Canadian banks won’t be allowed to charge more than $10 for non-sufficient funds starting March 12, in a move that could cost them millions in fee revenue while putting an estimated $600 million back into Canadians’ pockets. The new rules—which will reduce fees sharply from $45 to $48 previously—also bars banks from charging more than one NSF fee within two business days and from applying the fee when an account is overdrawn by less than $10. 

It marks the second time since December that the federal government has moved to cap a retail banking fee, a sign of Ottawa’s growing intolerance of charges that disproportionately affect low-income Canadians. 

Wide reach: The changes have been in the works for more than two years. In October 2023, then-deputy prime minister Chrystia Freeland ordered banks to lower non-sufficient funds fees. In a 2024 regulatory analysis, the Department of Finance found that roughly 34 per cent of Canadians incur an NSF fee in any given year. It also estimated that 16.1 million NSF transactions would occur in 2025, generating about $753 million in fee revenue.

The government also estimated the proposed changes could deliver $5.1 billion in present-value benefits to consumers over a decade while costing banks about $4.8 billion. By 2026, NSF transactions are projected to fall by about 1.9 million, resulting in a roughly $619 million loss in fee revenue for banks. 

Lenders will also face costs as they upgrade their technology and update their disclosure documents to comply with the new rules, according to Torys. The federal government estimates those changes alone would have cost banks about $3.3 million in 2025.

Fee creep: Patricia Meredith, former chair of Canada’s Task Force for the Payments System Review and senior fellow at the Centre for International Governance Innovation, said the roots of the NSF issue go back decades. Banks increasingly turned to fee income to maintain profit growth since the early 1990s, and “it became a way for them to compensate for slower growth,” she said.

Meredith said the persistence of NSF fees is tied to a deeper structural issue: the country’s outdated payments infrastructure. Canada’s system for clearing and settling transactions is “old, creaky [and] expensive,” she said. In countries like Brazil, which have instant payment networks, the NSF problem largely disappears because transactions are simply declined when the money is not there, she said. 

Meanwhile, Canadian banks have little incentive to accelerate the shift toward real-time payment systems—which would introduce more competition and reduce the fees they collect from everyday transactions, Meredith said. As a result, she added, consumers and small businesses continue to bear the cost of a slower and more expensive system. 

Bank view: National Bank and TD Bank did not respond to The Logic’s requests for comment on whether the new NSF fee cap will impact their retail banking revenue. RBC declined to comment and BMO did not answer by deadline, while CIBC and Scotiabank deferred questions to the Canadian Bankers Association. In a statement, CBA spokesperson Ethan Teclu said banks “responded” to the government’s amendment and are encouraging customers to “monitor their account balances, set up balance alerts and consider overdraft protection services.”

Bigger signal: Meredith said banks may look for other ways to recoup some of the lost revenue, but she believes the broader message from Ottawa is one of restraint. “Banks are aware that if they do too much of this, they’re going to get regulated,” she said, drawing a parallel with the United Kingdom, where the Bank of England has taken a more direct role in pushing for a revamped payments system. The new $10 cap will actually leave Canada with lower NSF fees than the average charged in the United States and the U.K., according to Torys.

Daniel Eberhard, CEO of fintech Koho, said the new NSF cap is both a “step in the right direction, and also way too late,” adding that Canada has historically maintained what he described as a “heavily protected and centralized oligopoly.”

The better solution, he said, would be to foster stronger competition through open banking. “Competition will get rid of these fees,” he said.