Budget move aims to protect low-income customers from steep penalties
Canada's latest federal budget includes a proposal to cap overdraft fees at $10, a measure aimed at alleviating financial pressure on low-income customers but one that might slightly dent bank revenues.
According to Gabriel Dechaine, an equity analyst with National Bank of Canada, while overall service fees constitute approximately 2.5% of total revenue for most lenders, the specific impact of the government's planned cap is challenging to quantify.
The big banks currently charge penalties of $35 to $50 when accounts lack funds to cover transactions like checks or pre-authorized debits. However, overdraft charges represent just a small fraction of their total fee income.
Dechaine suggested that “at-risk” NSF fees represent 1% (or less) of total bank revenues.
While the US recently proposed similar overdraft fee restrictions that could cost major banks up to $3.5 billion annually, Dechaine noted that Canadian banks already offer some overdraft charge protections. Their broader fee income also covers business accounts.
The planned $10 cap promises "welcome relief for the most vulnerable Canadians," according to anti-poverty group Acorn Canada, which called current overdraft fees "predatory" toward the poor.
The Canadian Bankers Association said it is reviewing the budget's implications. The government also aims to expand access to no-fee or low-fee bank accounts by negotiating voluntary agreements with lenders.
Beyond overdraft rules, National Bank analysts warned the budget's proposed increase in capital gains taxes on corporations could "hamper capital investment" and "limit Canada's economic growth potential" by reducing banks' earnings.
Read more: Canada's capital gains tax a threat to productivity, claim business groups
Under the change, Canadian companies would be taxed on two-thirds of capital gains versus the current 50% rate, applying to individual taxpayer gains over $250,000 annually.
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