New rules in the banking industry could lead to reduced banking fees and provide assistance to mortgage holders in Canada. These changes aim to benefit Canadians by offering them more affordable banking services and support in managing their mortgages.
On October 17, Deputy Prime Minister and Minister of Finance Chrystia Freeland announced new affordability measures related to mortgages and banking, prepared in consultation with the Financial Consumer Agency of Canada (FCAC), a consumer watchdog organization that focuses on financial services.
The package is the latest in a series of changes introduced by the federal government over the last two years, designed to assist Canadians struggling with inflation and the high cost of living.
What is the Government of Canada proposing?
Minister Freeland’s proposal tackles four areas: mortgages, bank account fees, junk fees and dispute resolution. Junk fees include the cost Canadians pay for non-sufficient funds (NSF), overdraft protection, debit transactions and Interac e-Transfers. Here’s how:
New mortgage guidelines for banks
In early October, Minister Freeland met with the CEOs of Canada’s largest banks to discuss the government’s new mortgage guideline, issued by the FCAC, that asks banks to proactively assist Canadian mortgage holders who are struggling with high mortgage rates. In particular, the guideline focuses on homeowners who are at risk of defaulting on their mortgage.
The guideline asks that banks identify consumers who are at risk and explore assistance in the form of fee waivers, no-cost financial education, lengthened mortgage amortization periods and mortgage relief measures.
Eliminating some bank account and junk fees
The government has tasked the FCAC with “setting expectations” for banks to provide free or low-cost banking options and with “encouraging” them to remove junk charges.
Although there are numerous no-fee bank accounts available to Canadians, they are typically online-only. For chequing accounts at a Big Six bank, costs can range from $4 to $40 monthly, with extra charges of around $1 to $1.50 for Interac e-Transfers, over-limit transactions, and out-of-network ATM use. Penalties for non-sufficient funds can be a whopping $45 to $50. Currently, the big banks offer low- or no-cost options to youth, students and seniors, and Freeland is hoping to expand eligibility to even more Canadians.
See the best no-fee chequing accounts in Canada
Resolving disputes with banks
In a 2020 report, the FCAC identified dispute resolution as a problem for Canadian banking customers, noting that allowing banks to choose between two separate complaint bodies—the Ombudsman for Banking Services and Investments (OBSI) and the ADR Chambers Banking Ombuds Office (ADRBO)—created inefficiencies and delays. So, another government measure seeks to remedy this by designating the OBSI, an independent and transparent non-profit, as the sole complaints body for banking.
Why is the federal government taking these steps?
The housing crisis, the rising costs of living and high-interest rates are putting enormous financial pressure on Canadians, many of whom are taking on debt just to get by.
According to the government press release, these measures are intended to “ensure Canadians are treated fairly by their banks,” to make life more affordable and to reduce inflation. Additionally, they are intended to guard against the dangers of the current Canadian housing market by taking action now to avoid mass foreclosures in the future.
What do these measures mean for Canadians?
The promise of mortgage relief is no doubt appealing to many because of rising interest rates, but what will actually come of these recommendations?
Waiving fees, extending amortization periods and offering financial literacy education may not have the government’s desired impact. Housing remains inaccessible to many Canadians, inflation marches ever upward (though at a slightly lower pace), and incomes aren’t keeping up with the cost of living. Plus, outside of FCAC’s oversight, it’s not clear yet how monitoring and compliance will work.
Similarly, the reduction or elimination of bank account and junk charges sounds appealing on paper, but the impact may be negligible. Canadians concerned about monthly charges can already open no-fee accounts. Fees are a significant income stream for banks, so it’s unlikely they will surrender them voluntarily, and there doesn’t appear to be any recourse if they refuse.
For those in dispute with their banks, the designation of the OBSI is likely good news as the existence of a single, independent arbitrator promises to be more efficient in resolving problems and will help empower consumers. However, the OBSI won’t have any real power over the banks, and it won’t take jurisdiction over complaints until November 1, 2024.
Many Canadians will be heartened by the continuing efforts of the federal government to redistribute the massive profits earned by financial institutions during the pandemic and to reduce financial pressures on everyday citizens. However, it’s unclear how effective the government’s “encouragement” will be in making changes that substantively brighten Canada’s economic forecast.