Non-sufficient funds (NSF) fees

Background

Non-sufficient funds (NSF) fees are charged by banks when a transaction is declined because the account does not have overdraft protection and does not have sufficient funds to cover a cheque, pre-authorized debit, bill payment, or other withdrawal.

In 2025, NSF fees are estimated to have exceeded $1 billion in charges, making them the largest consumer cost among the account service charges for which data were collected.

Since March 2026, the Financial Consumer Protection Framework Regulations require that NSF fees charged by banks for personal deposit accounts:

• be capped at $10
• not be applied if an NSF was applied in the previous 2 business days, or if the account shortfall is less than $10

In addition to NSF fees, a declined transaction can result in payees (e.g., merchants, property owners, utilities, lenders, or government bodies, etc.) charging consumers “dishonoured-payment fees” to recover costs associated with failed or returned payments. Merchants typically charge dishonoured-payment fees in the range of $20 to $40 per declined transaction.

Dishonoured-payment fees are subject to a mix of federal and provincial rules:

• They are capped at $25 for all federal government departments under the federal Interest and Administrative Charges Regulations.
• The federal Criminal Interest Rate Regulations impose a nationwide cap of $20 on dishonoured-payment fees charged by payday lenders.
• Quebec generally limits dishonoured-payment fees charged by payees to the recovery of actual bank charges that they pay.

International benchmarks

Analysis by the U.S. Consumer Financial Protection Bureau (CFPB) suggests that the level of NSF fees is not closely aligned with the underlying costs incurred by financial service providers.

Given the high degree of automation in electronic payment systems, the marginal cost of processing an NSF transaction is estimated to be relatively low. Rather than reflecting the cost of recovery, NSF fees function primarily as a behavioural incentive, intended to encourage consumers to maintain sufficient account balances to meet their payment obligations.

In 2021, the CFPB issued requirements for large banks to report NSF fee revenues. The banks responded by eliminating NSF fees. The CFPB estimated that by 2023, 97% of NSF fee revenues among banks with over $10 billion in assets had been eliminated, generating nearly $2 billion in ongoing annual consumer savings.

In the UK, NSF fees—referred to as “refused payments”—declined after the Financial Conduct Authority (FCA) issued updated guidance in 2019. The guidance clarified that these fees should reasonably reflect the actual cost of refusing a payment, prompting many banks to reduce or eliminate them.

Fee structure

Before regulatory changes took effect in March 2026, Canadian banks charged NSF fees of approximately $45 to $48 per occurrence. Banks varied in how they treated repeated payment attempts, with some charging a separate NSF fee each time a transaction was retried, leading to multiple fees from a single failed payment.

New federal regulations cap NSF fees at $10 and prohibit banks from charging more than 1 NSF fee within a 2-business-day period for the same personal deposit account, regardless of how many times a merchant or payee attempts to process the same payment.

Most fintechs do not charge NSF fees. Instead, they decline transactions when an account has insufficient funds.

Disclosure

Banks are required to disclose all applicable fees in account agreements. Information about NSF fees, including the amount charged and the circumstances in which the fee may apply, appears in the account agreement and fee schedule. These disclosure requirements are intended to ensure that consumers are informed of potential charges and do not incur fees that were not disclosed.

For personal deposit accounts, banks must send customers an electronic alert when their account balance falls below $100 (by default, or below a threshold amount the customer has set). The alert must also explain what customers can do to avoid fees and how much time they have to act.

Key finding and implications

Key finding 9: Usage-based, personalized disclosure would improve transparency of NSF fees

NSF fees are disclosed in account agreements and fee schedules, while electronic alerts provide consumers with more timely, personalized information that can help them manage their accounts and avoid fees, for example, by adding funds, delaying a payment or choosing another payment method.

Transparency related to NSF fees raises challenges with respect to consumers’ ability to assess the cumulative cost of these fees over time. Consumers may find it difficult to track their transaction patterns, making it harder to assess the total amount they pay in NSF fees over time and determine which account or account features align best with their needs.

There may be opportunities to help address these challenges and support more informed consumer decision-making. Opportunities to improve transparency are described in the “Transparency” chapter of this report.