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The federal government’s new affordability measures build on other recent changes aimed at reducing financial pressure on cash-strapped Canadians.
On October 17, Deputy Prime Minister and Minister of Finance Chrystia Freeland announced new affordability measures related to mortgages and banking, prepared in consultation with the Financial Consumer Agency of Canada (FCAC), a consumer watchdog organization that focuses on financial services. The package is the latest in a series of changes introduced by the federal government over the last two years, designed to assist Canadians struggling with inflation and the high cost of living.
Minister Freeland’s proposal tackles four areas: mortgages, bank account fees, junk fees and dispute resolution. Junk fees include as the cost Canadians pay for non-sufficient funds (NSF), overdraft protection, debit transactions and Interac e-Transfers. Here’s how:
In early October, Minister Freeland met with the CEOs of Canada’s largest banks to discuss the government’s new mortgage guideline, issued by the FCAC, that asks banks to proactively assist Canadian mortgage-holders who are struggling with high mortgage rates. In particular, the guideline focuses on home owners who are at risk of defaulting on their mortgage.
The guideline asks that banks identify consumers who are at risk and explore assistance in the form of fee waivers, no-cost financial education, lengthened mortgage amortization periods and mortgage relief measures.
The government has tasked the FCAC with “setting expectations” for banks to provide free or low-cost banking options and with “encouraging” them to remove junk charges.
Although there are numerous no-fee bank accounts available to Canadians, they are typically online-only. For chequing accounts at a Big Six bank, costs can range from $4 to $40 monthly, with extra charges of around $1 to $1.50 for Interac e-Transfers, over limit transactions, and out-of-network ATM use. Penalties for non-sufficient funds can be a whopping $45 to $50. Currently, the big banks offer low- or no-cost options to youth, students and seniors, and Freeland is hoping to expand eligibility to even more Canadians.
In a 2020 report, the FCAC identified dispute resolution as a problem for Canadian banking customers, noting that allowing banks to choose between two separate complaint bodies—the Ombudsman for Banking Services and Investments (OBSI) and the ADR Chambers Banking Ombuds Office (ADRBO)—created inefficiencies and delays. So, another government measure seeks to remedy this by designating the OBSI, an independent and transparent non-profit, as the sole complaints body for banking.
The housing crisis, the rising costs of living and high interest rates are putting enormous financial pressure on Canadians, many of whom are taking on debt just to get by.
According to the government press release, these measures are intended to “ensure Canadians are treated fairly by their banks,” to make life more affordable and to reduce inflation. Additionally, they are intended to guard against the dangers of the current Canadian housing market by taking action now to avoid mass foreclosures in the future.
It’s useful to view these guidelines in relation to other changes made at the federal level over the past several years. The federal government has imposed taxes on banks and insurers. And, since late 2022, twice, it increased the amount of capital the big banks have to have on hand to cover potential losses.
These decisions are intended to raise money for federal programs, pay down debt and guard against a systemic economic downturn, but have been criticized by the Canadian Bankers’ Association as unfair to financial institutions. The government says that banks, which made enormous profits and recovered quickly from the pandemic, must pay their fair share towards Canada’s economic recovery.
The promise of mortgage relief is no doubt appealing to the many because of rising interest rates, but what will actually come of these recommendations?
Waiving fees, extending amortization periods and offering financial literacy education may not have the government’s desired impact. Housing remains inaccessible to many Canadians, inflation marches ever upward (though at a slightly lower pace), and incomes aren’t keeping up with the cost of living. Plus, outside of FCAC’s oversight, it’s not clear yet how monitoring and compliance will work.
Similarly, the reduction or elimination of bank account and junk charges sounds appealing on paper, but the impact may be negligible. Canadians concerned about monthly charges can already open no-fee accounts. Fees are a significant income stream for banks, so it’s unlikely they will surrender them voluntarily, and there doesn’t appear to be any recourse if they refuse.
For those in dispute with their banks, the designation of the OBSI is likely good news as the existence of a single, independent arbitrator promises to be more efficient in resolving problems and will help empower consumers. However, the OBSI won’t have any real power over the banks, and it doesn’t take jurisdiction over complaints until November 1, 2024.
Many Canadians will be heartened by the continuing efforts of the federal government to redistribute the massive profits earned by financial institutions during the pandemic and to reduce financial pressures on everyday citizens. However, it’s unclear how effective the government’s “encouragement” will be in making changes that substantively brighten Canada’s economic forecast.
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The Bank of Canada is trying to slow down inflation and spending. Money that is in circulation is spent about 7 time. The government can reduce inflation by repealing the carbon tax which increases prices at every level and every time money is spent because everyone needs energy. The government is killing Canada’s energy sector. We have the potential to represent energy security for the world, but our government spends billions of our future buying pipeline infrastructure to close it down.
Total spending is a combination of consumer spending, business spending and government spending. Consumers and businesses are hurting and are slowing spending, but the government is not doing its part and is doing the opposite with wastefully spending spend like drunken sailors. They are trying to buy votes, similar to you going wild with your credit card and making all of our futures worse off. Canada is forecast to have the worst financial growth of all the G7 countries until 2060!
Government interference is not the answer. Attacking bank fees will not make a difference. Attacking the grocery stores for passing on higher costs that come from the farmers and truckers gas costs is not the solution. All of this is attacking the symptoms but not the problem which is the result of the actions of our government.
The government is trying to pass the buck for their incompetence, total disregard for how much tax we pay and how much they waste, to anyone they can. Media picks it up as a story and makes it look like the government is doing something.
Eliminating carbon taxes will reduce costs and inflation across the board. Having a Federal government not burn our money and give it away like there is no tomorrow will reduce the government portion of aggregate spending in the economy. This will slow inflation. This will allow the Bank of Canada to lower interest rates and make our lives more affordable.
Housing affordability stems from another Trudeau initiative, open and porous immigration borders and easy access to that elusive PR card. While laudable, we should always strive to assist those less advantaged, we have a lack of affordable and available housing as it is, throw in tens of thousands of immigrants per annum, and it’s clear housing cost will not go down. Economics 101: supply vs demand.
To fix the housing crisis, we need to sunset Mr Trudeau’s open immigration policies, and do what other countries are doing; STOP accepting every Ivan, Jerilyn and Ahmed who applies to come to Canada; rather revamp like the US and other EU nations, and expedite for skilled workers.
Currently the Trudeau gov’mt is reacting to a problem they helped exacerbate, and all residents and citizens in Canada are suffering.