fees help to incentivize consumers to make their payments on time and avoid dishonoured payments, and cover costs associated with dishonoured payments for merchants. These costs are typically more significant than the costs to a bank for an NSF transaction and can include the costs of manual review, cancellation of services, and communication with customers. Dishonoured payments also have implications for merchants in terms of accessing revenue for goods or services provided and paying suppliers or other costs associated with their business.

Merchant or fund recipient fees are typically regulated at the provincial level. The federal government has recently introduced the Criminal Interest Rate Regulations, which set an additional condition on payday loans that would effectively restrict the amount of dishonoured payment fees that may be charged. Dishonoured payment fees charged by payday lenders under those Regulations are effectively capped at $20.

Many banks already offer flexibility to help customers avoid NSF fees. 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 (usually within a few hours or the same day). Others waive NSF fees on a case-by-case basis, some waiving the fee once per year, while others waive NSF fees when the amount overdrawn is a nominal amount (e.g. under $10). Banks also offer overdraft protection to consumers, typically for a nominal fee as well as interest on the overdrawn amount. However, as overdraft protection is a credit product, not all customers are granted this service and those with overdraft protection can still be charged an NSF fee if they are overdrawn past their limit.

Payments system

The Automated Clearing Settlement System (ACSS), owned and operated by Payments Canada, is Canada’s primary batch retail payment system. The ACSS is used to clear and settle electronic and paper-based payments, including cheques, pre-authorized debits, direct deposits, bill payments, and Interac debit card payments. In 2023, the ACSS cleared and settled 9.8 billion transactions, valued at $9.3 trillion. The system’s rules specify the timelines for when transactions must be processed, including deadlines for the submission of transactions and the timing for returning or reversing payments when a payor has insufficient funds.

Credit card transactions and Interac e-transfer are not processed through the ACSS. Instead, these transactions are exchanged through their respective payment card networks — such as Interac for e-transfers and Visa or Mastercard for credit card purchases — and settlement occurs using Payments Canada’s high-value payment system, Lynx.

Government announcements related to NSF fees

Following commitments to address junk fees and NSF fees in Budget 2023 and the Fall Economic Statement, 2023, the Government announced in Budget 2024 that it would publish draft regulations for consultation that would cap bank NSF fees at $10 and introduce additional measures to help protect consumers from NSF fees. The announcement also specified that the additional measures would include prohibiting NSF fees on re-presented charges; restricting the number of NSF fees that may be charged within a set period of time; requiring consumers to be alerted and provided a grace period to deposit additional funds to avoid an NSF fee; and prohibiting NSF fees on nominal overdrawn amounts. A cap of $10 was chosen to balance the need to protect consumers from high fees with the need to maintain the integrity of the payments system by incentivizing consumers to honour their payments.

Financial Consumer Protection Framework

Statutory provisions related to consumer protection are found under the Bank Act, in the Financial Consumer Protection Framework Regulations (the FCPFR), and in some other related acts and regulations — including the Cooperative Credit Associations Act, the Insurance Companies Act, and the Trust and Loan Companies Act. The Bank Act and provisions of the FCPFR made under the Bank Act apply to banks and foreign banks authorized to operate in Canada (hereafter referred to as “banks”), and do not apply to other federally or provincially regulated financial institutions, such as provincially regulated credit unions. The FCPFR do not currently contain provisions related to NSF fees. Subjects covered in the FCPFR include the disclosure and transparency of decisions, requirements for certain accounts and services, credit agreements, and mortgage insurance.

Recent legislative amendments have also been made to help prevent financial consumers from falling into an NSF situation. As part of the financial consumer protection framework that came into force in 2022, section 627.13 was added to the Bank Act to require banks to send electronic alerts to their customers when an account or line of credit balance drops under $100, or another dollar value set by the customer.

Paragraph 627.998(e) of the Bank Act allows the Governor in Council to prescribe regulations related to the carrying out of authorized activities, including the imposition of fees or charges. In addition, paragraph 627.998(a) provides an authority for regulations that require the disclosure of information.

Objective

The objective of the proposed Regulations Amending the Financial Consumer Protection Framework Regulations (the proposed Regulations) is to reduce the financial burden of NSF fees on financial consumers, particularly vulnerable consumers who may experience further financial difficulty when charged an NSF fee or resort to taking out a high-cost or predatory loan to avoid an NSF fee. The proposed Regulations would reduce this burden by reducing the amount of NSF fees when they are charged and restricting the circumstances in which an NSF fee may be charged.

The proposed Regulations are also intended to increase transparency around NSF fees to help consumers, advocacy groups and policymakers to understand the impact of these fees on Canadians.

Description

All of the measures of the proposed Regulations apply to the personal deposit accounts of natural persons at the same bank, including to accounts jointly held with another person. None of these proposed measures apply to corporations or business accounts, and they do not apply to other fees (such as dishonoured payment fees) charged by merchants, lenders or other fund recipients.

Cap of $10

The proposed Regulations would permit banks to impose an NSF fee of no more than $10 when a person does not have sufficient funds to make a payment that is being drawn from their account.

Restriction on the number of fees charged within a 72-hour period

The proposed Regulations would prohibit the imposition of an NSF fee on a consumer who has already been charged an NSF fee in the previous 72-hour period.

Prohibition of fees on nominally overdrawn amounts

The proposed Regulations would prohibit the imposition of an NSF fee when the account shortfall is under $10. Should a consumer have insufficient funds to make a payment, but the overdrawn amount falls within this range, the payment could still be declined but banks would not be permitted to impose an NSF fee under that circumstance.

The prohibition on NSF fees on nominal amounts helps to protect consumers from being penalized over small errors or miscalculations, providing relief from NSF fees on very small amounts overdrawn. While NSF fees may help to incentivize consumers to maintain sufficient funds in their account to make their payments, nominal overdrawn amounts are much more likely to represent an error or miscalculation of a consumer who was paying attention to their account balance and intended to maintain sufficient funds to make their payment. Prohibiting NSF fees from being charged on these amounts ensures that these consumers, who intend to make their payments, can focus on finding the funds to make up the small shortfall without the additional cost of an NSF fee.

Alert and grace period

The proposed Regulations would prohibit a bank from imposing an NSF fee unless it had first sent an electronic alert (by email or text message) to the customer when the bank has identified a lack of sufficient funds to cover a payment. As part of the alert, the bank would have to inform the customer of the need to make a deposit or transfer the amount needed into their account to cover the shortfall and the time frame of three hours in which the funds must be deposited or transferred. Additionally, the notification must be sent within normal business hours for the person receiving the alert (i.e. between 8:00 a.m. and 4:00 p.m.).

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. Banks are permitted to provide a grace period of longer than three hours, but not less. Three hours was chosen as the minimum to ensure that banks have sufficient time to make payment return decisions in the context of Payments Canada’s rules and regulations, while also providing an alert and grace period under these proposed Regulations.

If the person has opted out of receiving alerts from the bank, or has refused to provide valid contact information to their bank, then the bank may impose an NSF fee despite not having sent an alert.

Disclosure of information

The proposed Regulations would require that a bank publish, on a publicly available website 30 days after the end of each calendar year, information on the total revenue generated from NSF fees, the number of customers who were charged an NSF fee, the number of customers who were charged four or more NSF fees, and the number of NSF fees that were charged during that calendar year. Furthermore, the bank would need to maintain that information for three years from the day on which it was made available.

Regulatory development

Consultation

In developing the proposed Regulations, the Department of Finance (the Department) consulted with banks and consumer advocacy groups. These consultations were conducted in two rounds, and both were done using targeted consultations of banks and consumer advocacy groups to ensure that consumer and bank perspectives were considered. These consultations took the form of meetings.

The first round of consultations took place in October 2023 and involved targeted meetings and discussions with consumer advocacy groups, including ACORN Canada, Option Consommateurs, and Union des Consommateurs, as well as banks and their representatives, including the Canadian Banking Association (CBA), the Toronto-Dominion Bank, the Royal Bank of Canada, the Canadian Imperial Bank of Commerce, Scotiabank, and the National Bank of Canada. Through these consultations, consumer advocacy groups highlighted the excessive nature of NSF fees; the fact that these fees are not necessary to incentivize consumers to make their payments; the absence of NSF fees and lower overdraft fees in some circumstances in the United States and the United Kingdom; and the fact that with digital banking, the costs of NSF situations to banks have been significantly reduced. Consumer groups were in favour of the proposal to cap NSF fees and introduce other measures to reduce the number of NSF fees that Canadians are charged. The banks and the CBA highlighted that NSF fees remain important to minimize the number of missed payments, raised that NSF fees are clearly disclosed to bank customers, and highlighted the various means through which banks already allow for flexibility around NSF fees, such as circumstances where the banks may waive NSF fees or offer customers a grace period to make a deposit or transfer funds into an account to avoid an NSF fee.

A second round of consultations took place with large banks in December 2023 and January 2024. During this round, banks also highlighted specifics regarding their flexibility surrounding NSF fees, including existing grace periods, notifications to customers when they may miss a payment, payment ordering to prevent multiple NSF fee situations and waiving of NSF fees under certain circumstances. During this round of consultations, the banks also highlighted the difficulty of identifying re-presented payments, noting that changes to Payments Canada’s rules and regulations would be required to allow these payments to be explicitly flagged in the payments system for transactions processed through the ACSS.

The proposed Regulations were drafted based on the feedback received from banks and consumer advocacy groups. A $10 cap was selected based on feedback from consumer advocacy groups that the current fees are excessive. These fees were not completely prohibited in response to bank feedback that NSF fees can help to minimize missed payments. Information provided on current practices around NSF fees was used to design the alert and grace period component of the proposed Regulations, particularly the timing of the alert and the deadline for making a deposit or transfer. This information was also used to inform the development of the restriction on the imposition of NSF fees on nominally overdrawn amounts, to ensure that this could be implemented within the confines of the payment system and existing practices used by the banks.

Feedback from consumer advocacy groups formed the basis for the dollar cap on NSF fees and the restriction on the number of NSF fees that may be charged in a 72-hour period; this proposal balances the need to protect consumers from unfair fees, as communicated by consumer advocacy groups, and the need to continue to incentivize consumers to make their payments on time, as communicated by the banks.

The Department was unable to gather cost data related to current NSF fees directly from the affected banks to inform the analysis through these consultations. The “Regulatory analysis” section lays out how other publicly available sources were used to estimate the costs and benefits of the proposed Regulations.

Modern treaty obligations and Indigenous engagement and consultation

In accordance with the Cabinet Directive on the Federal Approach to Modern Treaty Implementation, an assessment of modern treaty implications was conducted. There have been no impacts on modern treaties identified in relation to these proposed Regulations.

Indigenous peoples or representative groups were not specifically consulted as part of this regulatory initiative.

Instrument choice

The proposed Regulations are required to ensure that consumers are protected from the financial hardship imposed by the frequency and cost of NSF fees. The objective of the proposed Regulations cannot be accomplished through other instruments, as specific regulatory requirements are required to enable enforcement action by the Financial Consumer Agency of Canada (FCAC).

Other options were considered, including industry guidance issued by the FCAC and a voluntary agreement to lower fees by the banks. However, industry guidance and a voluntary agreement would not have the weight of law and could not be enforced by the FCAC.

Regulatory analysis

Benefits and costs

Overview

The cost-benefit analysis examines the potential impacts of the proposed Regulations on NSF fees. Overall, this analysis finds that these proposed Regulations would provide present value benefits totalling $5.1 billion and present value costs totalling $4.8 billion over the 10-year period following the registration of the proposed Regulations (discounted to year 2025 at a 7% discount rate and expressed in 2023 Canadian dollars). This represents a net benefit of $314.4 million over the 10-year period following the implementation of the proposed Regulations. The majority of the monetized benefits (98%) would be experienced by consumers, while nearly 100% of the costs would be borne by banks.

The analysis highlights four monetized benefits associated with the proposed Regulations:

• NSF fee savings, experienced by consumers, as a result of fewer NSF transactions and a lower cost associated with each NSF fee.
• Other late fee or dishonoured cheque fee savings, experienced by consumers, as a result of consumers taking advantage of the grace period and avoiding late payment or dishonoured cheques fees that would have been charged by the recipient of a cheque or pre-authorized debit (PAD), had the consumer not taken advantage of the grace period.
• Indirect cost savings, experienced by consumers, as a result of reducing time spent attempting to reverse an NSF fee.
• Cost savings, experienced by banks, as a result of fewer NSF transactions. This would result from fewer customers attempting to contact customer support to reverse an NSF fee.

The analysis also highlights three monetized costs associated with the proposed Regulations:

• The loss in NSF fee revenue, borne by banks, as a result of fewer NSF transactions and a lower fee revenue associated with each NSF fee.
• Implementation cost, borne by banks, to update their information technology systems to comply with the proposed Regulations. This would include modifying the alert system to notify customers when they are about to incur an NSF fee and updating relevant documents, such as disclosure documents, to reflect the new NSF fee rate.
• Supervision costs arising from the requirement to supervise the regulated entities that must comply with the market conduct obligations associated with this proposal.

The analysis also finds non-monetized costs and benefits associated with the proposal. These costs and benefits are discussed in the following section.

The full cost-benefit analysis report containing the detailed methodology is available upon request to the contact person listed at the end of this Regulatory Impact Analysis Statement.

Profile of affected stakeholders

Consumers

While any Canadian with a bank account may incur an NSF fee, it is more likely that those without overdraft protection incur the majority of NSF fees. However, those with overdraft protection can still incur NSF fees if they issue a cheque or PAD that would exceed their approved overdraft limit. In addition, given that NSF fees are currently only charged on cheques and PADs, it is likely that consumers that use these payment methods more often are most likely to benefit from these proposed Regulations. A combination of industry data and market research on Canadian payment methods and trends reveals that consumers who use cheques are more likely to be between the ages of 18 and 34 and work in the gig economy.^{footnote 1}

The Department estimates that banks charged fees on a total of 15.8 million NSF transactions in 2023 and that approximately 34% of Canadians incur an NSF fee in any given year. Canadians who incur NSF fees likely have low income or struggle with meeting financial commitments. Data from Statistics Canada^{footnote 2} suggests that women, female lone-parent families, and persons not in an economic family are overrepresented in the low-income demographic. In addition, data from the FCAC found that 26% of Canadians are either “struggling somewhat” or “struggling a lot” financially.^{footnote 3} Survey results suggest that individuals in these groups tend to have trouble being able to make payments such as bill payments, rent or mortgage payments, or credit card payments. Women are overrepresented in both groups.

In a separate survey, the FCAC estimated that 25% of Canadians spend more than their monthly income. Canadians with low income, recent immigrants, Indigenous peoples, and women were overrepresented in these results.^{footnote 7}

Given this data, these proposed Regulations would likely disproportionately benefit women, lone-parent families, recent immigrants, and Indigenous peoples.

Banks

These proposed Regulations would only apply to “institutions” as defined under Part XII.2 of the Bank Act. This definition includes banks listed under Schedule I and Schedule II, as well as authorized foreign banks. As of December 31, 2022, there were 35 Schedule I banks and 15 Schedule II banks operating in Canada. As per the Office of the Superintendent of Financial Institutions (OSFI), there are 30 authorized foreign banks in Canada. In total, 80 institutions would be impacted by the proposed Regulations.

OSFI reports that, in 2023, Canadian banks earned a combined $7.0 billion in service charges on retail and commercial deposit accounts.^{footnote 4} The six largest banks in Canada levied 97%, or $6.8 billion, of these charges. Net income before taxes for all banks during this period was $65.9 billion.

Table 1 presents a list of the NSF fee charged at each of the six largest banks in Canada, as of April 2024. For the purposes of this analysis, the same fees were assumed to apply during 2023.

Table 1: NSF fee by bank (in 2023 dollars)

Bank	NSF fee
Bank of Montreal table a1 note a	$48
Bank of Nova Scotia table a1 note b	$48
Canadian Imperial Bank of Commerce table a1 note c	$45
National Bank of Canada table a1 note d	$45
Royal Bank of Canada table a1 note e	$45
Toronto-Dominion Bank table a1 note f	$48
Table a1 note(s) Table a1 note a BMO — Agreements, Bank Plans and Fees for Everyday Banking (PDF) Return to table a1 note a referrer Table a1 note b Scotiabank — Bank account fees at a glance Return to table a1 note b referrer Table a1 note c CIBC — Service fees Return to table a1 note c referrer Table a1 note d National Bank — Fee Guide (PDF) Return to table a1 note d referrer Table a1 note e RBC — Service Charge Information and Interest Rates for Banking Accounts Return to table a1 note e referrer Table a1 note f TD — About our accounts and related services (PDF) Return to table a1 note f referrer

Analytical framework

The impacts of the proposed Regulations have been assessed in accordance with the Treasury Board Secretariat (TBS) Cost-Benefit Analysis Guide. Authorized foreign banks are considered to have standing in this analysis given that they have branches in Canada where they conduct business with Canadians. Consumers are obligated to pay any NSF fees in accordance with the terms and conditions as outlined in their account agreements with banks.

The incremental impacts attributable to the proposed Regulations are determined by comparing a baseline scenario, in which the proposed Regulations are not in force, to a regulatory scenario, in which the proposed Regulations are in force. Costs during the period of 10 years following implementation of the proposed Regulations (2025–2034) are discounted to the base year 2025 at a discount rate of 7% and expressed in 2023 Canadian dollars.

The estimated costs and benefits have been adjusted to reflect the delay in the coming into force of the proposed Regulations. More specifically, 2025 results are adjusted to account for the fact that not all provisions come into force upon registration of the proposed Regulations; rather, the provision for the cap rate comes into force one month following registration and the remaining provisions come into force six months following registration (see the “Implementation” section for further details). This adjustment results in lower costs and benefits in the first year of the analysis period (2025).

In the baseline scenario, the proposed Regulations would not exist, and banks would continue to charge consumers NSF fees on any PAD or cheque for which their account does not have sufficient funds or sufficient overdraft protection to cover the payment. These fees range between $45 and $48 at the six largest banks, which corresponds with a weighted average based on total service charges earned in 2023 of $46.85.

There would be no regulations surrounding the value or frequency of NSF fees; therefore, banks could charge consumers multiple NSF fees for different transactions throughout a 72-hour period. Consumers could call their bank to ask for this fee to be reversed; however, there is no guarantee that the bank would do so.

Banks would also not be required to give consumers a grace period allowing them to avoid NSF fees and would instead charge an NSF fee immediately, even if the consumer had the means to deposit additional funds into the account. However, it is assumed that banks, such as CIBC and BMO, that currently provide a grace period would continue to offer their customers a grace period with respect to NSF fees. In this scenario, banks would also not be required to collect or publish data on NSF fees, making it difficult for consumers to compare account fees between banks.

In the regulatory scenario, banks would be prohibited from charging more than $10 for an NSF transaction. It is assumed that banks would charge the maximum NSF fee allowed under the proposed Regulations. In addition to a $10 cap on NSF fees, banks would be prohibited from charging NSF fees to the same individual more than once within a 72-hour period or on transactions where the account would be overdrawn by less than $10. Banks would also be required to alert consumers when they are about to receive an NSF fee and allow them to add funds to their account to avoid the fee. Given these restrictions, there would be significantly fewer NSF fees charged in the regulatory scenario compared to those charged in the baseline scenario. This scenario would provide significant monetary benefits to consumers; however, it would result in reduced revenue for banks. In addition, banks would be required to publish information on NSF fees, thereby promoting transparency surrounding these fees. Consumers would then be able to better compare account fees between banks.

Data limitations

Given the lack of data on the number of NSF transactions in Canada and the NSF fee revenue earned by Canadian banks, data from California was used as a relatively comparable jurisdiction given the similar populations and financial sector regulatory environments. However, this means that the estimates of the number of NSF transactions in Canada may not be accurate. The sensitivity analysis will explore how the impacts may change if another method was used to calculate the number of NSF transactions.

Additionally, due to the lack of publicly available information on the IT costs borne by banks, the estimates of the implementation costs of the proposed Regulations may not be accurate.

The Department did not receive quantitative data on current NSF fee practices through consultations. Therefore, the Department sought publicly available information to inform this analysis. The Department welcomes any input on the proposed methodology.

Methodology

The revenue loss to banks is assumed to be equivalent to the cost savings to consumers as a direct result of the proposed Regulations (i.e. an NSF fee eliminated is a benefit to the consumer but a cost to the bank).

To estimate the revenue loss associated with this proposal, first the number of NSF fees charged in Canada is estimated, then the estimated number of NSF fees that would no longer be permitted under the regulatory scenario is determined. Using the estimated number of NSF fees charged under the regulatory scenario and multiplying this value by the new maximum NSF charge of $10 allows for the estimation of the expected NSF fee revenue in the regulatory scenario. By comparing the estimated NSF fee revenue under the baseline and regulatory scenarios, the estimated loss in revenue associated with the proposed Regulations can be determined.

Other key assumptions made in this model include the following:

• Consequences of a missed payment (i.e. late payment fees or cancellation of services) offers sufficient incentive for consumers to avoid NSF transactions, even if the NSF fee is reduced. However, consumer behaviour is not expected to change as a result of the proposed Regulations. This is supported by research from the Consumer Financial Protection Bureau (CFPB).^{footnote 5}
• The number of NSF transactions in the baseline scenario is estimated to increase from 16.1 million in 2025 to 19.2 million by 2034. This estimate is based on data from Payments Canada and considers the relative share of automatic fund transfers (AFT) debit (including PAD) transaction versus cheque transactions (assuming NSF transactions are distributed proportionally), and that historical annual changes in these volumes since 2018 would continue over the analytical period.
• Banks will charge consumers the maximum NSF fee of $10 in the regulatory scenario.
• While some banks may offer to waive an NSF fee for nominal amounts, this is done on a case-by-case basis and therefore it is assumed this is not practised.
• The introduction of real-time rail, a new payments system, may make many cheque or automated funds transfer (AFT) payments obsolete. However, there is currently no estimated implementation time for this new system, and it is not clear to what extent the system — once implemented — would offset the existing cheque and debit ecosystem. Therefore, it is assumed that there will be no changes resulting from the introduction of real-time rail.

The detailed methodology can be found in the “Cost and benefits” section.

Cost and benefits

Revenue loss for banks and direct consumer savings (monetized)

Due to the lack of data on NSF fees in Canada, data from California was used to estimate the number of NSF fees charged in Canada. Using the available data from the Department of Financial Protection and Inclusion and publicly available information from bank websites allows for the estimation of the number of NSF transactions processed at each bank. These estimates can then be used to estimate the average number of NSF transactions per dollar of service fee revenue earned. Applying this value to the total service fees earned by Canadian banks allows for the estimation of the total number of NSF transactions across all banks in Canada. In the baseline scenario, it is estimated that a total of 16.1 million NSF transactions would occur in 2025, corresponding to an NSF fee revenue of $753 million.

To estimate the decline in the number of NSF fees charged per year, the FCAC’s Financial Well-being Survey results will be used to estimate how different consumers may struggle to meet financial commitments.^{footnote 3}The survey placed respondents into four groups: financially secure (33% of respondents), somewhat secure (41% of respondents), struggling somewhat (19% of respondents), and struggling a lot (7% of respondents). Given the survey responses from these groups, assumptions are made on the number of NSF fees incurred by members of these groups. It is assumed that no one in the “financially secure group” incurs an NSF fee, 40% of those in the “somewhat secure” group incur an NSF fee (half of whom can restore their account given a grace period, while the remaining half cannot), 68% of those in the “struggling somewhat” group incur an NSF fee and cannot restore their account balance, and 67% of those in the “struggling a lot” group incur multiple NSF fees and cannot restore their account balance. Tables 2 and 3 below summarize the assumptions associated with each financial well-being group as well as the estimated proportion of each group that will incur an NSF fee. The relative percentage share of the total population that incurs NSF fees was then used to estimate the decline in NSF transactions due to the grace period requirement (24%) and prohibition against stacking (14%), as shown in Table 4 below. This assumes that the decline in the number of transactions is equivalent to the population incurring fees in those respective categories (as per the impacts identified in Table 3).

Table 2: Population by financial well-being group

Group	Assumption	% of population	% of group incurring NSF fee	% of population that incurs NSF (% of total)
Financially secure	Never incurs an NSF fee	33%	0%	0% (0%)
Somewhat secure	May rarely incur an NSF fee; can restore account balance if an NSF fee is incurred	41%	20%	8% (24%)
	May occasionally incur an NSF fee; likely cannot restore account balance if an NSF fee is incurred	41%	20%	8% (24%)
Struggling somewhat	Likely to incur an NSF fee, cannot restore account balance if an NSF fee is incurred	19%	68%	13% (38%)
Struggling a lot	Likely to incur multiple NSF fees, including one instance of two NSF fees within a 72-hour period, cannot restore account balance	7%	67%	5% (14%)
Total				34%

Table 3: Assumptions based on financial well-being group

Group	Baseline scenario	Regulatory scenario
Financially secure	Never incurs an NSF fee	No change — will continue to not incur NSF fees
Somewhat secure	May rarely incur an NSF fee; can restore account balance if an NSF fee is incurred	Grace period: will no longer incur an NSF fee
Somewhat secure	May occasionally incur an NSF fee; likely cannot restore account balance if an NSF fee is incurred	No change — will incur the same number of NSF fees
Struggling somewhat	Likely to incur an NSF fee, cannot restore account balance if an NSF fee is incurred	No change — will incur the same number of NSF fees
Struggling a lot	Likely to incur multiple NSF fees, including one instance of two NSF fees within a 72-hour period, cannot restore account balance	Prohibition against stacking: will incur one less NSF fee (avoid the second NSF fee within a 72-hour period)

Due to a lack of data, it is estimated that 5% of NSF fees will be eliminated as a result of the proposed Regulations that require banks to waive NSF fees if the consumer’s account balance is less than $10 below the value of the NSF cheque or PAD. Data from the United States suggests that overdraft balances are typically small dollar (i.e. under $26); however, given the differences between the types of payments that result in overdraft payments compared to those that result in NSF fees, it cannot be presumed that the majority of NSF fees are charged when a consumer’s balance is $26 short.^{footnote 6}

However, the Department has received feedback from consumer advocacy groups that report that a number of consumers incur NSF fees after they are unexpectedly charged other bank fees. This suggests that at least a small number of NSF fees could be avoided if banks are required to waive NSF fees for nominal amounts. Therefore, it is estimated that 5% of NSF fees will be avoided as a result of the proposed Regulations.

Table 4 below summarizes the number of NSF transactions eliminated and the corresponding loss in revenue associated with each provision of the proposed Regulations for the first year of the analysis (2025). Table 5 summarizes the estimated NSF fee revenue and number of NSF transactions in both the baseline and regulatory scenarios. In total, 2.9 million NSF transactions would be eliminated in the first year with the proposed Regulations. The total loss in NSF fee revenue in the first year is estimated at $572 million, a 76% decline from the baseline scenario. In year two, and each subsequent year, when all provisions are in force for the entire year, there would be an estimated decline of 35% in the number of NSF transactions from the estimated number of transactions in the baseline scenario. This corresponds to a revenue loss of 86% from the baseline revenue. Overall, this revenue loss represents a discounted value of $4.8 billion over a 10-year period.

Table 4: Number of NSF transactions eliminated and revenue loss by proposed measure (2025)

Requirement	Number of NSF transactions eliminated table b1 note a	Loss in revenue (in millions of dollars)
Prohibition against stacking NSF fees (14% decline — see Tables 2 and 3 above)	1 104 271	51.7
Grace period requirement (24% decline — see Tables 2 and 3 above) table b1 note b	1 352 602	63.4
Prohibition on NSF fees for nominal amounts (5% decline — see text above)	402 112	18.8
Rate cap on NSF fees	N/A	437.9
Total	2 858 985	571.8
Table b1 note(s) Table b1 note a Note: 2025 values were adjusted (reduced) by 50% to account for the delay in the coming into force of the proposed Regulations in the first year of the analysis. Return to table b1 note a referrer Table b1 note b This impact was then reduced by approximately 30% to account for banks that already offer a grace period (CIBC and BMO). The reduction factor was based on their share of service charges relative to all Canadian banks. Return to table b1 note b referrer

Table 5: Estimated revenue and number of NSF transactions in the baseline and the regulatory scenarios (2025)

Scenarios/Results	NSF fee revenue (in millions of dollars)	Number of NSF transactions (x 1 000 000)
Baseline scenario	753.5	16.1
Regulatory scenario	181.6	13.2
Change (in percentage)	−76%	−18%

Benefits

Indirect consumer savings — grace period (monetized)

In addition to cost savings from reduced NSF fees, some consumers will benefit from avoiding late fees charged by payment recipients due to the grace period. If a consumer attempts to pay a bill by cheque or PAD and the payment fails, they may be subject to a late payment or dishonoured cheque fee by the recipient.

Data indicate that 44% of users who make payments via electronic funds transfer (EFT) do so to pay utility bills. EFTs include direct deposits, electronic remittances, and PADs. Due to data limitations, as a proxy, assuming that 44% of NSF transactions eliminated due to the grace period were for payment to a utility company allows for the estimation of the number of NSF transactions avoided that otherwise would have incurred a late payment fee from a utility company. In reality, consumers may face late payment fees from various payment recipients.

Using publicly available data from utility and telecommunication companies across the country, it is estimated that the average late payment fee is approximately $24.

Excluding the Bank of Montreal (BMO) and the Canadian Imperial Bank of Commerce (CIBC) from this calculation, as both currently offer their customers a grace period for NSF fees, it is estimated that consumers will save approximately $14.5 million in late payment charges in the first year under these proposed Regulations and approximately $31 million on average in each subsequent year. This corresponds to a discounted value of $201.0 million over the 10-year period following the registration of the proposed Regulations.

Cost savings to banks — NSF transactions (monetized)

Banks likely incur some cost associated with charging NSF fees. For instance, customer service centres likely devote time to receiving inquiries from customers attempting to dispute NSF charges they received. This is especially true for customers who have sufficient funds in other accounts who may attempt to rectify the NSF charge.

As a result of eliminating NSF transactions and reducing NSF fees, banks would achieve cost savings through reducing the number of resources dedicated to handling customer inquiries on NSF fees. The proportion of corporate services expenses to total revenue earned by all banks was used to estimate these cost savings. Then the estimated ratio of NSF fee income to total income was applied to the estimated total corporate services expense to estimate the portion of corporate services devoted to NSF fee inquiries. By comparing this value under the baseline and regulatory scenarios, the cost savings to banks as a result of these proposed Regulations were estimated.

This approach assumes that the ratio of NSF fee income to total income is equivalent to the ratio of corporate services devoted to NSF fee inquires to total corporate services. While these ratios may not be equal, due to lack of sufficient data, it is assumed that this is an adequate approximation.

In the first year, it is estimated that banks would save $7.1 million in corporate services expenses as a result of fewer NSF transactions and approximately $8 million on average in each subsequent year. This corresponds to a discounted benefit of $59.1 million over the 10-year period following the registration of the proposed Regulations.

Cost savings to consumers — NSF transactions (monetized)

Similar to the above benefit to banks arising from a reduction in consumers contacting the bank to dispute an NSF fee, there will be a cost savings to consumers as a result of less time spent attempting to contact their bank to dispute or seek a reversal of an NSF fee. Given the difficulties in estimating the impact on each consumer’s time, a reciprocal estimate will be used to estimate the cost savings to consumers. This estimate will assume that both banks and consumers experience the same magnitude of benefits as a result of fewer consumers contacting customer support. Given the lack of data, and the fact that these fees likely induce stress for consumers, this is assumed to be a reasonable approximation. However, the Department acknowledges that it may overestimate the benefit.

In the first year, it is estimated that consumers would save $7.1 million as a result of less time spent attempting to contact their bank to resolve an NSF fee. This would account for the time and stress consumers endure to dispute an NSF fee. This would correspond to a discounted benefit of $59.1 million over the 10-year period following the registration of the proposed Regulations.

Non-monetized benefits

There are three non-monetized benefits associated with this proposal:

• Avoid late payments: consumers who avail of the grace period would be less likely to suffer any negative impacts associated with making a late payment, such as the cessation of services for which the payment was to cover or negative impacts to their credit report.
• Improve financial outcomes for consumers: by reducing the financial burden of NSF fees, consumers may experience better financial outcomes. Due to the current high cost of NSF fees and their potential compounding impacts, consumers may be more likely to be forced to turn to high-cost credit to access funds for necessary purchases. By reducing the cost of NSF fees, consumers may be less likely to turn to high-cost credit.
• Enhance transparency: as a result of enhanced transparency surrounding NSF fees, Canadians would be better informed on the earnings banks receive from NSF fees. This may reduce search costs for consumers who are considering switching banks. Additionally, publishing data on the revenue earned from NSF fees may incentivize banks to willingly reduce NSF fees or eliminate them altogether.

Costs

Implementation and reporting costs for banks (monetized)

Banks would also need to bear some costs in the first year the proposed Regulations are in force to ensure they are compliant. The following assumptions are made to estimate the implementation cost of the proposed Regulations:

• Approximately 4 IT specialists at each of the 80 implicated banks would be required to update disclosure documents and IT systems to ensure compliance with the proposed Regulations. These IT specialists are assumed to earn $44.51 per hour, as per Statistics Canada.
• Approximately 160 hours are required by each IT specialist to complete the update.
• Approximately one IT project leader at each of the 80 implicated banks is required to lead the work conducted by the 4 IT specialists. Management is assumed to earn $60.30 per hour.
• Approximately 160 hours are required by the IT project leader to complete the work.
• Approximately one employee requiring one hour of work will be required to update disclosure and/or account agreement documents. It is assumed that this position is classified as a “professional occupation in finance,” which means that the salary would be $44.51 per hour.

Additionally, there would be ongoing costs associated with publishing data related to NSF fees. To estimate these costs, the following assumptions are made:

• Approximately 20 hours are required by mid-level bank employees at each of the 80 implicated banks each year to prepare the NSF fee data for publication. These employees are assumed to earn $44.51 per hour.
• Approximately 5 hours are required by senior management at each of the 80 implicated banks to review and approve the NSF fee report. Management is assumed to earn $88.32 per hour.
• Approximately one hour is required by IT staff at each of the 80 implicated banks to upload the NSF fee report to the bank’s website. These IT specialists are assumed to earn $44.51 per hour.

These estimations are based on research conducted by the Department in support of the Regulatory Impact Analysis Statement prepared for the Financial Consumer Protection Framework Regulations. These Regulations include similar requirements for banks to update disclosure documents, publish reports, and provide consumers with an electronic alert notifying them when their account balance falls below a certain threshold. Given that banks have already updated their IT systems to implement the requirement for electronic alerts, it is likely they already have the IT infrastructure in place to implement a grace period. However, banks will also need to implement a system to identify accounts that have been charged an NSF fee in the preceding 72 hours as well as transactions that would have resulted in a nominal overdraft balance.

The cost for each bank to update its systems was estimated using data from Statistics Canada^{footnote 8} on the average hourly salary by occupation.

It is estimated that implementation and reporting costs will cost banks $3.2 million in year one under the proposed Regulations. This cost would decrease to $110,000 in each subsequent year, given that most of the implementation costs would be assumed in year one. This would represent a discounted cost of $3.6 million over a 10-year period.

Supervision costs for the FCAC (monetized)

The FCAC would, on a risk basis, supervise and enforce banks’ compliance with these proposed Regulations. FCAC expects that these costs would be proportional to such costs for its existing market conduct obligations; however, the actual cost may differ from this estimate, depending on the level of compliance. The FCAC oversees regulated entities, which include banks, authorized foreign banks, trust and loan companies, and payment card network operators, among others. The FCAC supervises these entities’ compliance with federal acts, regulations, codes of conduct, and public commitments.

While there are a range of factors associated with supervising market conduct obligations, it is estimated that the cost of supervising the market conduct obligations associated with the proposed Regulations would be $174,000 annually. Note that additional training is not required, as FCAC currently oversees similar market conduct obligations.

Non-monetized costs

There are two non-monetized costs associated with this proposal:

• The cost to banks from reduced overdraft protection revenue if consumers opt to forego overdraft protection, choosing instead to incur NSF fees in the event their account has insufficient funds to cover a payment. Since the value of an NSF fee will decrease from $45–$48 to $10, some consumers may feel it is in their best interest to forego overdraft protection and risk incurring an NSF fee. In the baseline scenario, it is likely more cost-effective for a customer to enrol in overdraft protection if they believe they will incur an NSF fee occasionally. However, given that the value of an NSF fee will decrease, overdraft protection may not be cost-effective for all consumers. Nonetheless, since overdraft protection offers benefits beyond avoiding NSF fees, namely that it allows a payment to still be withdrawn from an account, it is unclear how many consumers would opt out of overdraft protection.
• Banks may attempt to recoup lost NSF fee revenue by raising fees in other areas, such as account maintenance fees. The extent to which other fees are raised would reduce the estimated benefits to consumers, while simultaneously reducing the estimated costs to banks.

Cost-benefit statement

• Number of years: 10 (2025–2034)
• Price year: 2023
• Present-value base year: 2025
• Discount rate: 7%

Table 6: Monetized benefits (in millions of dollars)

Impacted stakeholder	Description of benefit	Base year (2025)	Other relevant years (2026)	Other relevant years (2029)	Final year (2034)	Total (present value)	Annualized value
Consumers	Cost savings on NSF fees	571.8	656.9	689.6	773.1	4,807.9	684.5
	Cost savings on other fees (i.e. late fees)	14.5	29.0	30.3	33.7	201.0	28.6
	Elimination of costs associated with disputing NSF fees	7.1	8.1	8.5	9.5	59.1	8.4
Industry	Elimination of costs associated with NSF transactions	7.1	8.1	8.5	9.5	59.1	8.4
All stakeholders	Total benefits	600.6	702.0	736.8	825.8	5,127.1	730.0

Note: Figures may not add up to totals due to rounding.

Table 7: Monetized costs (in millions of dollars)

Impacted stakeholder	Description of benefit	Base year (2025)	Other relevant years (2026)	Other relevant years (2029)	Final year (2034)	Total (present value)	Annualized value
Industry	Revenue loss on NSF fees	571.8	656.9	689.6	773.1	4,807.9	684.5
	Implementation cost	3.2	0.1	0.1	0.1	3.6	0.5
Government	Supervision cost	0.2	0.2	0.2	0.2	1.1	0.2
All stakeholders	Total costs	575.2	657.1	689.9	773.4	4,812.6	685.2

Table 8: Summary of monetized costs and benefits (in millions of dollars)

Impact	Base year (2025)	Other relevant years (2026)	Other relevant years (2029)	Final year (2034)	Total (present value)	Annualized value
Total benefits	600.6	702.0	736.8	825.8	5,127.1	730.0
Total costs	575.2	657.1	689.9	773.4	4,812.6	685.2
Net benefit	25.4	44.9	46.9	52.4	314.4	44.8

Quantified (non-monetized) and qualitative impacts

In addition to the monetized benefits highlighted above, there are also qualitative impacts associated with the proposed Regulations.

Positive impacts

• Consumers who avail themselves of the grace period would be less likely to suffer any negative impacts associated with late payments, such as cessation of services.
• Consumers may experience better financial outcomes as a result of the reduced financial burden of NSF fees.
• Canadians would be better informed on the earnings banks receive from NSF fees, which may reduce their search costs. Additionally, the publishing of data may incentivize banks to willingly reduce NSF fees or eliminate them altogether.

Negative impacts

• Banks may experience a loss in overdraft fee revenue as a result of changing preferences for overdraft protection.
• Due to a loss in NSF fee revenue, banks may raise fees in other areas, such as account maintenance fees. The extent that they do so would reduce the estimated benefits to consumers (while reducing the estimated costs to banks).

Sensitivity analysis

The above analysis uses data from California as a proxy to estimate the number of NSF transactions in Canada. Given that this may not be an accurate estimation of the number of NSF transactions in Canada, a sensitivity analysis was conducted to determine how the estimated costs and benefits of the proposal would change if an alternative method was used to calculate the number of NSF transactions in the baseline scenario. Scenario A uses data from the FCAC to estimate the number of NSF transactions in the baseline scenario.

Additionally, the above analysis assumes there would be an 18% decline in the number of NSF transactions in the first year of the analysis (2025), from 16.1 million transactions in the baseline scenario to 13.2 million transactions in the regulatory scenario. To test the sensitivity of this assumption on the model, a sensitivity analysis was conducted on the decline in the number of NSF transactions. Scenario B assumes the decline in the number of NSF transactions in the regulatory scenario is 10% lower than what was initially estimated, while scenario C assumes the decline in the number of NSF transactions is 10% higher.

As discussed above, the results for year one under a given scenario are adjusted to account for the fact that not all provisions come into force upon registration of the proposed Regulations: the rate cap comes into force one month following registration and the remaining proposed provisions, six months following registration. The same methodology used to estimate the results in the regulatory scenario is employed to adjust the results for year one in each of the scenarios below.

Scenario A

Scenario A uses data from the FCAC to estimate the number of NSF transactions in the baseline scenario. This allows for the estimation of impacts in the event that the initial assumptions made to estimate the number of NSF transactions in the baseline scenario are not accurate. This scenario uses data from the FCAC’s Financial Well-being in Canada Survey results.^{footnote 9} The survey placed respondents into four groups: financially secure (33% of respondents), somewhat secure (41% of respondents), struggling somewhat (19% of respondents), and struggling a lot (7% of respondents). Based on these results, the following assumptions were made:

• Those in the financially secure group do not incur NSF fees. This is based on the survey findings that those in this group are “confident about their financial situation over the next 12 months” and have “at least 6 months’ income in savings.”
• 40% of those in the somewhat secure group incur one NSF fee per year. This is based on the survey finding that 40% of individuals in this group struggle to meet commitments from time to time. Given that individuals may not need to incur an NSF fee when failing to meet a financial commitment (i.e. they may seek funds elsewhere to cover a payment item), it is assumed that those in this group only incur one NSF fee per year, rather than one NSF fee each time they fail to meet a financial commitment.
• 68% of those in the struggling somewhat group incur two NSF fees per year. This is based on the survey finding that 68% of those in this group “tend to struggle from time to time to meet commitments such as bills, rent or mortgage and credit card payments.” Given that this group is less financially secure than the somewhat secure group, it is assumed these individuals would incur more NSF fees than those in the somewhat secure group; however, they still may not need to incur an NSF fee each time they fail to meet a financial commitment.
• 67% of those in the struggling a lot group incur three NSF fees per year. This is based on the survey finding that two thirds of those in this group “often or always run short of money for food or other regular expenses.” It is assumed that those in this group would incur more NSF fees per year than those in the somewhat secure or struggling somewhat groups.

Using this method, it is estimated that there are nearly 20 million NSF transactions in the baseline in scenario A.

Scenario A uses the same methodology to estimate the decrease in the number of NSF transactions in the regulatory scenario as used in the central scenario (scenario used in the rest of the report except for the sensitivity analysis). The table below (Table 9) summarizes the estimated number of NSF transactions and NSF fee revenue in both the baseline and regulatory scenario. As shown in Tables 10.1 and 10.2, the net benefit of the proposed Regulations under scenario A would be greater than the net benefit in the central scenario. This indicates a positive relationship between the number of NSF transactions in the baseline scenario and the overall net benefit value of the proposed Regulations.

Table 9: NSF transactions and revenue in baseline and regulatory scenario A (2025)

Scenario A — Baseline
Total income	$466,617,903,000
Service charges	$6,967,811,000
NSF transactions	$19,554,985
Estimated NSF fee revenue	$916,059,653
Scenario A — Regulatory scenario
Decline in NSF fees (14%) — prohibition against stacking	$1,342,535
Decline in NSF fees (24%) — 24-hour grace period	$1,644,447
Decline in NSF fees (5%) — prohibition on NSF fees for nominal amounts	$488,875
NSF transactions	$16,079,128
Estimated NSF fee revenue	$220,833,764
Loss in NSF fee revenue	$695,225,889
Change in revenue	−75.89%

Scenario B

In scenario B, it is assumed that the decline in the number of NSF transactions in the regulatory scenario is 10% lower, with 13.5 million NSF transactions in the regulatory scenario, rather than 13.2 million. In this scenario, the number of transactions may be higher due to fewer consumers avoiding NSF fees. This could be a result of less incentive to avoiding NSF transactions or due to fewer than estimated customers having the ability to avail of the grace period.

In this scenario, there is a 75.5% decline in NSF fee revenue from $753 million to $185 million in year one. This represents a slightly smaller decline than what is estimated in the central scenario.

Scenario C

Under scenario C, it is assumed that the decline in the number of NSF transactions in the regulatory scenario is 10% higher than initially estimated, with 12.9 million NSF transactions in the regulatory scenario. This will allow for the estimation of impacts if the actual number of NSF transactions declines by more than what is initially estimated.

In this scenario, there is a sharper decline in NSF fee revenue when compared to the central scenario. This is because there are fewer NSF transactions and therefore less revenue to be earned.

Summary

The below tables summarize the estimated NSF transactions and fee revenue (base year: 2025) and the costs and benefits (2025–2034) of this proposal under each scenario. Overall, there is an inverse relationship between the number of NSF transactions in the regulatory scenario and the net benefit of the proposed Regulations.

Table 10.1: Estimate NSF transactions (2025)

Scenarios/Results	Central scenario	Scenario A	Scenario B	Scenario C
Baseline	16 084 495	19 554 985	16 084 495	16 084 495
Regulatory	13 225 510	16 079 128	13 511 408	12 939 611
% change	−17.77%	−17.77%	−16.00%	−19.55%

Table 10.2: Estimate NSF fee revenue (2025)

Scenarios/Results	Central scenario	Scenario A	Scenario B	Scenario C
Baseline	$753,483,383	$916,059,653	$753,483,383	$753,483,383
Regulatory	$181,641,633	$220,833,764	$184,500,618	$178,782,648
% change	−75.89%	−75.89%	−75.51%	−76.27%

Table 11: Cost-benefit summary (2025–2034) [in millions of dollars]

Total/Scenario	Central scenario	Scenario A	Scenario B	Scenario C
Total benefits	5,127.1	6,229.9	5,066.1	5,189.5
Total costs	4,812.6	5,846.6	4,772.8	4,852.5
Net benefit	314.4	383.3	293.3	337.0

Distributional impacts

The individuals that incur NSF fees likely have low income, are experiencing poverty, or are otherwise struggling financially. As such, these individuals are expected to benefit significantly from these proposed Regulations.

Benefits are expected to be generally proportionately spread based on population among the provinces and territories, with those with higher populations, such as Ontario and Quebec, to experience greater benefits. However, provinces with higher rates of poverty, such as British Columbia and Nova Scotia,^{footnote 10} would likely experience disproportionate benefits given the disproportionate rates of poverty in these provinces.

The costs of this proposal are expected to be proportionately distributed across all banks. While there would be slight variances among banks based on the NSF fees they currently charge (i.e. banks that charge higher NSF fees would carry more costs as a result of these proposed Regulations), it is expected that these variances will be minimal. It is estimated that the big six banks in Canada would carry approximately 97% of the net annualized cost to industry associated with these proposed Regulations, given that these banks account for 97% of the total service fees earned by all banks in Canada. The net annualized cost to industry is an estimated $677 million, with the big six banks accounting for $656 million of this cost. Banks in Canada earned a combined $65.9 billion in net income before taxes^{footnote 11} in 2023. This means that the net annualized costs associated with these proposed Regulations constitute 1.03% of banks’ net income before income taxes, expressed in 2023 dollars.

Small business lens

Analysis under the small business lens concluded that the proposed Regulations would not impact small businesses. Therefore, no further analysis was conducted on the impact to small businesses or measures taken to reduce that impact.

One-for-one rule

The one-for-one rule does not apply as there is no incremental change in the administrative burden on business and no regulatory titles are repealed or introduced. The proposed Regulations do not impose any additional administrative burden on businesses as there is no requirement to proactively report information to the FCAC or another regulatory body; the requirement to post information publicly is a compliance requirement and outside the scope of the one-for-one rule.

Regulatory cooperation and alignment

The Department has conducted research into the use of NSF fees across Canada and globally, focusing on the fees charged to financial consumers in the United Kingdom and the United States. The research has shown that many large banks in the United States have removed NSF fees entirely, while these fees are still typically charged by small and medium-sized banks. According to the Consumer Financial Protection Bureau (CFPB), the average NSF fee in the United States is $35 (USD) across all banks that charge an NSF fee. In the United Kingdom, banks typically offer overdraft protection to a greater proportion of their customers than banks in Canada. NSF fees in the United Kingdom average £25, and are not typically charged by its four largest banks.

In the United States, NSF fees are regulated at the federal and state levels. The Consumer Financial Protection Bureau is responsible, at the federal level, for consumer protection and regulations respecting the interactions between banks and their customers. There are also state-level regulatory bodies and legislation respecting NSF fees. There are 25 states and the District of Columbia that currently regulate NSF fees, with caps between $20 and $45 depending on the state. In the United Kingdom, the Financial Conduct Authority and the Competition and Markets Authority are responsible for different aspects of financial consumer protection. Regulations and legislation related to financial consumer protection are also implemented through Parliament, with some powers of regulation delegated to the regulatory authorities.

The $10 cap chosen for NSF fees as part of these proposed Regulations will result in lower NSF fees in Canada compared to the average fees in the United States and the United Kingdom. However, fees at an individual level vary significantly in these other jurisdictions depending on the bank.

The proposed approach on reducing NSF fees in Canada would result in a more prescriptive and extensive regulatory regime than those present in other jurisdictions, but would ultimately result in a similar NSF landscape.

NSF fees are also commonly charged by credit unions in Canada; these entities can be regulated provincially or federally, but none would be subject to the proposed Regulations. There is currently only three federally regulated credit unions. There are no current plans to extend the provisions of the proposed Regulations to federally regulated credit unions due to the lack of regulatory authorities that would permit such regulations to be made in respect of this different class of financial institution. Credit union NSF fees tend to be comparable to those charged by banks, averaging approximately $45 across the country.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

The proposed Regulations would reduce the burden of high NSF fees on financial consumers and help improve affordability for Canadians. The cost of missing a payment and the likelihood of missing a payment will both decrease as a result of the proposed Regulations. Individuals with lower incomes or those experiencing poverty would benefit from the proposed Regulations given their lack of available funds and the increased likelihood that they would both incur an NSF fee and also that an NSF fee would be a significant enough expense that paying one may harm their ability to make other payments.

Among Canadians, certain subgroups are more at risk of experiencing poverty. Statistics Canada reports that Indigenous peoples are twice as likely to experience poverty compared to non-Indigenous peoples. Additionally, the poverty rate for lone-parent households was 13.5% in 2020 compared to 3.4% for two-parent families. Other groups that may be at an increased risk of experiencing poverty include women, youths, seniors, those with lower levels of educational attainment, immigrants, and recent newcomers to Canada. These groups are also expected to disproportionately benefit from the proposed Regulations.

In reports conducted by the FCAC, it finds that women, Canadians with low income, recent immigrants, and Indigenous peoples are often overrepresented in the sample of Canadians that spend more than their monthly income.^{footnote 7} This is supported by data from Statistics Canada that finds that Indigenous people, racialized groups, and immigrants to Canada experience higher rates of poverty than other demographics.^{footnote 10} These groups are therefore expected to disproportionately benefit from these proposed Regulations.

The alert and grace period component of the proposed regulations may be more beneficial to middle to high-income Canadians, who are more likely to have disposable income in a different account or from a different source that could be deposited or transferred into their account in order to avoid an NSF fee.

Implementation, compliance and enforcement, and service standards

Implementation

The provisions of the proposed Regulations relating to the $10 cap on NSF fees would come into force one month following the registration of the final Regulations. The other measures included in the proposed Regulations, the restriction on the number of NSF fees that may be imposed in a 72-hour period, the alert and grace period, and the prohibition of fees on nominal amounts under $10 would come into force six months following the registration of the final Regulations. The extended coming into force period for the other provisions will give banks sufficient time to make changes to their information technology systems, guidance materials and other internal documentation in order to achieve compliance with the proposed measures.

Banks would be required to disclose the first round of NSF-related information within 30 days of the end of the calendar year in which the final Regulations are registered, the disclosure of which would include NSF-related information from before these Regulations came into force but would still fall within the year on which the banks need to report.

The Department will work with the FCAC to prepare communications materials and update existing consumer education materials, as required, to be available at the registration of these proposed Regulations.

Compliance and enforcement

The FCAC promotes, monitors and enforces the compliance of banks and other federally regulated financial entities with consumer protection measures. The FCAC monitors compliance with provisions under the Bank Act and FCPFR, including monitoring market trends and the activities of banks to ensure compliance.

FCAC operates on a cost-recovery basis and is funded mainly through assessments from the regulated entities it supervises. Supervision costs associated with the new requirements will be absorbed and recovered through existing processes, including through the ongoing examination of the Financial Consumer Protection Framework (FCPF) supervisory practices. Compliance with the provisions of the proposed Regulations would be achieved through a variety of approaches along a compliance continuum. For example, for isolated or minor breaches, the FCAC many issue a letter to the bank and undertake enhanced monitoring. For more serious breaches, the FCAC may request that a bank enter into a compliance agreement, or may issue a Notice of Violation and an Administrative Monetary Penalty (AMP).

For more information, please consult the website on the FCAC Administrative Monetary Penalties Framework and the FCAC Supervision Framework.

Contact

The contact person for public enquiries is Mark Radley, Director of Consumer Affairs, who can be contacted at consultationconsumeraffairs.consultationconsommation@fin.gc.ca.

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council proposes to make the annexed Regulations Amending the Financial Consumer Protection Framework Regulations under paragraphs 627.998(a)^{footnote a} and (e)^{footnote a} of the Bank Act ^{footnote b}.

Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. They are strongly encouraged to use the online commenting feature that is available on the Canada Gazette website but if they use email, mail or any other means, the representations should cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Mark Radley, Director of Consumer Affairs, Financial Services Division, Financial Sector Policy Branch, Department of Finance, 90 Elgin Street, Ottawa, Ontario K1A 0G5 (email: consultationconsumeraffairs.consultationconsommation@fin.gc.ca).

Ottawa, November 7, 2024

Wendy Nixon
Assistant Clerk of the Privy Council

Regulations Amending the Financial Consumer Protection Framework Regulations

Amendments

1 (1) The Financial Consumer Protection Framework Regulations ^{footnote 12} are amended by adding the following after section 10:

Non-sufficient Funds

Non-sufficient funds fees

10.1 An institution may impose a charge of not more than $10 on a natural person who does not have sufficient funds in their personal deposit account to cover a payment to be drawn from that account.

(2) Section 10.1 of the Regulations is renumbered as subsection 10.1(1) and is amended by adding the following:

Exceptions

(2) However, the institution must not impose a charge for non-sufficient funds

• (a) more than once within a 72-hour period in respect of any of the natural person’s accounts;
• (b) in respect of a personal deposit account that is in unauthorized overdraft by less than $10;
• (c) subject to subsection (3), without having first sent to the natural person an alert, by electronic means and between 8:00 a.m. and 4:00 p.m. local time for that person, indicating
  • (i) the fact that a payment to be drawn from their personal deposit account cannot be covered by reason of non-sufficient funds,
  • (ii) the fact that a charge could be imposed by the institution by reason of non-sufficient funds,
  • (iii) the manner in which the person may deposit or transfer funds into their account to avoid the imposition of the charge, and
  • (iv) the minimum amount that the person must deposit or transfer and the time limit for doing so, which must not be less than three hours from the time the alert is sent; or
• (d) on a natural person who was sent an alert referred to in paragraph (c) and who, within the time limit set out in the alert, deposits or transfers into their personal deposit account the amount set out in the alert.

Exception

(3) Paragraph (2)(c) does not apply if the natural person has opted out, in writing, of receiving the alert or has refused to provide the contact information required to receive the alert.

2 The Regulations are amended by adding the following after section 10.1:

Disclosure of information

10.2 (1) An institution must, within 30 days after the end of each calendar year, make available the following information for that year on a website through which it offers products or services in Canada:

• (a) the number of times that charges were imposed under subsection 10.1(1) and the total gross revenue generated by the imposition of those charges; and
• (b) the total number of natural persons on whom those charges were imposed and the number of natural persons on whom those charges were imposed four or more times during that year.

Availability of information

(2) The institution must keep the information available on the website for three years after the day on which it was made available.

Coming into Force

3 (1) Subject to subsection (2), these Regulations come into force on the 30th day after the day on which they are registered.

(2) Subsection 1(2) and section 2 come into force on the day that, in the sixth month after the month in which these Regulations are registered, has the same calendar number as the day on which they are registered or, if that sixth month has no day with that number, the last day of that sixth month.

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• otherwise violate this notice

The federal institution managing the proposed regulatory change retains the right to review and remove personal information, hate speech, or other information deemed inappropriate for public posting as listed above.

Confidential Business Information should only be posted in the specific Confidential Business Information text box. In general, Confidential Business Information includes information that (i) is not publicly available, (ii) is treated in a confidential manner by the person to whose business the information relates, and (iii) has actual or potential economic value to the person or their competitors because it is not publicly available and whose disclosure would result in financial loss to the person or a material gain to their competitors. Comments that you provide in the Confidential Business Information section that satisfy this description will not be made publicly available. The federal institution managing the proposed regulatory change retains the right to post the comment publicly if it is not deemed to be Confidential Business Information.

Your comments will be posted on the Canada Gazette website for public review. However, you have the right to submit your comments anonymously. If you choose to remain anonymous, your comments will be made public and attributed to an anonymous individual. No other information about you will be made publicly available.

Comments will remain posted on the Canada Gazette website for at least 10 years.

Please note that communication by email is not secure, if the attachment you wish to send contains sensitive information, please contact the departmental email to discuss ways in which you can transmit sensitive information.

Privacy notice

The information you provide is collected under the authority of the Financial Administration Act, the Department of Public Works and Government Services Act, the Canada–United States–Mexico Agreement Implementation Act,and applicable regulators’ enabling statutes for the purpose of collecting comments related to the proposed regulatory changes. Your comments and documents are collected for the purpose of increasing transparency in the regulatory process and making Government more accessible to Canadians.

Personal information submitted is collected, used, disclosed, retained, and protected from unauthorized persons and/or agencies pursuant to the provisions of the Privacy Act and the Privacy Regulations. Individual names that are submitted will not be posted online but will be kept for contact if needed. The names of organizations that submit comments will be posted online.

Submitted information, including personal information, will be accessible to Public Services and Procurement Canada, who is responsible for the Canada Gazette webpage, and the federal institution managing the proposed regulatory change.

You have the right of access to and correction of your personal information. To seek access or correction of your personal information, contact the Access to Information and Privacy (ATIP) Office of the federal institution managing the proposed regulatory change.

You have the right to file a complaint to the Privacy Commission of Canada regarding any federal institution’s handling of your personal information.

The personal information provided is included in Personal Information Bank PSU 938 Outreach Activities. Individuals requesting access to their personal information under the Privacy Act should submit their request to the appropriate regulator with sufficient information for that federal institution to retrieve their personal information. For individuals who choose to submit comments anonymously, requests for their information may not be reasonably retrievable by the government institution.