Canada's new bank rules and what they mean for you

Tired of fighting off the temptation those credit card cheques induce when they show up in your mailbox? Ever wonder why a bank insists on holding onto your cheque deposit for days on end? Relief is in sight.

The Canadian federal government is finally rolling out changes promised in 2010 that were designed to make the banking industry more consumer friendly.

R. Brent Lang, a chartered investment manager and director at the Surrey Foundation, a non-profit community organization in British Columbia, explains the changes that are currently underway -- and what they mean for consumers.Canadian-banking-rules

Cheques under $1,500 can no longer be held by a bank for more than four business days.
Banks hold cheques to verify that they are authentic and that enough funds are available to clear them. But Lang says that, given modern technology, holding onto cheques should no longer be necessary. 

"In today's digital world, fund authorization should be instantaneous in much the same way your debit or credit card can approve a purchase within seconds," Lang says. "The consumer should not be penalized by withholding funds for days, especially when this velocity of moving money through an account can be critical to an individual, and even more so for a business."

Banks are no longer permitted to send out credit card cheques unless specifically requested.
Although consumers may not know it, these cheques are typically cash advances and often come with high interest rates (20 per cent and up) and fees. Unlike regular credit cards, credit card cheques immediately begin to accrue interest -- without a grace period. By sending such cheques out to unsuspecting consumers, banks were making extra money at consumers' expense.

"Consumers certainly don't need more ways to be fed their credit," Lang says.  "However, if they seek these options out, it's clearly beneficial to the credit card issuers to extend credit."

Financial institutions must now explain to customers how they can pay down their mortgages faster without penalties and how prepayment charges are calculated.
This rule is designed to make the mortgage industry more transparent and help consumers get out of debt more quickly. In the past, homeowners have been surprised by prepayment surcharges for making mortgage payments too early.

"The empty nester crowd certainly needs to be given prudent financial guidance on how to make significant principal payments to their residence if they intend to hold on to it throughout retirement," Lang says. "It's just too risky to be holding a large mortgage balance in a rising interest rate environment."

Part of the problem, according to Lang, is that consumers might still be hesitant to fully trust financial institutions to provide totally unbiased advice. Find a trusted mortgage broker who can help you navigate the system. In the end, however, the discipline to follow mortgage payments and pre-payments is in your hands.

See related: Why you should avoid credit card cash advances, Making sense of your credit card statement

Published March 16, 2012

Most recent Legal, regulatory, privacy Stories