Canada's banks face crackdown on overdraft fees with proposed cap of $10
A proposal included in Canada’s federal budget this week promises to rein in the fees banks charge customers for overdrawing their accounts — a move that would provide relief for low-income clients while hurting lenders’ revenue, though perhaps not significantly.
It’s tricky to measure the exact impact of the government’s planned cap of $10 for fees on non-sufficient funds, but overall service fees represent about 2.5 per cent of total revenue for most lenders, Gabriel Dechaine, an equity analyst with National Bank of Canada, said in a report to clients.
The big banks currently charge a penalty of $35 to $50 when customers’ accounts don’t have enough money to cover a check or pre-authorized debit payment. But lenders’ fee income also includes a broader range of charges to both business and personal customers, Dechaine noted, adding that banks already offer some protections against overdraft charges.
“An educated guess would put ‘at risk’ NSF fees at one per cent (or less) of total bank revenues,” Dechaine said in the report, co-written by associates Pranoy Kurian and Jacob Gardiner.
Similar U.S. rules proposed in January could cost the biggest banks as much as US$3.5 billion in overdraft revenue per year, according to the Consumer Financial Protection Bureau, which put forth the regulation in conjunction with the White House.
Canada’s crackdown on overdraft penalties is part of a broader push by Prime Minister Justin Trudeau’s government to tackle so-called junk fees. It’s also targeting hidden charges in online marketing for items such as airline and concert tickets.
The planned cap on overdraft charges provides “welcome relief for the most vulnerable Canadians,” anti-poverty group Acorn Canada said in a statement.
Read more on financialpost.com
