De-Banking in Canada: What You Need to Know
- Banks, like any business, have the right to end their relationship with a customer - a practice known as debanking.
- The Ombudsman for Banking Services and Investments (OBSI), an self-reliant organization resolving disputes between customers and Canadian financial institutions, reports a significant increase in debanking cases.
- Customers often report receiving vague or no explanation when their bank account is closed.
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Debanking in Canada: Why Banks are Closing Accounts and What you Can do
What is Debanking?
Banks, like any business, have the right to end their relationship with a customer – a practice known as debanking. While not a new phenomenon, debanking is increasingly occurring in Canada, leaving customers confused and seeking answers. Just as customers can choose to leave a bank, banks can choose to terminate services.
The Rise in Debanking Cases
The Ombudsman for Banking Services and Investments (OBSI), an self-reliant organization resolving disputes between customers and Canadian financial institutions, reports a significant increase in debanking cases. According to OBSI’s data, there were 419 cases of “relationship ended” – effectively debanking – reported over the past six years. This places debanking among Canada’s top five banking issues.
| Year | Number of Debanking cases (OBSI) |
|---|---|
| 2018 | 51 |
| 2019 | 61 |
| 2020 | 68 |
| 2021 | 74 |
| 2022 | 84 |
| 2023 | 81 |
Why the Vague Explanations?
Customers often report receiving vague or no explanation when their bank account is closed. This lack of transparency is frustrating, but there are several contributing factors. A bank representative handling the communication may not have access to the full details of the decision, depending on their department. More fundamentally, as private corporations, banks are not legally obligated to disclose the reasons for ending a relationship.
Common Reasons for Debanking
While banks aren’t required to provide specifics, certain patterns emerge in debanking cases. Often, these relate to perceived risk, either on the part of the customer or their transactions. Hear are some common occurrences that can lead to a bank ending a relationship:
- Suspicious Activity: Large,unusual,or frequent transactions,especially those involving international transfers,can trigger scrutiny.
- High-Risk Industries: Banks may be hesitant to work with individuals or businesses involved in industries considered high-risk, such as cannabis or cryptocurrency.
- Legal Issues: Pending lawsuits, criminal charges, or a history of financial disputes can raise red flags.
- Credit History: A substantially deteriorating credit score or a history of bounced checks can be a factor.
- Policy Violations: Breaching the