RBC forced to scrap fee changes after backlash

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Consumer advocates rejoiced after Royal Bank of Canada backed down on proposed fee changes that would have potentially charged consumers for the privilege of paying credit-card bills and their mortgages.

"It's a great day," said Andrew Cash, the New Democratic Party MP who has called on Ottawa to end the so-called "pay-to-pay" practices among banks and others.

"RBC may have blinked here and we'll see if the other banks follow suit," Mr. Cash said.

All the big banks raised their banking fees this year, drawing criticism from some observers who questioned the need for higher transaction costs at a time when most banks reported record-high profits in their first-quarter results.

But some of the changes went beyond higher charges and widened the scope of what transactions would be eligible for charges, making them particularly egregious among some observers.

In the case of RBC, certain payments would be counted toward a customer's monthly limit of transactions, potentially charging consumers for paying their bills.

"We are listening to our clients and will not include transactions like mortgage and loan payments as debit transactions," RBC said in a statement. "The impact of not proceeding with these changes will be modest, as most of our clients are already in accounts with unlimited transactions."

RBC said that 80 per cent of its customers either pay no fees or are given rebates for banking charges if they have multiple products. That's because most people maintain minimum balances in their accounts, granting them either unlimited transactions or a sufficient number to get them through each month without having to pay additional fees.

Most consumers have other ways to avoid fees as well. Some online banks, such as President's Choice Financial, owned by Canadian Imperial Bank of Commerce, and Bank of Nova Scotia's Tangerine, are based on no-fee models, giving fee-conscious consumers an easy way of avoiding monthly charges.

The pay-to-pay issue has ensnared other industries in recent years.

In its 2013 Throne Speech, Ottawa pledged to end the practice by telecommunications firms of charging consumers who wanted to receive paper bills. Recent changes to the Telecommunications Act now prohibit providers from charging customers a fee to receive paper bills for telecom services.

Previously, they had charged up to $6 for these paper bills.

The banks charge fees to offset the cost of providing services in the form of bank branches, computer networks and automated banking machines.

According to the Financial Consumer Agency of Canada, banking fees have been rising roughly in line with the rate of inflation in recent years. Over all, the fees account for about 5 per cent of bank revenues – a small slice that nonetheless is a welcome source of steady revenue in an era when banks are struggling to trim costs.

While bank profits are strong – the big banks kick off their second-quarter reporting season on May 27 – they are struggling to find areas of growth amid a slow economy, indebted consumers and low interest rates that sap the profit margins on loans.

Mr. Cash called bank fees "patently unfair" because they disproportionately affect lower-income Canadians, whose accounts often don't meet minimum-balance thresholds. "People do notice it," he said.

He said he is also renewing the NDP's call for the banks to cap their ATM fees at 50 cents a transaction, down from a typical fee of $1.50 when a consumer uses another bank's ATM.

In April, Finance Minister Joe Oliver said that Ottawa had taken action to improve access to low-cost banking for Canadians. In its budget, Ottawa addressed some banking concerns, proposing a new financial consumer-protection framework for banks, calling for clearer financial advertising and moving to limit tax avoidance on specific financial transactions that banks have been exploiting.