The Canadian Imperial Bank of Commerce has agreed to pay a $10 million settlement in a class action lawsuit over non-sufficient funds (NSF) fees.
According to joint announcement from CIBC and the Koskie Minsky LLP law firm, the proposed settlement was reached on June 24 after lengthy negotiations and the assistance of a mediator. A judge must still approve the proposed settlement during an Ontario Superior Court of Justice hearing scheduled for Oct. 19.
The class action took aim at CIBC’s practice of charging duplicative NSF fees on failed pre-authorized debit transactions. In other words, if a customer had insufficient funds for a pre-authorized payment like a phone bill or monthly gym membership, and if the billing company repeatedly tried to withdraw money from a customer’s account, CIBC would charge NSF fees for every failed transaction.
Koskie Minsky LLP, which was appointed as class counsel, alleged that the practice violated consumer protection legislation and CIBC’s customer contract. CIBC reportedly charged the duplicative NSF fees between Sept. 21, 2020, and May 31, 2024.
As part of the terms of the proposed settlement, CIBC avoids admitting any liability. If the settlement is approved, CIBC will directly deposit funds into the account of affected customers, unless they choose to opt out of the class action.
The class action began in September 2022 and was certified in June 2024. Koskie Minsky LLP has also pursued similar class actions against the Bank of Montreal, TD Bank, Scotiabank and the Royal Bank of Canada. Proposed and approved settlements have already been reached with TD, Scotiabank and RBC.
Ottawa caps NSF fees
The settlement comes after Ottawa instituted a limit on NSF fees in March. Under the new rules, banks and financial institutions must cap NSF fees at $10 for personal and joint accounts.
Banks are also now prohibited from charging NSF fees for accounts that have an overdraft of less than $10, and they are now only allowed to charge one NSF fee per account within a two business day period. The caps do not apply to corporate or business accounts.
According to the federal government, NSF fees in Canada previously ranged from $45 to $48.
“These fees disproportionately impact the financial well-being of low-income Canadians who do not have access to overdraft protection and can perpetuate debt cycles by reducing the amount of available funds with which a consumer could pay their bills,” Canada’s Department of Finance said when it announced the changes.
“These fees are often applied regardless of the size of the account shortfall and can be charged in rapid succession as a result of multiple declined payments.”
With files from The Canadian Press.
