The Department of Finance published proposed regulations restricting non-sufficient funds (NSF) fees on November 16, 2024. As announced in the 2024 federal budget, the regulations would cap NSF fees at $10 per charge for deposit accounts. In addition to the NSF fee cap, there are specific requirements for electronic alerts, processing restrictions and public reporting designed to protect financial consumers.
Several aspects of the regulations are likely to create implementation challenges for banks and foreign bank branches.
Proposed NSF Fee Regulations
The proposed Regulations Amending the Financial Consumer Protection Framework Regulations (the “Proposed Regulations”) include several changes that would reduce NSF fee revenue and require substantial systems changes for banks and foreign bank branches. The Proposed Regulations would only apply to the personal deposit accounts of a “natural person”, so would not apply to corporations, trusts, partnerships, sole proprietors and other unincorporated associations.
The proposed changes include:
- NSF Fee Cap - fees would be capped at $10;
- Nominal Overdrafts Excluded - banks would be restricted from charging NSF fees on an account that “is in unauthorized overdraft by less than $10”;
- Depositor Alerts - banks would be required to send an electronic alert to customers (between 8:00 a.m. and 4:00 p.m. local time for that depositor) if their account balance could fall below zero, or exceed their overdraft limit, as a result of the payment, with details on how to make a deposit and the potential for an NSF fee;
- Grace Period - depositors would have at least 3 hours in which they may deposit or transfer funds into their account to cover the payment without being charged an NSF fee; and
- 72-hr Stay - banks would be restricted from charging a depositor any additional NSF fees within a 72-hour period in respect of any of their accounts.
An alert would not be required if the depositor has opted out, in writing, of receiving the alert or has refused to provide the contact information required to receive the alert. Presumably, the requirement would be satisfied by using contact information on file, even if it is no longer accurate.
Banks would also be required to report on their website, by January 31st of each year, the number of NSF charges, total NSF revenue, the number of depositors charged more than four times and the total number of depositors charged for the prior year. Reports must stay posted for three years.
Impact: What this Means for Banks and Foreign Branches
Since the key objective of the Proposed Regulations is to provide cost savings for financial consumers, it will undoubtedly impact bank revenue. The Regulatory Impact Analysis Statement published with the proposed regulation notes that NSF fees range between $45 and $48 at Canada’s six largest banks, but that details on the total revenue from NSF fees are not publicly available.
There will be operational costs and technical challenges for banks as a result of implementing the Proposed Regulations. While banks can identify all accounts held by the same depositor, several aspects of the regulations are likely to create implementation challenges:
- If alerts are linked to a depositor’s local time, how will it be established?
- If NSF charges are restricted when the account balance is between $0 to -$10, when is this range confirmed during ever-changing daily account balances?
- If NSF charges are also restricted during the 72-hour stay period to all of a depositor’s accounts, will this apply to accounts held jointly with others?
Looking Forward
The Proposed Regulations are open for consultation until December 16, 2024.
The NSF fee cap would come into force 30 days following the registration of the final regulations. The remainder of the requirements would come into force five months later. This means that banks will have limited time to complete systems changes, especially without any option for an extended coming into force date. Even if the entire regulation does not come into force until mid/late 2025, banks will need to collect reporting data for the entire year and publish it by January 31, 2026.
