If Ottawa’s proposed rules are adopted, the only Canadians who will be able to open a chequing account are those who qualify for overdraft protection, have a strong credit rating, and no history of writing NSF cheques. Voided cheques sit open on a desk in a banker’s office in a shopping mall in Kitsault, B.C. on Sept. 21, 2023.Jesse Winter/The Globe and Mail
John Turley-Ewart is a regulatory compliance consultant and Canadian banking historian.
The most accepted payment method used by Canadian businesses is the tried-and-true cheque, a promise to pay that people have issued for generations. It is a payment option, however, that fewer Canadians will be able to exercise if Ottawa gets its way.
Ottawa wants to cap non-sufficient fund (NSF) charges at $10, force banks to alert clients that they have written a bounced cheque, give them three hours to cover the shortfall and limit NSF charges to a maximum of one charge every 72 hours.
If you are inclined to write bad cheques, write a batch of them all at once – Ottawa wants to provide a bulk discount.
The federal government thinks this will protect consumers by saving them $5.1-billion over a 10-year period, while costing the banks $4.8 billion, creating a “net benefit to society of $314.4-million.” This may sound wonderful to advocates such as ACORN Canada, an “economic justice” organization with offices across Canada. But the unintended consequences will be anything but.
If Ottawa’s proposed rules are adopted, the only Canadians who will be able to open a chequing account are those who qualify for overdraft protection, have a strong credit rating, and no history of writing NSF cheques. In short, customers who are not going to cost the banks $4.8 billion over 10 years.
The very people that the Liberal government says it wants to help will find banks less inclined to open chequing accounts given the administrative and cost burdens these rules will impose on such accounts.
Customers who write bad cheques today are typically given one or two chances to figure out how to balance a cheque book if they bounce a cheque. NSF fees of $40 to $50 are usually charged to cover the administrative expenses and to capture the attention of the account holder. If a customer continues to write NSF cheques, a bank has a duty to close the account to protect those people receiving the bad cheques. The account closures are likely to come much sooner under the proposed regulations.
Statistics Canada’s analysis of payment methods in 2023 showed that 70 per cent of Canadian businesses accepted cheques. Just 41 per cent accepted debit cards while 52 per cent opened their registers to payments using credit cards. The cheque continues to be more popular with businesses than cash – only 53 per cent of businesses accepted cash as a payment method.
The lasting business utility of cheques – Canadians wrote more than 400 million cheques in 2021 – has much to do with the tremendous efficiency with which Canada’s banking system long ago figured out how to clear cheques in a country with a small population dispersed across a vast geography. That efficiency has accelerated with new technologies that allow cheques to be deposited using the camera on a smartphone and a banking app.
Such efficiency matters. The quicker payments are secured by businesses, the quicker suppliers and employees are paid. In short, it adds to business productivity.
Cheques are evolving as new payment methods take hold (Interac and pre-authorized payment plans). They are mostly used for larger payments now. The average cheque written in Canada in 2021, according to Payments Canada, exceeded $8,000, a thousand dollars more than in 2020. The volume of cheques is understandably on the decline, down 49 per cent since 2016. In short, the cheque is popular with most businesses and consumers as a high-dollar, niche payment method.
It is neither the preferred means of settling most payments for the poor nor the medium used by society generally to pay for everyday items. And yet, the federal Liberal government is proposing new bank regulations this month that treat it as such.
This is a recipe for de-banking those who occasionally find their ability to balance a cheque book wanting and those who don’t qualify for overdraft protection (short-term credit), but who may want to have the option of writing a cheque if needed.
A quick read of the Criminal Code of Canada (Section 362 to be precise) reveals that writing bad cheques (a.k.a fraud) is a crime, and writing large bad cheques (exceeding $5,000) is so bad a conviction can lead to “imprisonment for a term not more than 10 years.” Using a chequing account to facilitate theft is not “economic justice.” Banks know this, the criminal justice system does as well, but Ottawa thinks the problem is NSF charges on cheques.
Nobody has a right to a chequing account in Canada and to use it to write bad cheques, whether intended or not. If this reality is lost on the Liberal government that drafted these rules, it will be made plain in the years to come.