Canada to Cap Bank NSF Fees at $10 Starting Next Year

In a final move before stepping down, former Prime Minister Justin Trudeau’s government announced a major change to how Canadian banks charge for insufficient funds (NSF). On March 12, just two days before his resignation, the government issued an order-in-council mandating that banks can no longer charge more than $10 when an account holder’s funds are insufficient to cover a cheque or pre-authorized debit.

The regulation will apply to both personal and joint accounts, but business and corporate accounts will be exempt. Additionally, banks will no longer be allowed to charge NSF fees more than once within two business days or on overdrafts of less than $10.

The federal government estimates that this initiative will reduce the total NSF fees imposed by Canadian banks by $4.1 billion over the next decade.

“This work included extensive consultations with consumer groups and banks to ensure that the regulations provided sufficient protection for consumers while being technically feasible to implement,” said Marie-France Faucher, spokesperson for the Finance Department, in an emailed statement.

The Canadian Banking Association (CBA), which had defended the existing NSF fee structure, confirmed that its members would comply with the new rules.

“Now that the NSF fee regulations have been finalized by the Department of Finance, banks’ efforts will be focused on making the requisite system and process changes to comply,” said Maggie Cheung, media relations manager for the association.

Cheung also highlighted that NSF fees serve a functional purpose, helping maintain the integrity of the banking system by discouraging spending beyond available balances.

“NSF fees encourage responsible banking behaviour and help maintain the integrity of the payment system,” she stated. “To avoid these fees, customers can regularly monitor their account balances, set up balance alerts, and consider overdraft protection services.”

The Finance Department estimates that banks charged NSF fees on 15.8 million transactions in 2023, affecting approximately 34 per cent of Canadians.

An internal assessment revealed that NSF fees disproportionately impact low-income Canadians, lone-parent families, recent immigrants, and Indigenous communities. The report noted that repeated NSF charges can quickly accumulate, contributing to cycles of debt and financial hardship.

While some banks currently offer grace periods or overdraft protection, these services are not guaranteed for all account holders. The government believes the new cap will provide much-needed financial relief, particularly for marginalized and vulnerable groups.

The decision to regulate NSF fees stems from a process launched by the Trudeau government in 2023, which included announcements in the 2024 budget and the fall economic statement. With this measure, the former prime minister’s administration leaves a lasting mark on consumer protection, addressing long-standing concerns over excessive banking fees.