The Decibel - What happens when your bank dumps you

Episode Date: February 11, 2025

A connection to a bank is an important financial relationship – between chequing and savings accounts, mortgages and loans – they are crucial for paying off bills and for long-term planning.But what happens when your bank dumps you? The practice is known as ‘debanking,’ and Canadian banks are turning to it more often when they suspect a customer is involved in criminal activity.Erica Alini, the Globe’s personal economics reporter, explains why debanking is becoming more common and what can happen to someone who’s been ousted by their financial institution.Questions? Comments? Ideas? E-mail us at [e-mail]

Money in the bank is usually seen as a safe, stable thing. Having a bank account is necessary for pretty much everything these days. But lately, there's been an increase in Canadian banks closing accounts without providing a specific reason. It's called debanking. It's generally done when someone is suspected of fraud or money laundering. Sometimes though, innocent people can be flagged as suspicious.

And if you've been debanked once, more financial headaches could follow. Erica Alini is the Globe's personal economics reporter. She looked into this issue along with Globe reporters, Alexandra Pazadsky and Stephanie Morata. Today, Erica will explain how banks are closing accounts without explanation in Canada and what being debanked would mean for you and your finances. I'm Maynika Ramen-Wilms and this is The Decibel from The Globe and Mail.

Erica, thanks for being here again. Thank you for having me. So what exactly does it look like when someone is debanked? Like, how do they tend to find out? So there is usually a letter in the mail that announces that your bank is ending its relationship with you. You usually have a set amount of time to take your money out, transfer your accounts. It's usually up to three months. And the explanation that is given in the letter is very vague.

So it may read something like, quote unquote, our decision is a result of the unacceptable risk that we have identified with regard to the operation of your accounts. OK. So that is an actual quote from one of these debanking letters that we saw. The phrasing that we saw, and we looked

at a lot of these debanking letters, is very, very similar. There's always something that alludes to unacceptable risk linked to your accounts. OK, so it's kind of vague wording to be honest, right? This unacceptable risk thing. It's like they find something suspicious but they're not being very specific about what that is. No, you have no idea what unacceptable risk means

and why you are suddenly an unacceptable risk for your bank. So if you are debanked then, what exactly do you lose access to? You basically lose access to your bank. So if you are debanked then, what exactly do you lose access to? You basically lose access to your bank. So whatever your bank was providing, your bank account, savings account, retirement accounts, like RRSP, TFSA, your mortgage if you have one,

your lines of credit, your credit card, whatever is your relationship with your bank, whatever products they're offering to you, that is going to end and you have, you know, x many months to figure out alternate arrangements. Okay, so like a checkings account is one thing, but if you've got a mortgage with the bank, that I imagine is a huge issue for someone. Yeah, the mortgage can be a really big problem and was a really big concern for some of the sources we talk to because it leaves you scrambling to find another lender.

And so one of the things that can happen is people told us they had to temporarily transfer, you know, rely on an alternative lender with very high interest rates until they found another sort of mainstream lender that would take on the mortgage. Three months is not a lot of time to move your mortgage. What happens, Erica, if you have a business that is linked to your accounts? Because it's one thing if you're just a person on their own doing their banking.

But what if you have a small business and those are financially tied? Yeah, and so this does happen to entrepreneurs. And we've spoken to a few who have had this experience. And it can be devastating for a business, just as much as you can throw your life into this array as a retail customer. Businesses very often have loans of various kinds,

so they might have to transfer those loans. They might find themselves relying again on alternative lenders are very expensive, so their costs go up. It's also a big reputational hit if they have to explain to their clients, their investors, why they suddenly, at the moment, don't have a bank account.

I guess I wonder when I hear about all of this, is this legal? Can a bank in Canada just drop you as a client without explaining why exactly they found your account suspicious? Yes, it's absolutely legal. The banks, to be clear, are not doing anything illegal here. So under the Bank Act, financial institutions

have an obligation to open a bank account for you if you show up with the proper documentation. But there is no guaranteed access to any other banking services. And also, this doesn't mean that you have to continue to have a bank account. LESLIE KENDRICK You said something earlier that I think was really interesting. The idea that, you know, the bank can find you an unacceptable risk, but don't exactly have to explain what that means.

Why would a bank be so secretive about that decision? So the banks are secretive even about that. You know, they don't want to explain why they don't want to explain. But the obvious reason is these measures are aimed to protect the bank from financial crime, anything from fraud to terrorism financing to money laundering. And so when you're dealing with nefarious actors,

you don't want to tell them, this is what tipped us off, so that in the future they can be better at trying to fly under the radar. And sometimes they are legally prohibited from elaborating on why someone got debanked. But obviously, if an error was made and someone was debanked by mistake, it leaves the customer completely in the dark.

Erica, how often does this happen? I guess I'm wondering, how many Canadians have been debanked? So this is still very rare. But it is increasing. The Ombudsman for Banking Services and Investments, which is the independent banking ombudsman in Canada, tracks these instances. And in 2019, they recorded 19 complaints

that related to clients being ejected, essentially, from their bank. And in 2023, there were 113 such cases. And now there's very little data about this, so it's very difficult to quantify the extent to which this is happening. But another piece of data that we have comes from the Financial Consumer Agency of Canada,

which is the federal financial services watchdog. And we know that between 2018 and 2023, there were over 800 complaints related to this issue. OK, so relatively, Erika, those numbers are pretty small. But that's still a notable increase. Do we know what's actually driving that increase? So what we know is that there is tremendous pressure from regulators, both in Canada and the US,

on the banks to track suspicious transactions and crack down on financial crime. So Toronto Dominion Bank, for example, TD will have to pay historic three billion US dollars in fines to the US government for gaps in its anti-money laundering measures. And in Canada too, our own regulators are increasing fines for money laundering related breaches and there's an upcoming international review of Canada's anti-money laundering regime

that kind of has regulators prepping for it. Canada has been criticized even internationally for being lax, too lax on money laundering and having to really tighten its anti-money laundering regime. So this might, we might be seeing kind of a response to that then. They're cracking down a little bit more maybe. Absolutely. And it's not just the fines themselves. Like it can be a lot of money that the banks might have to pay in fines for these sort of breaches. But a big money laundering related scandal

can hit a bank's reputation. It can hit your stock price. It can hamper your ability to grow, at least in the short term. And so the experts we've talked to sort of said, well, it's no wonder that we're seeing banks filing more STRs, which are suspicious transaction reports. This is what the bank files to Canada's anti-money laundering watchdog called FinTrac.

So basically, if they see something suspicious in that transaction that gets led. They will file a report and the number of these reports has increased by more than 63 percent over the past five years. Okay. But the number of complaints that we were talking about there, it sounds like someone would have to actually know which watchdog to reach out to in order to file that complaint in the first place, right? So is it possible that these numbers are actually an undercount?

I think it's likely that they are. We don't know for sure. But just in the small sample of cases that we looked at, people generally would know to go to their bank's own internal ombudsman. So a lot of people we talked to knew to go to that stage, but then didn't know that then there is also an independent Ombuds office, which is OBSI, that they could go to. So it did make me wonder whether those OBSI counts were an undercount. Yes. And as you said before, that's the Ombudsman for Banking Services and Investment in Canada, which is our independent banking Ombudsman, basically. And I should say, in the letters that we reviewed, the banks have to tell you that you can go

to an independent Ombuds office, but I think a lot of people didn't understand the difference or just thought, well, you know, this didn't go anywhere with the bank. They just felt like it wasn't worth fighting that battle. Okay. So we've talked about this rise in the number of Canadians complaining about being debanked. There's something interesting here though, Erica, because at the same time, there's actually been a drop in federally prosecuted charges around financial crimes in Canada. So what do you make of that discrepancy?

Because I would expect that both of those numbers would rise together usually. Yes. And it's interesting. It's hard to say for sure what's going on there. I know it's very complicated to prosecute a charge for money laundering in Canada and to get a conviction. But we're getting more and more suspicions, transactions flagged. When a bank picks up something suspicious, it issues a Suspicions Transaction Report, an STR. And the volumes of STRs are increasing.

But then we're not seeing sort of a corresponding increase in nefarious actors, say, being caught. So what we can say for sure is that there doesn't seem to be a strong correlation between us flagging more suspicious transactions and us catching more fraudsters or money launderers. And so when we look at the numbers of the debanking complaints that we see and the ones that actually amount

to a charge, do we have numbers on that? How many are actually prosecuted? So just to give you an idea, the number of federally prosecuted charges for money laundering went from a high of 85 in 2012, 2013, to just 41 in 2019, 2020. Let's look a little bit at what would actually catch a bank's attention here, Erica,

because you talked a little bit about STRs, suspicious transaction reports. What would a bank look for in a transaction that might make it suspicious? So again, that's hard to know because the banks don't want to share that information and as I said, in many cases, can't. But some of the things that we kind of know can set off alarm bells sometimes are one thing that puts you at higher risk of being debanked seems to be having significant financial links with a country that is considered a high risk jurisdiction for money laundering. Another thing that we know can set off alarm bells is something called structuring transactions.

This is when you do it intentionally, which means breaking up larger transactions into smaller amounts so that they don't set off certain triggers that are built into the system to keep track of, again, large transfers. But I mean, people sometimes can do that. One thing that anecdotally has come up is people paying contractors.

Sometimes they want to be paid in with e-transfers, or you have certain limits set by your own bank, and you're trying to pay hefty amounts maybe for a home renovation. And that's one of the cases where you're really doing nothing special. But the way money is coming out of your account could be seen as a structured transaction.

So what if the big banks in Canada, what if they said themselves about why debanking happens? So we reached out to all the financial institutions that were involved in any of the cases that we wrote about in the story. And none of the banks wanted to comment themselves, but they referred us to the Canadian Bankers Association, the CBA, so we got comment from the CBA.

They pointed out that the Canadian system is very inclusive, which is true. The share of Canadians that don't have a bank account is extremely low. And they said, we don't take these decisions lightly. So when a customer has been ejected, Erica, is it easy enough to just go to another bank and they just open an account at a different institution?

Usually it is, which is good and bad. For clients, obviously, if this happens to you, thankfully, you can generally just take your money and just open a bank account somewhere else. It is disruptive in the short term, but hopefully after that, you know, you're gonna be okay. The problem is that when it's an actual money launderer or criminal who gets debanked, then obviously the system means that they can also cross the street and take their money somewhere

else and keep doing their illegal business. It starts getting more difficult when this has happened to you a few times. So one of the problems is that this can happen over and over again. Because when people have no idea why they're being debanked, they have no clue what's causing this debanking or de-risking decision. And so there's the risk from a client point of view that you're going to keep doing whatever you are doing,

not knowing that it's triggering suspicious transaction reports. And then you're debanked from one bank, and then you're debanked for a second bank, and then you're debanked from one bank, and then you're debanked for a second bank, and then you're debanked for a third bank. And when you have a business, this starts being a real problem. There are a lot more products you're going to need. And a lot of the times, a business will need to rely at least on one major bank. It gets quite tricky if you have to start relying on smaller banks and credit unions. We'll be right back after this message.

Let's look at an example of when this actually happens to someone. I know that you spoke to a man named Adam O'Brien about this. Tell me, what was his situation? So Adam O'Brien is the founder and CEO of Bitcoin Well, which is a crypto company based in Edmonton. And he has been debanked multiple times.

And he is quite confident that it's because of his business, because he has a business that deals in crypto. But what he found really problematic, the fact that his wife was debanked twice. The second time this happened, even after he said he took extra care to really insulate his personal financial life from his crypto business. And can you just lay it out for us? his personal financial life from his crypto business. And can you just lay it out for us,

why is it that crypto could be a red flag? Why is it that crypto could be a red flag for a bank? So crypto has been identified by the banking regulator, the office of the superintendent of financial institutions, as one of the biggest threats to the stability of the financial system right now. And they are working on new guidelines for banks to limit their exposure to crypto and disclose their

exposure to crypto, including through their clients' accounts. LESLIE KENDRICK Yeah, because we hear about crypto being untraceable, right? And so this could be maybe an easier way for criminals or someone with ill intent to then move money around. Is that the idea? Yes, and it's known that that happens. The links between crypto and financial crime are well known, which doesn't mean that everybody involved in crypto is up to no good.

OK, so crypto could be a red flag for a bank. Did you speak to anyone else who felt that they were targeted because of a specific thing in that realm? We spoke to this Nigerian entrepreneur, and it is what I consider sort of the most serious case of debanking in terms of the impact that it had on his life. So this is someone who immigrated from Nigeria

when he was a student and is now an entrepreneur based in Toronto, a Canadian citizen. So the first time he lost access to a major bank was about more than 10 years ago. The bank called him in for a conversation about the activity in his account. And at the time, he was working in the financial industry, and he told me that he thought this interview was strange.

A lot of the questions that they were asking were unsophisticated and repetitive. And he was sort of kind of wondering, like, why am I here? And was kind of nonchalant about answering. And then the bank said, well, we don't want to do business with you anymore. He just thought, you know, perhaps my attitude wasn't great,

and it was like a personal issue that that particular bank employee had with him. So he moved his business elsewhere and continued on. And then a few years later, something similar happened. So he was actually working at a major bank. And at one point he quit, he stopped working there. And he said it was the standard practice was, you know, people would have sort of a special employee account.

And when they would stop working at the bank, that account would almost as a matter of course as he described it, be turned into sort of just a regular retail account. And that didn't happen in his case. And he found that perplexing. Then he went on to become an entrepreneur and launch his own company. And then there was a third instance of debanking. This time it was another big bank that had specifically and actively courted his business and told him, why don't you come over to us? And all of a sudden the bank sends out

these debanking letters and says, we don't wanna do business with you anymore. And not only that, but he and a relative had to relinquish signing authority for a Canadian food manufacturer, a Canadian company in which they had both acquired a stake. But then the bank continued to do business with the Canadian manufacturer.

And all of the directors, apart from the two of them were white. And that's when he started thinking well maybe I'm being the bank because I'm black. And then a fourth bank, a fourth big bang actually, dropped him two years ago in the same sort of abrupt and opaque way. And I will note we're not using his name because as the quote... We decided, yes, we decided not to name him because of the risk that us naming him could trigger another debanking. So we have six big banks in Canada. He's been debanked by four of them.

He's been debanked by four of them, but he's currently doing business with the other two. And one of them has been his bank since he was a student. They have also called him in to ask him some questions. But they were satisfied by the way he answered, he said. And he's still a client there. So you mentioned his connections to Nigeria. Why would that be a potential, I guess, red flag for a bank? It's a potential red flag because Nigerian

is widely known to be a high risk country for money laundering. And so we know from reporting that has been done in other countries that this issue of people being debanked because they had financial links often like they just have family there. So if this individual thinks he was debanked because of anti-black racism, it seems like, can he do anything? Like is there any recourse? Well, yes. So he, he started really thinking like, where am I being debanked because I'm black?

So the third debanking is really what got him really riled up and it was very hard on his business too. And so he, he said, you know what, I'm going to take my case to the Canadian Human Rights Tribunal. But after this was a years-long legal quest to try to gain even some information about what had happened, his case was dismissed. And he didn't get any insight into what caused that particular debanking,

and the process cost them around $20,000 in the go fees. Wow. OK. So Erica, we've talked about two situations, two individuals that you interviewed. Is there anyone else that you spoke to who really doesn't know why their bank dumped them? Yes, there is a third case.

And it's interesting because you might think, well, thankfully, I don't have relatives in any high risk jurisdiction, or any financial risk to, you know, other countries, and I don't deal in crypto. So I'm good. Well, not necessarily. Another interesting case we came across is that of a man in Halifax who is a retired hospitality industry manager. He'd been banking with the same big bank for 30 years and then out of the blue two years ago he got the dreaded debanking letter. Just said like, you have two months to take all your money out and transfer your accounts. We no longer want to have anything to do with you.

And again, he got absolutely no insights into what triggered this decision. His best guess is that, so he has a very common Scottish last name, and also about three decades ago, he had this bizarre incident where he was suddenly being hounded by a collection agency for bills that he had nothing to do with. And eventually he said it turned out

to be a case of mistaken identity. So that was resolved. He never had any problems again. But then suddenly the bank sends him this letter. And that episode came back to his mind. And he was like, I wonder if this is again a case where they think I'm this other person who lives in the area with the same last name. And they think, you know, I have a history of fraud. Wow. He was able to move all his business

to another bank account and he hasn't had any problems since. But it's one of those things that kind of rattles you and he's ashamed of it. He said, you know, even though I know I didn't do anything wrong, I still have this thing. I was like, can this happen again? Oh wow. All right, so those are some real life examples, Erica,

of the impact of debanking on people. If this happens to someone, I guess what should they do? What are the steps that they should take? It's kind of hard to say, like, what should you do? Because the bottom line here is that there doesn't seem to be a real avenue for real recourse, right? Generally, what people do is they will call their go-to person at the bank if they have one

or go to the branch and demand an explanation. So eventually what people we've talked to generally do is they will go all the way up complaining and trying to get an explanation and they will go all the way up to the internal banking ombuds office. And then usually they will get a letter from the ombuds office that says, the bank has a right to end its relationship with you. We've given you the notice that we say in our terms of service. And if you want, you can take your case to the independent banking ombuds office. And that's that.

Okay, so an individual can kind of complain to their bank and then to the ombudsman for banking services and investments. But beyond that, those are kind of the steps that they can take then. Yeah, I mean, once you've reached the limit of what you can do with your own bank, another option is to take this to the Ombudsman for Banking Services and Investments, which is the independent Ombudsman for the banking industry. And so, OVSEA may investigate whether a bank's decision to sever ties with you was biased or unfair, but it does not have the power to require banks to reinstate your accounts. And also, they told us that in the cases that they consider, usually if the bank has given you the notice that they were required to give you under their account agreement or

reasonable notice, they do not recommend compensation. Just lastly here, Erica, I want to point out that the story that you wrote on debanking, along with our colleagues Alex and Stephanie, this story has been extremely popular with Globe readers. I just want to get your sense. Why do you think this has touched such a nerve? I think it's fear, to be frank. I think it's very unsettling to think of what would happen to your life

if you no longer had access to a bank account. Obviously, this is the extreme, like, you know, it takes repeated debankings. But even in the short term, to lose access to your bank, it throws your life into disarray. And if this happens over and over again, like, we all need access to a bank to function in modern society. And I think the other reason is that we're so used to thinking of, you know, the concept of innocent until proven guilty, right? Like that is so ingrained in our mind.

There's citizens of a democracy, but this is not the principle that is at work here, right? It's sort of a bit of a Kafkaesque experience almost where suddenly you're on trial, you're a suspect, and you don't even know why. And I think that that is a very unsettling experience. It's very unsettling to think about, even if it didn't happen to you. Erica, thank you so much for taking the time to be here. Thank you for having me.

That's it for today. I'm Maynika Ramon-Wilms. Our producers are Madeleine White, Michal Stein, and Allie Graham. David Crosby edits the show. Adrienne Chung is our senior producer and Matt Frainer is our managing editor. You can subscribe to The Globe and Mail at globeandmail.com slash subscribe. Thanks so much for listening and I'll talk to you tomorrow.