You open your mailbox. There is a letter from your bank. It says your bank account is closing soon. Or even worse, you try to open your banking app and get a message to contact them directly. This is called debanking, and it’s happening to more Canadians than you might think.
What is debanking? Could you be impacted, and what can you do if you are?
What is debanking and what are your rights?
Debanking happens when a bank or other financial institution won’t work with you. It can be when a bank will not let you open account services with them at all. Or, as mentioned above, when they close your account(s) unexpectedly. This can happen with both personal and business bank accounts. Sometimes you may get a vague reason, but often there’s no clear communication as to why.
Your rights as a bank customer are pretty thin. Under the Bank Act, go online or walk into any bank with proper ID to open a bank account, and they have to let you. There are only a few exceptions. They can say no if they suspect the account will be used illegally, if you have committed fraud against that same bank before, or if they need to protect staff from harassment or harm.
In 2023, Canada’s banking ombudsman opened 105 cases tied to debanking, then 94 more in 2024, according to Financial Post reporting. That shows cutting ties with customers isn’t exactly uncommon. This may have you wondering how safe your money is, or if it could happen to you!
What could get you debanked?
Most debanking has nothing to do with breaking the law. It is about reputational risk. Financial institutions would rather lose a customer than risk a fine, so they close accounts at the first sign of trouble.
Common triggers include:
- Ties to crypto businesses
- Frequent transactions with high-risk countries
- Cash-heavy side hustles
- Sharing a name with someone on a watch list
Why is this happening more often?
Institutions like the Bank of Canada and Canada’s financial intelligence unit, FinTRAC, work to keep the financial system stable, and regulators want to keep it that way. All this work is in an effort to protect against financial crimes.
In the 2024–25 fiscal year, FinTRAC received 633,882 suspicious transaction reports! This adds to the pressure that financial institutions face to catch financial crime before it happens. Among these crimes are money laundering and fraud.
For the banks, getting it wrong is expensive.
- In November 2023, FinTRAC fined RBC $7.475 million for anti-money laundering failures. RBC failed to submit 16 suspicious transaction reports out of 130 case files the regulator reviewed.
- CIBC had a case in October 2023. They faced a penalty of over $1.3 million after they failed to file a suspicious transaction report.
Cases like these push other financial institutions to tighten their own due diligence, sometimes closing accounts that only look risky just to steer clear of a similar fine.
What to do if you’re debanked
Facing debanking is stressful. It can shake your confidence in the whole financial system. If it should ever happen to you, here’s what you should do.
Take action fast, whether you had a notice period or not. Your first step is to look for a new bank if you do not already have account(s) somewhere else. You can often open a bank account online with a credit union or smaller financial institution within a day. Smaller financial services providers often have different risk rules than the big banks like RBC, Scotiabank, BMO, or CIBC.
Next, move your money as soon as you can. If you did not have notice, do not worry. The money is still there. Your bank will often send you a cheque for the balance. You should also request a written reason from your bank. Whether it happened yesterday or last year, having a paper trail is always a good idea. You might not get a clear answer. Even so, it’s worth trying in case you find out the whole situation happened because of a simple error that can be rectified.
Preparation is always worthwhile, even if it doesn’t help you in the present moment. Some people keep accounts at more than one financial institution. That way, a closure at one bank does not lock them out everywhere at once. In case you’re thinking CDIC deposit insurance protects you in these situations, unfortunately, it doesn’t. CDIC coverage protects you if your bank ever fails.
Wrap up
If you’re dealing with debanking, you’re not alone. No, it’s not something to take lightly, but try to stay calm. Open up the lines of communication with your bank and take action to resolve what you can. If being debanked has caused your credit bills to pile up, consider working with one of our trained credit counsellors. They can help set you up with a debt repayment plan that fits your budget.
