Reuters
Andrew Spence is a veteran financial services executive and the author of Fleeced: Canadians Versus Their Banks, published by Sutherland House, from which the following has been adapted.
Tucked away on page 37 of the federal government’s 2023 fall economic statement, amid other forgotten promises to make groceries, wireless services and air travel more affordable for Canadians, was a commitment to crack down on “excess bank fees.”
It’s a promise repeated in the April, 2024, budget and still not acted upon. It was nice of the government to at least recognize the problem, given that it created and regulates our banking system.
A few months after the economic statement was released, the research firm North Economics released a report showing that non-sufficient funds (NSF) fees in Canada are indeed between $45 and $48 per instance, compared to equivalent fees of $0 to $5 in Australia and the United Kingdom, which have banking systems otherwise quite similar to ours.
NSF fees are the tip of the iceberg. A Canadian typically has the choice of paying a $5 monthly fee to avoid overdraft charges or a $5 fee per instance. On top of those charges, customers pay interest rates of more than 20 per cent on the amount they’re overdrawn. Someone making three overdrafts a month for an amount of $1,000 will pay a total of either $111 (the $5 monthly fee) or $232 (the $5 per instance fee) in overdraft charges. A U.K. consumer will pay $77.
Chequing account fees are another way Canadian banks stick it to consumers. Only three in 10 Canadians pay no service fees for their chequing accounts, compared to 80 per cent of Brits.
Any chance that we receive better service for those higher fees? Not at all. In the U.K., cheques tend to clear within hours, and chequing accounts have daily transaction limits ranging between $30,000 and $170,000.
In Canada, cheques tend to clear in four to eight business days, and daily transaction limits are typically $3,000 a day, or $30,000 per 30 days. Canadians can speed things up by using the Interac e-transfer system, but here again, the daily limits are low. Maybe that’s why Canadians write five times as many cheques as Brits and 10 times more than Australians.
The fees charged by banks for the use of automated teller machines are similarly appalling. It’s generally free to use your own bank’s ATMs, but if you need to use one at another bank, you’ll usually pay between $3 and $6 for the privilege. Just under 80 per cent of U.K. ATMs are free to use regardless of where you bank, while Australians pay a transaction fee of about $1.80 to use another bank’s machines.
Canadian financial institutions, by the way, jointly own the Interac ATM network. The average Interac charge to withdraw cash is $1.50, which is a trivial 0.15 per cent fee when applied to a $1,000 transaction. However, for a $50.00 withdrawal, the fee is 3 per cent. For $20, which many a cash-constrained individual might withdraw, the fee is a staggering 7.5 per cent.
A Canadian bank with $400-billion in consumer deposits will skim $4-billion from those accounts in fees, while a U.K. bank with the same amount on deposit will take in just $2-billion in fees.
Our bankers are making out like bandits on the backs of consumers. And it’s not just on fees. They’ve cut customer service to the bone, imposed outrageous rates of interest on credit cards, limited mortgage options and loaded expenses on mutual funds that torpedo your investment returns, among other anti-consumer measures – all while producing staggering profits that enrich bank executives and shareholders.
And it’s not like consumers have ready alternatives. Canada’s banking sector is dominated by six federally chartered banks. They behave much the same way. Each treats customers as abysmally as the others. It’s not worth it for a consumer dissatisfied with the Royal Bank of Canada to cross the street to the Bank of Montreal, Toronto-Dominion Bank, Bank of Nova Scotia, Canadian Imperial Bank of Commerce or National Bank of Canada.
The absence of real competition is a market failure, in which benefits to customers are fewer than they would otherwise be and prices are higher. When markets fail – especially when they fail to protect consumers – we expect competition authorities, backed by the government of the day, to step in.
But while the Office of the Superintendent of Financial Institutions, responsible for big-picture matters such as financial stability, has delivered, the Financial Consumer Agency of Canada, responsible for protecting bank customers, is toothless and has been unable to prevent Canadians from being overcharged. Meanwhile, the Competition Bureau, responsible for ensuring that businesses operate in a fair and competitive manner, is equally disempowered.
We shouldn’t be surprised.
Fundamentally, our government appears to have a political preference for financial institutions over consumers, thereby putting stability ahead of affordability. Political leaders have built and protected a financial system that primarily serves the interests of our highly profitable banks and their shareholders at the expense of everyone else, and it has become excessively costly.
It’s time for serious banking reform to create a financial system that primarily serves Canadians and their economy.