Ottawa eyes banking fees as major lenders cut costs

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The federal government is keeping an eye on consumer banking fees as major lenders slash costs.

The Department of Finance launched a consultation Friday on the future of the financial sector, noting there are renewed concerns about service fees as banks cut expenses. Although fees are just one issue covered by the review, the topic is timely. Four banks reported stronger-than-expected profits this week, but the sector is grappling with a slew of challenges.

"Concerns have been raised about the relative cost of services, including fees, and whether efficiency savings are being passed on to consumers," the report stated.

Faced with a sluggish economy, major banks are cutting costs, racking up some $2-billion in restructuring charges since the fourth quarter of 2013. Banks are overhauling their operations and cutting jobs as they seek more growth from digital channels such as smartphones. Although there is pressure to pare expenses, banks are also responding to shifting consumer behaviour and increasing competition from fintech startups.

"Banks have adjusted their business models to respond to market conditions and technological advances. Banks are cutting costs and seeking efficiencies, including by adjusting their branch networks," reads the government consultation paper. "These changes may have implications for consumers as well as for profitability."

Although the consultation paper provides no further details, it flags the concerns over service fees at a time when Ottawa plans to beef up consumer protections in the financial sector. The attention on fees also comes two years after another government study concluded that most banking fee increases have not been excessive in recent years.

"The fee increases on monthly chequing plans have been moderate, whereas the charges associated with variable fees have increased significantly," reads a 2014 report by the Financial Consumer Agency of Canada. "It will be important to expand our definition of banking fees in future research to assess the evolution of other charges, such as non-sufficient funds and overdraft charges, which were beyond the scope of the current analysis."

Some lenders did implement certain fee increases last year as Canada's economy was hurt by the collapse in commodity prices. Banks earn the bulk of their profits from their domestic operations and have been hit by other headwinds including low interest rates.

"Canada's six largest banks invested $10.2-billion on technology in 2015 for a total of $70.2-billion since 2006," the Canadian Bankers Association (CBA) said in an e-mailed statement. "It's important to remember that there are a lot of costs involved in developing, maintaining and upgrading a secure and efficient electronic banking system – it is a highly complex and sophisticated infrastructure – and most people don't realize this."

On its website, the association states that "service fees have gone down" and many Canadians pay no fees at all. That's because many consumers take advantage of no-fee accounts, with the CBA stressing that "30 per cent of Canadians say they pay no service fees at all while another 45 per cent pay between $1 and $15 per month."