Terms and Conditions: How Canadian Banks Override Their Customers' Property Rights

Customer agreement contracts give the Big Five banks the right to do just about whatever they want with your money

You know those “I have read and agree to the terms and conditions described in this document” boxes we all click before opening new accounts? Well it turns out that there’s actually stuff in those documents. And in the case of Canadian banks, that stuff could one day come back and bite us.

The primary function of a retail bank is to reliably safeguard your deposits and the movement of your money. Doing that well requires significant institutional competence in a lot of tough domains and a commitment to transparency.

Canada’s “Big Five” banks (TD, CIBC, RBC, Scotiabank, and BMO) historically enjoyed reputations for smart decision-making and conservative money management policies. Even if their best years might now lie behind them, the Big Five still consistently produce multi-billion dollar profits. And they’re pretty good at protecting your money from crime.

But will they, as institutions, necessarily treat you fairly? Based on the contents of their customer agreement contracts, it seems that’ll depend entirely on how they feel on a given day. To illustrate what I mean, I’m going to show you key clauses from the user agreement documents for each of the Big Five banks. Later, I’ll contrast those with what I found in the legal agreements of some of the larger credit unions.

I’ll let you draw your own conclusions about what motivates the lawyers working for those businesses. Sure, they’ll probably say that, when the time comes, they’ll act in good faith and only apply their rights in extreme cases. But that’s of small comfort, because there’s absolutely nothing forcing them. And in fact, when the time did come in early 2022, banks reportedly froze hundreds of accounts on deeply questionable grounds.

TD Canada Trust

We’ll begin with the agreement document you’re expected to sign for TD. Here are some excerpts (emphasis mine):

For example, we may restrict Account activity or use of any Services, or close your Account, for any of the following reasons:

• We believe that your Account has suspicious, improper, illegal, possible fraudulent, or unauthorized activity.

• We believe you have engaged in suspicious, improper, illegal, possible fraudulent, or unauthorized activity.

• You breach these Terms or any other terms and conditions related to the Account or any Services.

• Your Account operates in a way that we find unsatisfactory or contrary to our policies.

• We reasonably believe that we must do so to protect our employees and/or customers from physical harm, harassment, or other abuse.

So TD can “restrict account activity” - meaning: they could shut your account down and prevent you from accessing your money - based on the feeling (“we find…”) that you’ve behaved badly (“improper…unsatisfactory”).

And while no reasonable person would justify actual harassment of a bank employee, the word itself is far too vague for a legal document. After all, it could be reinterpreted to include a wide range of acceptable - if mildly annoying - behaviour.

Bank of Montreal

Here’s how your rights appear in the eyes of BMO’s lawyers:

We may close your account, or refuse to release funds in your account without notice to you, including, without limitation, if required by law or at our sole discretion if at any time you commit, or we suspect you may have committed, fraud or other illegal act, we determine that you pose an unacceptable level of legal, reputational or other risk to the Bank, you violate the terms of any applicable agreements, you use the account for any improper or unlawful purposes, there is suspicious activity in the account, or you operate the account in any unsatisfactory manner.

Just like TD, BMO reserves the right to decide that you’ve been an unsatisfactory or improper citizen and, as a result, impose arbitrary punishment.

Canadian Imperial Bank of Commerce

I’m sure you’re already seeing the pattern here:

We may suspend, freeze, block or terminate your right to use your account, without notice even if you are not in default of this Agreement or we have never done so in the past, if:

• you operate the account in an unsatisfactory manner or contrary to our policies;

• you violate the terms of any agreement applicable to the account or any related service; or

• we choose to.

That last one is a classic. To justify shutting you out of your own accounts, they only have to claim that they “chose to”. But there’s more:

you release us from all claims, including claims for negligence, in connection with the account. This release does not apply to claims for gross negligence or willful misconduct or intentional fault by us, in which case our liability will be limited to the lesser of:

• the amount of the debit or charge to the account; or

• the direct damages you suffer. We will not be liable for any indirect, special or consequential damages.

So as long as the damage the bank caused you wasn’t the result of their willful misconduct or gross negligence, you’ll have to swallow the loss. There’s similar language in the other banks’ agreements, too.

Royal Bank

I wonder whether RBC might not be especially proud of their agreement, as it was nearly impossible to find on their website. In fact, I couldn’t find an agreement covering all accounts; just one specific to their “NOMI Find & Save” account.

At any rate, here are the now-familiar fun bits:

We may suspend, freeze, restrict access to, restrain, block or terminate your right to use your NOMI Find & Save Account or any services related to your NOMI Find & Save Account, without notice and at our sole discretion, even if you are not in default of this Agreement if:

• there is unusual, improper or suspicious activity;

• you operate the NOMI Find & Save Account in an unsatisfactory manner or contrary to our policies; or

• you violate the terms of any agreement applicable to the NOMI Find & Save Account or any related service.

Scotiabank

Of the Big Five, Scotiabank’s agreement was by far the most customer-friendly. But it wasn’t all rainbows and unicorns:

Account Closure/Terminating a Service

a) Without Notice: We may close your account(s) and/or terminate any of the services we provide to you, without notice to you, in any circumstance in which we consider it reasonable to do so including, without limitation, in the following circumstances:

• if you do not operate your account in a satisfactory manner, for example, if you maintain an overdrawn balance due to NSF cheques or outstanding service charges;

Now, given the context of the rest of the document, I’d be inclined to give Scotiabank the benefit of the doubt here. After all, they did qualify “satisfactory manner” with “NSF cheques…” But it’s still good to be aware of how it could be interpreted.

Credit Unions

By contrast, the few credit unions I researched were, on paper at least, far more friendly. The agreement document for Alterna Savings and Credit Union Limited, for example, was just four pages long, and contained nothing that felt even adversarial.

The Meridian and DUCA credit unions had longer agreements but, besides the occasional appearance of the word “improper”, there was nothing worrying.

Based on this small sample (I looked at only a handful of the more than 300 credit unions across Canada), it seems that credit unions exist within a different corporate culture from the chartered banks and retain a greater connection with the communities they serve. All things being equal, we’d probably be better off giving them our business.

Enforcement

Just because a company includes a particular set of legal conditions in their user agreement doesn’t mean that a court would actually enforce them. Canada’s Supreme Court, for instance, ruled that a clause within Uber’s arbitration agreement requiring disputes to be resolved specifically in the Netherlands was unfair and unreasonable.

But, practically speaking, taking your bank to court - especially without access to your own money - can be insanely complicated and expensive. We’re probably better off sticking with friendlier financial institutions in the first place and avoiding trouble.