NSF Fee Cap and Grace Period

Summary#

This is a notice of proposed Regulations Amending the Financial Consumer Protection Framework Regulations, published in the Canada Gazette on November 16, 2024. The proposal would limit bank non‑sufficient funds (NSF) charges and add rules that make banks alert customers and give them a short grace period before charging an NSF fee.

What it does#

It would require banks (institutions governed by the Bank Act) to make these changes for personal deposit accounts of individuals:

• Cap NSF fees at $10 per declined cheque or pre‑authorized debit.
• Stop charging more than one NSF fee to the same person within 72 hours.
• Prohibit NSF fees when the overdrawn amount is under $10.
• Send an electronic alert (email or text) between 8:00 a.m. and 4:00 p.m. local time when a payment would cause a shortfall, and give at least three hours for the customer to deposit or transfer funds to avoid the fee.
• Post annual public data on NSF activity on the bank’s website within 30 days after year‑end and keep it available for three years: number of NSF fees charged, number of customers charged (and those charged four or more times), and total revenue from those fees.
• Timing: the fee cap would come into force one month after the final rules are registered; the other measures would come into force six months after registration.
• These rules would apply to individual personal accounts only. They would not apply to business accounts, merchants’ dishonoured fees, or most provincially regulated credit unions.

Who's affected#

• Consumers who use cheques or pre‑authorized debits, and people without overdraft protection. The Department estimated banks charged NSF fees on about 15.8 million transactions in 2023 and that roughly 34% of Canadians may incur an NSF fee in a year.
• Lower‑income and vulnerable groups are likely to benefit most — the proposal identifies groups such as women, lone‑parent families, recent immigrants and Indigenous peoples as disproportionately affected by NSF fees.
• Banks: about 80 institutions (Schedule I and II banks and authorized foreign banks) would have to change systems and lose some fee revenue. The six largest banks — Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto‑Dominion Bank — account for most current service‑charge revenue and would bear most effects.
• The Financial Consumer Agency of Canada (FCAC) would supervise and enforce compliance.

Why it matters#

• The government’s analysis says consumers could see present‑value benefits of about $5.1 billion over 10 years, while banks would face costs of about $4.8 billion, leaving a net societal benefit of $314.4 million (all figures are estimates and based on modelling).
• In everyday terms, a declined payment fee that now often runs about $45–$48 at big banks would be limited to $10, customers would get a short warning and a window to avoid the charge, and banks would have to publish how much they earn from these fees.
• Banks would lose NSF revenue and might change other fees or overdraft products; the government analysis flags this as a possible response.
• The estimates rely on assumptions and some data gaps (the department used proxy data from other jurisdictions for parts of the analysis), so the actual impact could differ from the forecast.
• This is a proposed regulation, not final. Members of the public can make representations within 30 days of the Canada Gazette notice.