Read every piece of correspondence from your bank in the coming months, from top to bottom.
You’re looking for differences such as fee hikes for various banking and investing services, and higher rates of interest on your line of credit. Cost increases are the inevitable follow-through on measures the federal government has announced to ensure banks treat customers fairly.
These measures are designed to help build the government’s cred as a support to financially struggling households – and they’re helpful on the whole. But banks do not report to governments, or even their customers. Shareholders rule, and they demand more revenue, more profits and more dividends. If the government demands lower fees in one area, they’ll go up elsewhere to keep shareholders satisfied.
The feds want banks to deal fairly and transparently with customers who are struggling to pay their mortgages because of interest rate increases in the past 18 months. Specifically, Ottawa wants banks to waive fees, penalties and interest that may apply for some relief measures, and to refrain from reporting late or delinquent payments to a credit bureau once a mortgage remedy has been found.
It’s in the banks’ own interest to handle struggling mortgage clients with care because defaults are bad for everyone. Keeping people in their homes is the better solution. But if banks end up with less revenue than expected from mortgage lending, the hole will have to be filled.
The same applies to the fee revenue generated by bank accounts – monthly account fees, overdraft fees and so on. The federal government wants the banks to offer more low-cost and no-cost banking options, and to lower non-sufficient fund fees that Ottawa pegged as high as $50.
We have a growing number of banking options that let people do their daily banking at no cost, including credit unions, small-size and medium-size banks and financial technology companies, or fintechs. Two big banks offer no-fee chequing accounts through their virtual banking subsidiaries: Bank of Nova Scotia’s BNS-T Tangerine and Canadian Imperial Bank of Commerce’s CM-T Simplii Financial.
The big banks have basic accounts for $4 or so per month that provide about a dozen transactions and charge $1.25 or $1.50 for additional. Getting some more transactions included for $4 or less per month would be great, but banks will find ways to get that money back.
One trick that’s already happening is to boost the interest rate on lines of credit. Credit lines are priced at a bank’s prime lending rate plus a markup that can be increased at a lender’s discretion.
Another way to get back the revenue lost from offering low-cost accounts is to charge more for the premium unlimited accounts that target busy mainstream clients who make dozens of transactions each month and want one all-inclusive fee. These accounts typically cost $17 or so a month, which is expensive if you don’t qualify for a fee reduction or waiver based on your minimum balance or lines of business with your bank.
Overdraft coverage presents another opportunity to increase revenue. If banks lower the fees they charge for this protection, they could look at increasing the interest rates they charge. Current overdraft rates are in credit card territory at around 21 per cent.
There’s one clear win for the client in the government’s new measures. Starting Nov. 1, 2024, all banks will have to accept the Ombudsman for Banking Services and Investments as the investigator of customer complaints not resolved in-house by banks themselves. Over the years, several big banks opted out of OBSI in favour of a dispute resolution service they themselves chose. There can be no greater endorsement of OBSI’s usefulness than banks fleeing it.
As for banks reporting fee hikes and rate changes, expect to find notification coming through as a message in your online account or a paper notice in your mailed statement. These notices are in plain language, but they can be lengthy and soporific.
I know some people read these bulletins to the bitter end because they often contact me about changes to their bank products that seem unfair or greedy. I’ve written many columns about such changes over the years and am wide open to doing more. As always, I’m here at rcarrick@globeandmail.com.
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Rob Carrick