A new report from an economist has revealed that Canadians are paying billions of dollars more than they should in bank fees, compared to consumers in other countries. The report, which was released by North Economics, a consultancy firm based in Alberta, compared the fees charged by the Big Five banks in Canada with those in the U.K. and Australia. The report found that Canadians pay much higher fees for monthly accounts, non-sufficient funds, overdrafts, and ATM withdrawals. The report estimated that the excess fees amount to $7.73 billion a year, or about $250 per Canadian.
The Methodology and Findings of the Report
The report, which was authored by Alain de Bossart, the managing director of North Economics, used a simple and straightforward methodology to calculate the excess fees paid by Canadians. The report used the retail banking profits to deposits ratio, which measures the non-interest income of banks as a percentage of their deposits. The report compared the ratio for the Big Five banks in Canada with the average ratio for the banks in the U.K. and Australia. The report assumed that the difference between the ratios represents the excess fees charged by the Canadian banks.
The report found that the retail banking profits to deposits ratio for the Big Five banks in Canada was 9.1 percent in 2022, while the average ratio for the banks in the U.K. and Australia was 3.6 percent. The report concluded that the Canadian banks had $7.73 billion in excess income, which translates to $250 per Canadian. The report also broke down the excess fees by category, and found that Canadians pay:
- $3.9 billion more in monthly account fees
- $1.8 billion more in non-sufficient fund fees
- $1.1 billion more in overdraft fees
- $0.9 billion more in ATM withdrawal fees
The Implications and Recommendations of the Report
The report, which was published on March 7, 2024, has significant implications and recommendations for the Canadian government, the banking sector, and the consumers. The report suggests that:
- The Government Should Reduce Bank Fees: The report supports the federal government’s efforts to reduce bank fees, which have been announced by Finance Minister Chrystia Freeland in October 2023. The report urges the government to implement its proposals, such as lowering non-sufficient fund fees, providing low-cost banking options, and enhancing consumer protection and transparency. The report also calls for the government to review and regulate other bank fees, such as overdraft and ATM fees, which are not covered by the current proposals.
- The Banking Sector Should Improve Competition and Value: The report challenges the banking sector to improve its competition and value for consumers, who have limited choices and alternatives in the Canadian market. The report encourages the banking sector to offer more affordable and accessible banking products and services, such as free or low-fee accounts, digital and mobile banking, and financial literacy and education. The report also urges the banking sector to adopt best practices and standards from other countries, such as the U.K. and Australia, which have more competitive and consumer-friendly banking systems.
- The Consumers Should Shop Around and Negotiate: The report empowers the consumers to shop around and negotiate for better banking deals, as they have the right and responsibility to manage their finances. The report advises the consumers to compare and contrast the fees and features of different bank accounts, and to switch or cancel their accounts if they are not satisfied. The report also recommends the consumers to negotiate and ask for fee waivers or reductions, especially if they have a good credit history and a long-term relationship with their bank.