Young woman with an empty wallet, using an outside bank ATM cash machine

According to a report by Option Consommateurs, people who thought their bank charges were affordable estimated they were paying around $9.39 per month, when in fact they were paying 70 per cent more. (Shutterstock photo)

Canada | Personal Finance

Low-income individuals still easy targets for banks when it comes to fees: report

A recent Option Consommateurs study shows that Canadians underestimate what they pay in monthly bank charges by 50 per cent. Who’s to blame?

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Do you know how much you pay for your banking services? You may be surprised by the answer.

Canada’s major banks made a commitment—to the Financial Consumer Agency of Canada (FCAC), in particular—to better communicate information to their clients. But are they honouring their commitment? To find out, the nonprofit organization Option Consommateurs analyzed the websites of 18 large financial institutions, sent two undercover “prospective clients” to 27 of their branches and interviewed 100 low-income individuals in Montreal and Toronto.

The findings? “Low-income consumers are unable to adequately assess the costs related to the use of their chequing accounts and spend more than they believe on bank charges,” the report says. People who thought their bank charges were affordable estimated they were paying around $9.39 per month, when in fact they were paying 70 per cent more, or $15.99 per month. However, those who believed their bank charges were high, estimating them to be $14.80, were closer to the actual amount of $19.62 (+33 per cent). Overall, respondents underestimated their charges by about 50 per cent.

The report presented several reasons, including the following:

  • It is almost impossible for a client to compare two plans from two competing banks: the information provided is not consistent.
  • Clients use banking services that are not included in their plans, but they don’t know it.
  • “No representative of the financial institutions [the potential clients] visited directed [them] to the FCAC Account Selector Tool,” Option Consommateurs says. The tool is free and completely objective.
  • Even though low-cost plans were created for low-income individuals, very few banks put a limit on extra charges. In other words, some clients may opt for a basic plan at $4.95 but, because of transactions not included in their plan, end up paying more than clients who chose an unlimited plan at $14.95.

The recommendations are clear: customer service employees need better training. “They’re not doing the work they should be doing,” Olivier Bourgeois, co-ordinator, energy and social accountability at Option Consommateurs, said when the study was released. The report states, “Only 52 per cent of representatives of financial institutions handed us a leaflet containing all the information relating to their range of chequing account plans. Only 37 per cent of the representatives invited us to consult the website of their financial institution on this point.”

The report also calls on FCAC to adopt “stronger measures” to ensure that financial institutions comply with their agreement with the federal government, in particular with respect to providing low-cost accounts. Despite very clear provisions in this regard, none of the 27 branches fulfilled their commitment to display information on the availability of low-cost accounts, no-cost accounts or the FCAC Account Selector Tool. The banking sector should “no longer merely [be] invited to improve [its] practices with consumers, but [be] obliged to do so,” according to the report.

When asked to comment on the investigation, Michael Toope, media relations officer at FCAC, reiterated the commitments the agency made in March 2018 following the release of the Domestic Bank Retail Sales Practices Review. “FCAC will implement a modernized supervision framework that will allow the agency to proactively ensure banks have implemented the appropriate frameworks, policies, procedures and processes to mitigate sales practices risk,” he wrote in an email. “FCAC will also increase its resources for supervisory and enforcement functions.” 

For more

CPA Canada’s website provides tools to help you choose a number of products, including bank accounts and credit cards. You will also find money management worksheets, and everything you need to become financially savvy and sleep better at night