Is Your Bank Preying On You?

Written by Matthew Taylor
Fact-checked by Caitlin Wood

Is Your Bank Preying On You?

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One of the most basic financial products a Canadian can have is a bank account. Yet, a study by ACORN revealed that about a million Canadians don’t have a bank account, and about five million Canadians are underbanked, meaning they may have a bank account, but they lack access to other mainstream financial products. These people are usually unable to access these financial products because traditional financial institutions perceive them as being too risky and purposefully make banking expensive for them. Banks understand that many of these individuals come from lower-income neighbourhoods, so they have several strategies to ensure they profit off these people and at the very least deny them access to keep from serving unprofitable clients.

If you have a low income, keep reading to find out how exactly your bank may be preying on you.

Check out which loans you should avoid in Canada.

Are Banks Preying On You?

Many individuals in Canada have a low income, but when you reach below a certain threshold, banking becomes infinitely more expensive. There are a number of fees and financial traps that are designed to keep you poor.

Banks are known to make money by accruing interest on your money. So the more you have in your account, the more money they make. However, when your account balance is low, the bank can no longer make a profit, and as such end up charging higher fees. This usually comes in the form of a monthly fee, as well as transaction fees.

As a consumer with limited options, you are forced to pay these fees, which ultimately takes away your hard-earned income, to access and utilize your bank accounts. Banking fees are often a vicious cycle for those who struggle to make ends meet. Paying monthly bank accounts fees means less money and having less money typically means paying more banking fees.

Most Common Fees Banks Charge You

Unfortunately, some of the most common baking fees that banks and other traditional financial institutions charge often serve to penalize consumers for being poor:

Minimum Balance Fee – Some banks require you to maintain a minimum balance in your account or else they will charge you a minimum balance fee. For people who can’t afford to keep a lot of money in their account, this fee is essentially a penalty for not having more money.
Overdraft Fee – Many chequing accounts have an overdraft, where you can continue to withdraw or spend money from the account even if you don’t have enough money in it. However, if you use your overdraft, you have to pay a fee in addition to bringing your bank balance above zero.
Non-Sufficient Funds (NSF) Fee – If you don’t have an overdraft, or your bank doesn’t honour a transaction because you don’t have enough money in your account, you will have to pay an NSF fee.
ATM Fees – For each ATM withdrawal you make, you’ll be charged $2 – $5 per withdrawal.
Transaction Fees – If you don’t have a credit card and solely rely on your debit card to make your transactions, you’ll likely reach the transaction limits and start incurring fees for each transaction you make. This can cost up to $1.50 per transaction. If you want unlimited transactions, you’ll usually need to upgrade to a more premium account which will cost more in monthly fees. The only way you could avoid this fee is by having a high minimum balance which is often a struggle for those living paycheck to paycheck.

In order to avoid these extra fees, many consumers choose to manage their income without a bank account by using expensive cheque cashing services.

Redlining

Additionally, many banks engage in a practice known as redlining; which is a technique designed to systematically deny people within certain subgroups from accessing their products through targeted marketing and sales.

Additional Reading

How Big Banks Push You Toward Alternative Financial Institutions?

When big banks see you earn below-average income, you are seen as a credit risk. The reason given is a lack of funds needed to keep up with payments. As a result, banks will often deny you access to basic credit products like personal loans or even credit cards. The lack of options usually leads consumers like yourself to turn to alternative financial institutions that charge sky-high interest rates.

Whether you use a payday loan to cover an emergency expense or cash a paycheque at a cash-chequing establishment, alternative options are an expensive cost to being poor.

Check out the difference between personal and payday loans.

Bottom Line

Those with low incomes face many financial challenges every day, and one of those challenges is predatory behaviour by banks. Banks often charge fees that punish the poor for having less money, driving them further into debt and forcing them to pay more fees. Banks also deny these consumers access to basic credit products, forcing them to turn to alternative lending institutions that will charge them exorbitant interest rates.