Regulations Amending the Financial Consumer Protection Framework Regulations: SOR/2025-96

Canada Gazette, Part II, Volume 159, Number 7

Registration
SOR/2025-96 March 12, 2025

BANK ACT

P.C. 2025-399 March 12, 2025

Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, makes the annexed Regulations Amending the Financial Consumer Protection Framework Regulations under paragraph 627.998(e)^{footnote a} of the Bank Act ^{footnote b}.

Regulations Amending the Financial Consumer Protection Framework Regulations

Amendment

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

Non-sufficient Funds

Charges for non-sufficient funds

10.1 (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.

Exceptions

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

(a) more than once within a period of two business days in respect of the same personal deposit account; or
(b) in respect of a personal deposit account that is in unauthorized overdraft by less than $10.

Coming into Force

2 These Regulations come into force on the first anniversary of the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Non-sufficient funds (NSF) fees represent a source of financial hardship for consumers. These fees disproportionately harm low-income Canadians and contribute to cycles of debt.

Description: The Regulations Amending the Financial Consumer Protection Framework Regulations (the Regulations) will cap NSF fees at $10 and prohibit the imposition of NSF fees to accounts that have been charged an NSF fee within the last two business days and on overdrawn amounts of under $10.

Rationale: The Regulations will protect financial consumers by reducing the circumstances in which NSF fees are charged and putting a limit on the cost of an NSF fee when one is received. In the ten-year period following registration, the Regulations are expected to result in discounted benefits totalling $4.1 billion and discounted costs of $4.0 billion, resulting in a net benefit to society of $94.1 million.

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 and can be charged in rapid succession as a result of multiple declined payments.

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

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 occurs even 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 and 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 that 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 subject to 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 represented 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 Loans Companies Act. The Bank Act and provisions of the FCPFR made under the Bank Act apply to banks (including federally regulated credit unions) 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 provisions around 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.

Objective

The objective of the Regulations Amending the Financial Consumer Protection Framework Regulations (the 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 Regulations will 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.

Description

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

Cap of $10

The Regulations will 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 within two business days

The Regulations will prohibit the imposition of more than one NSF fee in a period of two business days. This prohibition will apply on a per-account basis; if a consumer has two accounts at the same bank, or two accounts across different banks, an NSF fee may be imposed within the two business day period if it is incurred on a different account from the first NSF fee in that period.

Prohibition of fees on nominally overdrawn amounts

The Regulations will 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 will 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, very 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 are intending to make their payments, can focus on finding the funds to make up the small shortfall without the additional cost of an NSF fee.

Regulatory development

Consultation

In developing the 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 – and 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. 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 a grace period to make a deposit or transfer into an account to avoid an NSF fee.

A second round of consultations took place in December 2023 and January 2024 with large banks. 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 represented payments, noting that changes to Payments Canada 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. 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 two-business-day 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 Regulations.

Prepublication in the Canada Gazette, Part I

Proposed Regulations were published in the Canada Gazette, Part I, on November 16, 2024, followed by a public consultation period of 30 days. A total of 14 submissions were received during the comment period, including three from industry, seven from consumer groups, and four from individuals. An additional 25 emails were received by the Department as part of a letter-writing campaign voicing support of the proposed Regulations.

Submissions by consumer advocacy groups and individuals were highly supportive of the proposed Regulations; however, some suggested the Regulations do not go far enough. For example, six consumer advocacy groups stated that a three-hour grace period does not give consumers sufficient time to deposit funds into their account and, as drafted, would provide minimal benefits to consumers. They argue this period should be extended to between 24 and 72 hours.

Industry association groups representing financial institutions, however, were opposed to many of the provisions in the proposed Regulations. Industry groups proposed adjustments to the prohibition on charging more than one NSF fee in a 72-hour period, the alert and grace period, the disclosure requirements, and the coming into force timelines. Many proposed adjustments aimed to simplify the Regulations such that they would be easier for banks to implement.

Following concerns raised by industry groups, the Department made the following adjustments to the Regulations:

Adjusting the prohibition on charging more than one NSF fee to an individual in a 72-hour period such that banks will instead be prohibited from charging more than one NSF fee to an account in a two-business-day period. This change is based on concerns from industry that: 1) three days is too long, 2) ‘business days’ should be used instead of ‘hours’ to align with other provisions in the Bank Act and Financial Consumer Protection Framework Regulations and, 3) applying the provision on an individual basis rather than an account basis would require a significant technical build.
Removing the requirement for banks to provide consumers with an alert and grace period. Industry noted that building a system that would provide all consumers with a three-hour grace period would require significant investment and likely take up to 12 to 18 months to implement. Industry also shared that, due to Payments Canada rules governing when banks must make a decision to accept or reject a payment, banks may not be able to guarantee that a payment will be accepted, even if the consumer deposits the necessary funds within the three-hour window. Given the significant costs and potential conflicts with the payments system highlighted by banks, this provision has been removed from the Regulations.
Removing the information disclosure provision. Industry groups noted that the disclosure requirement would provide little benefits to consumers and could appear punishing for larger banks that would report higher NSF fee revenue simply due to having a greater number of customers. Given the limited benefits this requirement would provide to consumers, it has been removed from the Regulations.
Extending the coming into force timeline. Industry raised concerns that the proposed coming into force timeline (one month following registration of the Regulations for the fee cap and six months following registration for the remaining provisions) would not provide industry with sufficient time to make necessary changes to its IT systems and disclosure documents. To balance these concerns with the need to bring the Regulations into force in a timely manner to provide relief to consumers, the coming into force timelines have been extended to 12 months following registration for all provisions. There is no longer a difference in coming into force timeframes for the $10 cap versus other provisions.

Industry raised other concerns with the proposed Regulations that have not been incorporated into the final version of the Regulations. This includes suggestions to shorten the period during which banks are prohibited from charging more than one NSF fee to one business day, to add a provision stating that banks would not be in contravention of the Regulations if it charges then refunds an NSF fee that was unduly charged, and to extend the coming into force timeline to 18-24 months. While incorporating these adjustments were considered, it was ultimately decided that these adjustments would not maintain the intended protections for consumers.

Finally, in the version of this document published in the Canada Gazette, Part I, text was included in the regulatory cooperation and alignment section that suggested that federally regulated credit unions would not be subject to the Regulations. Following further analysis, the Department of Finance has determined that this information was incorrect. The Regulations will apply to the three federally regulated credit unions. Credit unions generally shared the same views as banks with respect to these Regulations; they were strongly supportive of extending the coming-into-force timeline to allow institutions, especially smaller institutions, sufficient time to implement the Regulations.

Federally regulated credit unions were included in the costing model used for the prepublication of the draft Regulations in the Canada Gazette, Part I (i.e., federal credit unions were not subtracted from the number of banks listed under Schedule I of the Bank Act). As such, no updates to the costing model were made as a result of this error.

Modern treaty obligations and Indigenous engagement and consultation

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

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

Instrument choice

The 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 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 would not be enforceable without a statutory provision and a voluntary agreement would not provide consistency for consumers as banks could choose whether or not to join the agreement. It was therefore determined that these approaches would not be the appropriate tools to achieve the policy intent of reducing the financial burden imposed by NSF fees.

Regulatory analysis

Benefits and costs

Overview

The cost-benefit analysis examines the potential impacts of the Regulations on NSF fees. Overall, this analysis finds that these Regulations will provide discounted benefits totalling $4.1 billion and discounted costs totalling $4.0 billion over the ten-year period following the registration of the Regulations (discounted to year 2025 at a 7% discount rate and expressed in 2023 Canadian dollars). This represents a net benefit of $94.1 million over the ten-year period following the implementation of the Regulations. The majority of the monetized benefits (99 per cent) will be borne by consumers while nearly 100 per cent of the costs will be borne by banks.

The analysis highlights three monetized benefits associated with the Regulations:

NSF fee savings, borne by consumers, as a result of fewer NSF transactions and a lower cost associated with each NSF fee.
Indirect cost savings, borne by consumers, resulting from reduced time spent attempting to reverse an NSF fee.
Cost savings borne by banks as a result of fewer NSF transactions and a lower cost associated with each NSF fee. This will result from fewer customers attempting to contact customer support in an attempt to reverse an NSF fee.

The analysis also highlights three monetized costs associated with the 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 and disclosure documents to comply with the Regulations.
Supervision costs arising from the requirement to supervise the market conduct obligations associated with this proposal.

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

The full cost-benefit analysis report containing the detailed methodology is available upon request.

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. Additionally, 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 Regulations. Yun^{footnote 2} found that consumers who use cheques are more likely to be between the ages of 18 and 34 and work in the gig economy.

The Department estimates that banks charged fees on a total of 15.8 million NSF transactions in 2023 and that approximately 34 per cent of Canadians incur an NSF fee in a given year. Canadians that incur NSF fees likely have low income or struggle with meeting financial commitments. Data from Statistics Canada^{footnote 3} suggests that women, female lone-parent families, and persons not in an economic family are overrepresented in the low-income demographic. Additionally, data from the FCAC found that 26 per cent of Canadians are either ‘struggling somewhat’ or ‘struggling a lot’ financially^{footnote 4}. Survey results suggest that individuals in these groups tend to have trouble meeting payments such as bills, rent or mortgage payments, or credit card payments. Women are overrepresented in both of these groups.

In a separate survey, the FCAC estimated that 25 per cent of Canadians spend more than their monthly income. Canadians with low income, recent immigrants, Indigenous peoples, and women were overrepresented in these results.^{footnote 5}

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

Banks

These Regulations will 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, 2023, 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 29 authorized foreign banks. In total, 79 institutions will be impacted by the Regulations.

OSFI reports that, in 2023, Canadian banks earned a combined $7.0 billion in service charges on retail and commercial deposit accounts^{footnote 6}. The six largest banks in Canada accounted for 97 per cent, or $6.8 billion, of these charges. Net income before taxes for all banks during this period was $65.9 billion.

Below is 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 ($2023)
Bank	NSF Fee
Bank of Montreal^{table 1 note a}	$48
Bank of Nova Scotia^{table 1 note b}	$48
Canadian Imperial Bank of Commerce^{table 1 note c}	$45
National Bank of Canada^{table 1 note d}	$45
Royal Bank of Canada^{table 1 note e}	$45
Toronto-Dominion Bank^{table 1 note f}	$48
Table 1 note(s) Table 1 note a BMO Account Agreement: https://www.bmo.com/pdf/3370_EDB_Agreement_EN_07-22_v5_FINAL-s.pdf (PDF) Return to table 1 note a referrer Table 1 note b Scotiabank Account Agreement: https://www.scotiabank.com/ca/en/personal/bank-accounts/fees.html Return to table 1 note b referrer Table 1 note c CIBC Account Agreement https://www.cibc.com/en/personal-banking/bank-accounts/additional-service-fees.html Return to table 1 note c referrer Table 1 note d National Bank Account Agreement: https://www.bnc.ca/content/dam/bnc/particuliers/compte/pdf/fee-guide-pbs.pdf (PDF) Return to table 1 note d referrer Table 1 note e RBC Account Agreement https://www.rbcroyalbank.com/banking-services/additional-account-services.html Return to table 1 note e referrer Table 1 note f TD Account Agreement https://www.td.com/content/dam/tdct/document/pdf/personal-banking/513796-en.pdf (PDF) Return to table 1 note f referrer

Analytical Framework

The impacts of the Regulations have been assessed in accordance with the Treasury Board Secretariat (TBS) Canadian 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 Regulations are determined by comparing a baseline scenario, in which the Regulations are not in force, to a scenario where the Regulations are in force. Costs and benefits during the period of ten years following the implementation of the Regulations (2025-2034) are discounted to the base year 2025 at a discount rate of 7 per cent and expressed in 2023 Canadian dollars. Given these Regulations will come into force 12 months following registration, there are no benefits anticipated in year one. Additionally, the only costs anticipated in year one are the costs to banks associated with implementing these Regulations and the costs to the FCAC as it prepares necessary supervisory documents ahead of the Regulations coming into force. In year two, when the Regulations are in force, there will be a decline in the number of NSF fees charged and a reduction in revenue earned on the NSF fees that remain. The methodology described in the “Methodology” section will be employed to estimate the costs and benefits incurred in each year following year one.

Given the uncertainty surrounding when the Regulations are registered, this model will estimate the costs and benefits incurred in each year-long period following registration of the Regulations, rather than each calendar year. It is assumed these Regulations will be registered in 2025 and therefore, year one will begin in 2025.

In the baseline scenario, the 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 are between $45 and $48 at the six largest banks. This 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 and as such, banks could charge consumers multiple NSF fees for different transactions throughout a two-business-day period. Consumers may be able to call their bank to ask for this fee to be reversed; however, there is no guarantee the bank would do so.

In the regulatory scenario, banks will be prohibited from charging more than $10 for an NSF transaction and will be prohibited from charging an NSF fee more than once within a two-business-day period or on overdrawn amount of under $10. These provisions will come into force 12 months following registration of the Regulations.

Given these restrictions, there will be significantly fewer NSF fees charged in the regulatory scenario compared to the baseline scenario. This will provide significant monetary benefits to consumers, however, will result in reduced revenue for banks.

Adjustments to Costing Model Following Prepublication

Following feedback received during the prepublication period in the Canada Gazette, Part I, the Department made several adjustments to the cost-benefit analysis. Most notably, the cost-benefit analysis has been updated to reflect the changes made to the Regulations following prepublication, including removing the proposed alert and grace period and the disclosure requirement, adjusting the period during which banks can only charge an account one NSF fee, and extending the coming into force timelines. The removal of two provisions, the adjustments to the period during which banks may only charge one NSF fee, and the extension of the coming into force timeline resulted in a decrease in estimated benefits to consumers and costs to industry.

Following comments from one industry submitter, the estimated resources required to implement necessary IT changes have been increased from four IT specialists to five in the estimation of costs to industry. This industry group shared that banks would need significantly more than four IT specialists to implement the proposed Regulations. However, given that the alert and grace period, the largest technical build, has been removed, it was determined that banks likely will not need significantly more than four IT specialists to implement the remaining requirements.

Additionally, some figures used in the costing model were updated to include more recently available data. This includes the adult Canadian population estimate (increased from 34.8 million to 35.2 million^{footnote 7}^{footnote 8}) as well as the total number of financial institutions to which these Regulations will apply (reduced from 80 to 79, as per the Office of the Superintendent of Financial Institutions^{footnote 9}).

As a result of these changes, the total discounted benefits associated with the Regulations decreased from $5.1 billion to $4.1 billion and the total discounted costs decreased from $4.8 billion to $4.0 billion. Overall, the net benefit of the Regulations decreased from $314.4 million to $94.1 million.

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 these Regulations may not be accurate.

The Department did not receive quantitative data on current NSF fee practices through consultations. As such the Department sought publicly available information to inform this analysis.

Methodology

The revenue loss to banks is assumed to be equivalent to the cost savings to consumers as a direct result of the 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 these Regulations, first the number of NSF fees charged in Canada is estimated, then the estimated number of NSF fees that will 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 scenario, the estimated loss in revenue associated with these Regulations can be determined.

Other key assumptions made in this model include:

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. Therefore, consumer behaviour is not expected to change as a result of the Regulations. This is supported by research from the Consumer Financial Protection Bureau^{footnote 10}.
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 vs. 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 payment system, may make many cheques 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. As such, 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-Benefit Report.

Cost and Benefit:

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 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 as a result of the prohibition on charging more than one NSF fee in a two-business-day period, the FCAC’s Financial Well-being Survey^{footnote 11} results will be used to estimate how many consumers may incur more than one NSF fee within a two-business-day period. The survey estimates that seven per cent of the adult Canadian population fall into the ‘struggling a lot’ group, a group that frequently runs short of money and has limited savings. The survey reports that two thirds of respondents in this group often run short of money for regular expenses. It is therefore assumed that two thirds (67 per cent) of this group, once per year, incur two NSF fees within a 72-hour period. Given that these Regulations have been adjusted following prepublication such that banks will be prohibited from charging more than one NSF fee in a two-business-day period rather than a 72-hour period, it is reasonable to assume that fewer NSF transactions will be eliminated as a result of this provision than previously estimated.

Therefore, the estimated number of adult Canadians that incur more than one NSF fee in a 72-hour period (35.2 million^{footnote 7} x seven per cent x 67 per cent) will be reduced by one third to account for the fact that the period during which only one NSF fee may be charged has been reduced by one third, from 72 hours to two business days.

Based on the above assumptions, it is estimated that 1.1 million transactions, representing seven per cent of transactions in the baseline scenario, will be eliminated in each year following the first year under the regulatory scenario as a result of the prohibition on charging more than one NSF fee in a two-business-day period. Given that this provision will come into force 12 months following registration, zero transactions will be eliminated in year one.

Due to a lack of data, it is estimated that five per cent of NSF fees will be eliminated as a result of the requirement for 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 results 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 12}

However, the Department has received feedback from consumer advocacy groups who 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 five per cent of NSF fees will be avoided as a result of this requirement.

Table 2 below summarizes the number of NSF transactions eliminated and the corresponding loss in revenue associated with each provision of the Regulations for the second year of the analysis (2026). The second year is used to demonstrate the decline in NSF fee revenue and transactions as none of the provisions will be in force in the first year.

Table 3 summarizes the estimated NSF fee revenue and NSF transactions in both the baseline and regulatory scenarios. In total, 1.9 million NSF transactions will be eliminated in the second year with the Regulations (the first year with all provisions in force). In year two, and each subsequent year, when all provisions are in force for the entire year, there will be an estimated decline in NSF transactions of 12 per cent from the estimated number of transactions in the baseline scenario. This corresponds to a revenue loss of 81 per cent compared to the estimated NSF fee revenue in the baseline scenario. Overall, this revenue loss represents a discounted value of $4.0 billion over a ten-year period.

Table 2 – NSF Transactions and Revenue Loss by Measure (Year 2 - 2026)
Requirement	NSF Transactions eliminated^{table 2 note *}	Loss in Revenue ($M)
Prohibition against stacking NSF fees (7% decline – see text above)	1 094 912	$51.3
Prohibition on NSF fees for nominal amounts (5% decline - see text above)	813 795	$38.1
Rate cap on NSF fees	N/A	$529.4
Total	1 908 707	$618.8
Table 2 note(s) Table 2 note * Totals may not add due to rounding. Return to table 2 note * referrer

Table 3 – Estimated Revenue and NSF Transactions in Baseline and Regulatory Scenarios (Year 2 - 2026)
	NSF Fee Revenue ($M)	NSF Transactions (x1 000 000)
Baseline Scenario	762.5	16.3
Regulatory Scenario	143.6	14.4
Change (%)	−81%	−12%

Benefits:

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 may be 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 will incur 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 this cost saving. 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 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 second year, it is estimated that banks would save $7.6 million in corporate services expenses as a result of fewer NSF transactions and approximately $8.2 million on average in each subsequent year. This corresponds to a discounted benefit of $49.3 million over the ten-year period following the registration of the 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 will assume 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 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 second year, it is estimated that consumers will save $7.6 million as a result of less time spent attempting to contact their bank to resolve an NSF fee. This will account for the time and stress consumers endure disputing an NSF fee. This corresponds to a discounted benefit of $49.3 million over the ten-year period following the registration of the Regulations.

Non-monetized benefits

There is one non-monetized benefit associated with these Regulations:

Improved 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.

Costs:

Implementation and reporting costs for banks (monetized)

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

Approximately five IT specialists at each of the 79 implicated banks will be required to update disclosure documents and IT systems to ensure compliance with the 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 79 implicated banks is required to lead the work conducted by the five 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 at each of the 79 implicated banks requiring one hour of work will be required to update disclosure and/or account agreement documents. It is assumed this position is classified as a “professional occupation in finance,” and as such, earns $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 IT systems and disclosure documents. To be compliant with these Regulations, banks will need to implement a system to identify accounts that have been charged an NSF fee in the preceding two business days and identify transactions that would have resulted in a nominal overdraft balance.

Using data from Statistics Canada^{footnote 13} on the average hourly salary by occupation, the cost each bank will incur to update its systems was estimated.

It is estimated that implementation costs to banks will be $3.6 million in year one under the Regulations. It is assumed that all implementation costs will be incurred in year one, given that the Regulations will not come into force until the end of year one. Therefore, the total discounted cost of implementation is $3.3 million.

Supervision costs for the FCAC (monetized)

The FCAC will, on a risk basis, supervise and enforce banks’ compliance with these Regulations. FCAC expects that these costs will be proportional to such costs for its existing market conduct obligations; however, the actual cost may fluctuate 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 Regulations will be $174,000 annually. This corresponds to a discounted cost of $1.2 million over the ten-year period. 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 these Regulations:

The cost to banks from reduced overdraft protection revenue if consumers opt to forego overdraft protection in favour of incurring 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 to enrol in overdraft protection if a customer believes 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. However, 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 will 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 will 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 4: Monetized benefits ($ millions)
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	$0.0	$618.8	$649.6	$728.3	$4,025.7	$573.2
Consumers	Elimination of costs associated with disputing NSF fees	$0.0	$7.6	$8.0	$8.9	$49.3	$7.0
Industry	Elimination of costs associated with NSF transaction	$0.0	$7.6	$8.0	$8.9	$49.3	$7.0
All stakeholders	Total benefits	$0.0	$633.9	$665.6	$746.1	$4,124.4	$587.2

Note: Tables may not add due to rounding.

Table 5: Monetized costs ($ millions)
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	$0.0	$618.8	$649.6	$728.3	$4,025.7	$573.2
Industry	Implementation cost	$3.6	$0.0	$0.0	$0.0	$3.3	$0.5
Government	Supervision cost	$0.2	$0.2	$0.2	$0.2	$1.2	$0.2
All stakeholders	Total costs	$3.8	$619.0	$649.8	$728.4	$4,030.3	$573.8

Table 6: Summary of monetized costs and benefits ($ millions)
Impact	Base year (2025)	Other relevant years (2026)	Other relevant years (2029)	Final year (2034)	Total (present value)	Annualized value
Total benefits	$0.0	$633.9	$665.6	$746.1	$4,124.4	$587.2
Total costs	$3.8	$619.0	$649.8	$728.4	$4,030.3	$573.8
Net benefit	($3.8)	$15.0	$15.8	$17.7	$94.1	$13.4

Quantified (non-monetized) and qualitative impacts

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

Positive impacts

Consumers may experience better financial outcomes as a result of the reduced financial burden of NSF fees.

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 Regulations 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 will be a 12 per cent decline in the number of NSF transactions from 16.3 million transactions in the baseline scenario to 14.4 million transactions in the regulatory scenario in year two. To test the sensitivity of this assumption on the model, a sensitivity analysis is conducted on the decline in the number of NSF transactions. Scenario B will assume the decline in the number of NSF transactions in the regulatory scenario is 10 per cent lower than what is initially estimated while scenario C will assume the decline in the number of NSF transactions is 10 per cent higher.

As discussed in the above analysis, since the Regulations come into force 12 months following registration, the estimated number of NSF transactions and NSF fee revenue in year one is expected to be the same in both the regulatory and baseline scenarios. In year two, all provisions will be in place and there will be a reduction in the number of NSF transactions and fee revenue due to the fee cap and the prohibition on charging NSF fees in certain cases.

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 11} The survey placed respondents into four groups: financially secure (33 per cent of respondents), somewhat secure (41 per cent of respondents), struggling somewhat (19 per cent of respondents), and struggling a lot (7 per cent of respondents). Based on these results, the following assumptions are 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 six months’ income in savings.”
Forty per cent of those in the somewhat secure group incur one NSF fee per year. This is based on the survey finding that 40 per cent 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.
Sixty-eight per cent of those in the struggling somewhat group incur two NSF fees per year. This is based on the survey finding that 68 per cent 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 that they would incur more NSF fees than those in the somewhat secure group; however, still may not need to incur an NSF fee each time they fail to meet a financial commitment.
Sixty-seven per cent 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 approximately 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. The table below (Table 7) summarizes the estimated number of NSF transactions and NSF fee revenue in both the baseline and regulatory scenario. As shown in Table 9, the net benefit of the 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 Regulations.

Table 7: NSF Transactions and Revenue in Baseline and Regulatory Scenario A (2025-2026)
Scenario A - Baseline	Year 1 (2025)	Year 2 (2026)
NSF transactions	19 792 881	20 028 426
Est. NSF fee revenue	$927,203,931	$938,238,129
Regulatory Scenario
Decline in NSF fees - prohibition against stacking	N/A	1,094,912
Decline in NSF fees - prohibition on NSF fees for nominal amounts	N/A	1,001,421
NSF transactions	19 792 881	17 932 093
Est. NSF fee revenue	$927,203,931	$179,320,927
Loss in NSF fee revenue	$0	$758,917,202
Change in revenue (from baseline)	0.00%	−80.89%
Change in NSF transactions (from baseline)	0.00%	−10.47%

Scenario B

In scenario B, it is assumed that the decline in the number of NSF transactions in the regulatory scenario is 10 per cent lower, with 14.6 million NSF transactions in year two of the regulatory scenario, rather than 14.4 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 for avoiding NSF transactions or due to the lower cost.

In this scenario, there is an 80.9 per cent decline in NSF fee revenue from $762 million to $146 million in year two. 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 per cent higher than initially estimated, with 14.2 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. In this scenario, there is an 81.4 per cent decline in NSF fee revenue in year two of the regulatory scenario.

Summary

The tables below summarize the estimated NSF transactions and fee revenue in 2026 (the first year the Regulations are in force) and 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 Regulations.

Table 8: Estimate NSF Transactions and Fee Revenue (Year 2 - 2026)
NSF Transactions	Central Scenario	Scenario A	Scenario B	Scenario C
Baseline	16 275 908	20 028 426	16 275 908	16 275 908
Regulatory	14 367 201	17 932 093	14 558 072	14 176 330
% change	−11.73%	−10.47%	−10.55%	−12.90%
NSF Fee Revenue	Central Scenario	Scenario A	Scenario B	Scenario C
Baseline	$762,450,218	$938,238,129	$762,450,218	$762,450,218
Regulatory	$143,672,009	$179,320,927	$145,580,716	$141,763,301
% change	−81.16%	−80.89%	−80.91%	−81.41%

Table 9: Cost-Benefit Summary (2025-2034) (x1 000 000)
	Central Scenario	Scenario A	Scenario B	Scenario C
Total benefits	$4,124.4	$5,055.2	$4,111.7	$4,137.1
Total costs	$4,030.3	$4,938.7	$4,017.8	$4,042.7
Net benefit	$94.1	$116.5	$93.8	$94.4

Distributional impacts

Those 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 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 14}, will likely experience disproportionate benefits given the disproportionate rates of poverty in these provinces.

The costs of these Regulations are expected to be proportionately distributed across all banks. While there will be slight variances among banks based on the NSF fees they currently charge (i.e., banks that charge higher NSF fees would incur more costs as a result of these Regulations), it is expected that these variances will be minimal. It is estimated that the big six banks in Canada will incur approximately 97 per cent of the net annualized cost to industry associated with these Regulations, given that these banks account for 97 per cent of the total service fees earned by all banks in Canada. The net annualized cost to the industry is an estimated $567 million, with the big six banks accounting for $548 million of these costs. Banks in Canada earned a combined $65.9 billion in net income before taxes^{footnote 15} in 2023. This means that the net annualized costs associated with these Regulations constitute 0.86 per cent of banks’ net income before income taxes, expressed in 2023 dollars.

Small business lens

Analysis under the small business lens concluded that the Regulations will not impact small businesses. As such, 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 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.

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.

Provincially regulated credit unions will not be subject to these Regulations and are not currently subject to any regulations imposing a limit on NSF fees. Most provincially regulated credit unions impose NSF fees of around $45 on their personal banking products.

In the United States, NSF fees are regulated at the federal and state levels. The CFPB 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 Regulations will result in lower NSF fees in Canada compared to the average fees in the United States and United Kingdom. However, fees at an individual level vary significantly in these other jurisdictions depending on the bank.

This approach to reducing NSF fees in Canada will result in a more prescriptive and extensive regulatory regime than those present in other jurisdictions but will ultimately result in a similar NSF landscape.

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 Regulations will reduce the burden of high NSF fees on financial consumers and help improve affordability for Canadians. The cost of missing a payment will decrease as a result of the Regulations. Individuals with lower incomes or those experiencing poverty would benefit from the 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 Regulations.

In reports published 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 16}. 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 14}. These groups are therefore expected to disproportionately benefit from these Regulations.

Implementation, compliance and enforcement, and service standards

Implementation

The Regulations will come into force 12 months following registration. The extended coming into force period will give banks sufficient time to make changes to their information technology systems, disclosure documents, guidance materials and other internal documentation in order to achieve compliance with these measures.

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 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 FCPF supervisory practices. Compliance with the provisions of the 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.